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Economics 302: Macroeconomic Analysis
Wesleyan University, Fall 2014
Professor: Bill Craighead
E-mail: [email protected]
Office: PAC 330
Office hours: Mondays, 4:15-5:30 pm; Tuesdays, 1:00-3:00 pm; and by appointment
Class meets Mondays and Wednesdays, 2:40-4:00 pm in PAC 125
Description: Macroeconomics examines the behavior of aggregate economic variables such as national output, the price level, and the unemployment rate. The central topics of macroeconomics are
(i) the growth (or lack thereof) of output and income over time and (ii) the fluctuations in economic
activity known as “business cycles.”
Macroeconomics is a relatively young and constantly changing field. Schools of thought within
the field differ on methodological approaches and policy prescriptions. This course will not present a
set of fixed conclusions about how the economy works. Instead, the focus will be on understanding
the key ideas and models that have driven the progress of macroeconomic theory.
The prerequisites for this course include introductory economics and calculus. Familiarity with
basic microeconomic concepts such as utility and profit maximization will be assumed. Class material will make frequent use of algebra and some calculus (i.e., derivatives).
Operating Procedure:
• Readings: Readings drawn from a variety of sources will illustrate and illuminate macroeconomic concepts and their connections with contemporary and historical events. Articles will
be available through Moodle. In addition, substantial portions of The Elusive Quest for Growth
by William Easterly (MIT Press), How the Economy Works by Roger Farmer (Oxford) and The
Alchemists by Neil Irwin (Penguin) will be assigned.
• Lecture Notes: A comprehensive set of lecture notes will be available through Moodle. These
will function in place of both a textbook and class lectures, allowing more class time to be devoted to examples and discussion. It is recommended to bring printed copies of the lecture notes
to class meetings.
• Exercises: Exercises will be assigned in advance of (nearly) all class meetings. Students may
work together on these. In addition, we will work through exercises in class.
• Participation: Students must come to class prepared to discuss exercises and assigned readings.
Since readings and problems will be assigned for most meetings, students should plan to spend
time preparing in advance of every class.
Examinations and Grading: Grades will be calculated as a weighted average, based on class participation (25%), two in-class midterm exams (20%) each, and a comprehensive final exam (35%).
Midterm exams will not be given late; in the event of a serious illness, family emergency or universitysponsored travel, students may ask, in advance, for permission to take exams early or to have weight
added to the final exam grade in place of the midterm. In the event of a perceived mistake in grading,
a written explanation should be attached to the exam and submitted to Prof. Craighead’s mailbox in
the Economics Department office within 5 business days after the exams are returned to the class. The
final exam is schedule for Thursday, Dec. 11 at 2 pm.
Disability Accommodations: Students requiring disability accommodations should request them
through disability resources (Dean Patey) at the beginning of the semester.
Honor: Trust and honesty are vital to the functioning of an academic community; adherence to the Honor Code
is expected at all times.
Electronic Devices: The use of computers, electronic tablets and cellular phones - including for text
messaging - is not permitted in class.
This syllabus and the course outline are subject to modifications, which will be announced in class.
Economics 302: Macroeconomic Analysis
Wesleyan University
Professor: Bill Craighead
Fall 2014
Course Outline and Reading List
subject to revision
“Easterly” refers to William Easterly, The Elusive Quest for Growth (MIT Press); “Farmer”
refers to Roger Farmer, How the Economy Works (Oxford); “Irwin” refers to Neil Irwin, The
Alchemists (Penguin)
I. Introduction
a. Overview of Macroeconomics
b. Mathematical Tools
c. Macroeconomic Data
– David Pilling (2014), “Has GDP Outgrown its Use?” Financial Times, Jul. 4
– David Leonhardt (2006), “Life Is Better; It Is Not Better. Which Is It?” New York
Times, Sep. 20
– E. Wax-Thibodeaux (2013), “The Government’s Human Price Scanners,” Washington Post, Nov. 11
II. Economic Growth
a. Growth Accounting
– The Economist (2012), “An Incurable Disease,” Sep. 29
– John Maynard Keynes (1930), “Economic Possibilities for Our Grandchildren,”
reprinted in Essays in Persuasion (Norton, 1963)
– Robert Frank (2008), “The More We Make, the Better We Want,” New York Times,
Sep. 28
– Paul David (1990), “The Dynamo and the Computer: An Historical Perspective
on the Modern Productivity Paradox,” American Economic Review 80(2): 355-361
– Robert Gordon (2012), “Is US Economic Growth Over? Faltering Innovation
Confronts the Six Headwinds,” NBER Working Paper 18315, Aug.
– Ben Bernanke (2013), “Economic Prospects for the Long Run,” Speech, May 18
b. Solow Growth Model
– Easterly, ch. 3
c. Convergence
d. Human Capital
– Easterly, ch. 4
e. Endogenous Growth
– Ricardo Hausmann (2013), “The Tacit Knowledge Economy,” Project Syndicate,
Oct. 30
f. Institutions and Growth
– Easterly, chs. 11 & 12
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– Mancur Olson (1996), “Big Bills Left on the Sidewalk,” Journal of Economic Perspectives 10(2): 3-24
III. Economic Fluctuations
a. Classical Economics and the Great Depression
– John Maynard Keynes (1936), The General Theory of Employment, Interest and
Money, chs. 3 & 3.3
– Farmer, ch. 2
b. “Textbook” Keynesian Model
– Farmer, ch. 3
– Mary Daly, Bart Hobijn and Brian Lucking (2012), “Why Has Wage Growth
Stayed Strong?” FRBSF Economic Letter, Apr. 2
– Milton Friedman (1997), “John Maynard Keynes,” Federal Reserve Bank of Richmond Economic Quarterly, Spring
– Bruce Bartlett (2009), “Keynes Was Really a Conservative,” Forbes.com, Aug. 14
– The Economist (1946), “John Maynard Keynes”
c. The Phillips Curve and the Natural Rate Hypothesis
– Farmer, ch. 4
d. Rethinking the Consumption Function
i. Permanent Income Hypothesis
ii. Ricardian Equivalence
iii. Random Walk Hypothesis
e. Expectations and the Lucas Critique
– Farmer, ch. 5
– Nobel Prize Announcement for Robert Lucas (1995)
– Bennett McCallum (1980), “The Significance of Rational Expectations Theory,”
Challenge, Jan.-Feb.
– Kartik Athreya (2007), “In Praise of Theory,” Federal Reserve Bank of Richmond
Region Focus, Spring
f. Real Business Cycle Theory
– Charles I. Plosser (1989), “Understanding Real Business Cycles,” Journal of Economic Perspectives 3(3): 51-77
– Lawrence H. Summers (1986), “Some Skeptical Observations on Real Business
Cycle Theory,” Federal Reserve Bank of Minneapolis Economic Quarterly, Spring
g. New Keynesian Macroeconomics
– K. Sill (2011), “Inflation Dynamics and the New Keynesian Phillips Curve,” Federal Reserve Bank of Philadelphia Business Review, Q1
IV. Monetary Policy
a. Money, Banking and the Lender of Last Resort
– Irwin, chs. 1-4, 10 & 11
b. Monetary Policy, Rules and Credibility
– Charles I. Plosser (2007), “Credibility and Commitment,” Speech, Mar. 6
– Nobel Prize Information for Finn Kydland and Edward Prescott (2004)
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c. The Zero Lower Bound, Liquidity Traps and Deflation
– Ben Bernanke (2002), “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Speech,
Nov. 21
– The Economist (2009), “Out of Keynes’ Shadow,” Feb. 12
– Irwin, chs. 5, 15 & 18
V. Open-Economy Macroeconomics
a. The Balance of Payments
– Warren Buffett and Carol Loomis (2003), “America’s Growing Trade Deficit is
Selling the Nation Out from Under Us,” Fortune, Nov. 10
– Ricardo Hausmann and Federico Sturzenegger (2006), “Why the US Current
Account Deficit is Sustainable,” International Finance 9(2): 223-240
b. Exchange Rates
– James Fallows (2008), “The $1.4 Trillion Question,” Atlantic Monthly, Jan.-Feb.
– Robert E. Rubin (2004), “The First Crisis of the 21st Century,” ch. 1 of In an
Uncertain World (Random House)
– Michael Pakko and Patricia Pollard (2003), “Burgernomics: A Big Mac Guide
to Purchasing Power Parity,” St. Louis Fed Economic Review, Nov.-Dec.
– The Economist (2011), “Beefed-Up Burgernomics,” Jun. 30
c. The Euro and its Crisis
– Martin Feldstein (1997), “The Political Economy of the European Economic and
Monetary Union: Political Sources of an Economic Liability,” Journal of Economic Perspectives 11(4): 23-42
– Alan M. Taylor and Kevin O’Rourke (2013), “Cross of Euros,” Journal of Economic Perspectives 27(3): 167-192
– Irwin, chs. 6, 13, 16 & 19
VI. Conclusion
– N. Gregory Mankiw (2006), “The Macroeconomist as Scientist and Engineer,” Journal of Economic Perspectives 20(4): 29-46
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