ECON 303 Intermediate Macroeconomics Instructor : Bernard Malamud Office: BEH 502

ECON 303Intermediate Macroeconomics

Instructor: Bernard Malamud–Office: BEH 502

Phone (702) 895 –3294

Fax: 895 – 1354

»Email: [email protected]

Website: www.unlv.edu/faculty/bmalamud

Office hours: MW 11:30 – 12:30 pm, 2:30 – 3:30 pm

and by appointment

Course Objectives

Refresh your command of• Macroeconomic terminology

eco-talk• Macro Facts• Schools of thought

Course Objectives• Master MODELS

– Demand Side Models AD• Multiplier• IS – LM

– Supply Side Models AS• Wage setting – Price setting• Phillips Curve

– Role of Expectations … in theory and in practice– Stabilizing an Unstable Economy

• Understanding the financial crisis and Slump

• Revolution and evolution in macro-thought

– Solow Growth Model

Macro – variables: Real and Nominal• Output … Real GDP… Growth Rate

Employment – Unemployment• Wage level – Price level

Inflation … CPI, GDP Deflator• Interest rates

Macro Time Frames• Short-run … sticky price• Medium-run … price adjusts• Long-run … economic growth

The State of Macro…a la Krugman

Keynes (1936): Y = C + I + G– Economics of effective demand

The “Golden Age” (1946 ~ 1973): Fiscal dominance

Monetarist challenge: G crowded out/M-matters-most– Friedman: Avoid monetary mischief

“Freshwater” dominance: Rat-X/Efficient Markets– Lucas: confusion recession– Prescott: supply shocks intertemporal substitution

recession

“Saltwater” acquiescence: Rat-X with frictions– New Keynesian models/Monetarist policies

Housing bubble: end of the “Great Moderation”– Behavioral finance/return of Keynes?

Macro Facts: Recession and Slump

Macro Facts: Double Dip Recession??

Macro Facts: Unemployment

Natural rate fromCBO based on demographics & changing labor market institutions, e.g., temporary employment.

Macro Facts: Deflation Threat Over???

Macro Facts: Federal Debt

Americans Do Debt

11

Household mortgages

Business debt

Consumer credit

FederalGov’t

Total DebtNon-Financial

Sectors

Macro Facts: Bank Excess Reserves

M1/Monetary Base=M1/(Currency + Reserves)

Macro Facts: Trade Deficit, Goods & Services

Imports

Exports

Major currencies/$

Broad basket of currencies/$

Average annual rates of growth, 1870-1998, world and main regions

  1870 - 1998 1870 - 1913 1913 - 1950 1950 - 1973 1973-1998

World 1.48 1.30 0.91 2.93 1.33

Western Europe

1.74 1.32 0.76 4.08 1.78

Europe1

Western offshoots(b)

1.87 1.81 1.55 2.44 1.94

Japan 2.63 1.48 0.89 8.05 2.34

Asia (excluding Japan)

1.33 0.38 -0.02 2.92 3.54

Latin America 1.41 1.81 1.42 2.52 0.99Eastern Europe 1.22 1.15 1.50 3.49 -1.10

Africa0.88 0.64 1.02 2.07 0.01

Where to Find the Numbers

• http://research.stlouisfed.org/fred2/• www.bls.gov/data/• www.economist.com• www.bea.doc.gov• http://www.gpoaccess.gov/eop/• www.oecd.org

Macroeconomics

The course is divided in three parts: Short -run / Medium-run / Long-run

Short – run (sticky price): IS / LM AD

IS: Y = C + I + G

C = c0 + c1 YD = c0 + c1 (Y - T) I = I0 + b1 Y - b2 i

Y = {spending multiplier} x {autonomous spending}

LM: (M/P)d = (M/P)s

(M/P)d = L(Y,i)Ms = [1/(c + r(1-c))]H= {money multiplier} x {monetary base}

Medium – run (flexible price): AD/AS

IS/LM ADPS/WS AS

PS: P = (1+ μ)(W/A)WS: W= Pe Ae f(u,z)

In medium - run, Pe = P (W/P)WS = (W/P)PS = A / (1+ μ) Natural/Structural/Equilibrium Rate of Unemployment (un )“Full - employment” rate of output (YFE) The Green Shaft

SRAS and MRAS

When AD or AS shift: MR equilibrium SR equilibrium P new MR equilibrium

Long – run (factor supplies change): GrowthSteady state: s(Y/AN) = (δ + gN + gA )(K/AN)

For simple Cobb-Douglas function: Y = Kα (AN)1-α Y/AN = {s/((δ + gN + gA )}α/(1-α)

Golden - rule saving rate = α

Productivity and equilibrium rate of unemployment: Ae = A only in long - run “Natural rate” decreases with unexpected increase in A

Americans Do Debt

19

Household mortgages

Business debt

Consumer credit

FederalGov’t