Download ec 134 spr 95 reading list

PRINCIPLES OF MACROECONOMICS
EC 134
Spring 2002
Instructor:
Office Hours:
D. Findlay
MWF: 12:00-12:50 and 2:00-2:50
Office: ML 239
Extension: 3153
Description: The purpose of this course is to introduce you to the major issues and models of macroeconomics. We
will begin with a basic understanding of the components of Gross Domestic Product and the measurement of
macroeconomic variables. We will then gradually progress to the study of more complex macroeconomic
relationships and models. Issues to be discussed will range from the macroeconomic effects of budget deficits (and
surpluses) to the policy dilemma created by higher oil prices. This course will emphasize the application of concepts
and models to a variety of situations. While for some of you this will be your first and (unfortunately!) last course in
macroeconomics, the issues to be discussed (e.g. the short-run trade-off between inflation and unemployment) will
remain important and relevant years after the course's completion. Furthermore, it is the ability to understand these
macroeconomic issues which allows individuals to evaluate and to comment on the actions of their political leaders
and policy makers.
Texts: The required text is Principles of Macroeconomics (2002), Sixth Edition, by Case and Fair (hereafter CF). A
number of additional readings have been placed on reserve in Miller Library (either hard copies or electronic links to
the articles). I expect you to read the assigned chapters and articles before class. If you ever have problems
obtaining a copy of an article, please contact me as soon as possible. An optional study guide which accompanies
CF is also available at the Bookstore.
Grading: Your grade will be determined by several quizzes (3 or 4), two semester examinations, a final exam, and
assigned problem sets. The first and second exams are worth 25% each; the final exam is worth 25%; the quizzes are
worth a total of 10%; and the problem sets represent the final 15% of your grade. The first quiz is scheduled for
Monday, February 25 from 4:00-4:40. The first exam will cover material through section III. A. of the course
outline and is scheduled for Thursday, March 14 from 4:00-5:30. The second exam is scheduled for Monday, April
15 from 4:30-6:00. Please make note of these key dates and times.
Attendance Policy: I do not 'take' attendance in any of my classes. However, students are expected to attend all
classes and scheduled course events during the semester and are responsible for any work missed. Unexcused
absences from either a quiz or an exam will result in a 0 for that assignment. Late problem sets will NOT be
accepted. Obviously, excuses may be granted for the following reasons: critical emergencies (normally verified by
the Dean of Students Office), athletic or organizational trips, or illness (normally verified by the College Health
Center).
Old Exams: I have placed copies of past exams and quizzes on reserve in Miller Library (Folder: Personal A15).
Use this material to provide yourself with information about the types of questions asked in this course.
E-mail policy: I have quickly discovered that e-mail is an inefficient method to dealing with questions about course
material. Therefore, if you have questions about the material, you can ask them during class, after class, during my
office hours, or at some other arranged time.
Ec 134, Macroeconomics Principles - 2
Grading Philosophy: Grades in the A range reflect outstanding performance in the course. Students who receive
some type of A can answer virtually any type of question about the material. Most importantly, such a grade reflects
an ability to apply the material to answer a variety of questions. Grades in the B range reflect a solid understanding
of the material. Students who receive some type of B completely understand the basic concepts presented and have
some success in applying the material. Grades in the C range reflect an understanding of what has been presented
and discussed in class. A grade in the C range also indicates that the student has difficulty in applying the material to
examine new situations, events and policies. As an aside, I view a grade in the C range as a 'decent' grade. Grades in
the D range reflect a weak understanding of the basic material. A grade of F reflects little understanding of what has
been discussed in class. This description of grades, by the way, is similar to that found on the official Colby
transcript (i.e., A = Excellent, B = Good, C = Satisfactory, D = Passed, and F = Failed).
Teaching Assistants: The teaching assistants for this course are Ali Culpen and Katrina Noyes. If you have any
questions about graded problem sets, you are to direct them to me.
Comments/Suggestions: Success in this course depends on your ability to explain and to apply the concepts
presented in class. Specifically, you must be able to explain intuitively the underlying factors that determine the
economic relationships included in the models. Simply "memorizing" the material is most likely an inefficient
allocation of your time. You should, therefore, read the material carefully (and several times!) and constantly review
your lecture notes.
I have several other suggestions for you. First, when examples are presented in class, make sure you can explain the
opposite example (e.g. the output effects of a reduction versus increase in the money supply). Second, you should
constantly ask yourself the following types of questions during the semester. What does this curve represent? Why
does it have its particular shape? What causes the curve to shift? What causes the curve's shape/slope to change? If
you can answer all of these questions, you not only will completely understand the mechanics of the model, but also
will be able to examine the implications of the model. And finally, the presentation of the material in this course
relies heavily on the use of graphs and on an understanding of basic high school math (i.e., algebra). Very early in
the semester, you should review the material on pp. 18-23 of the text. I will also review in class the basic analytical
concepts that will be used. If you ever have questions about the assigned readings or material presented in class,
please do not hesitate to raise them in class or with me during office hours.
I strongly encourage you to work with fellow students since tremendous benefits can be obtained by working with
others. All work submitted to me, however, must be your own. You should become familiar with the College's
policy on academic dishonesty. Any instance of academic dishonesty in this course will result in a grade of F for the
course.
My office hours are listed above. If you are unable to meet me at those times, we can arrange to meet at some other
time. In addition to the office hours, I have an open-door policy (i.e., if I am in the office, I am available to meet with
you). If you are unable to contact me, you can contact Dianne Labreck, the Economics Department Secretary, (Ext
3564). Finally, if additional meetings are necessary, these classes will be scheduled for Sunday afternoons or
evenings and you will be given a one-week notice of these meetings. Note: There will be no class on Friday, March
22.
Ec 134, Macroeconomics Principles - 3
COURSE OUTLINE AND READING LIST
SECTION 1
INTRODUCTION TO MACROECONOMICS
In this section, we will first examine the distinction between macroeconomics and microeconomics. We will also
examine the basic tools of microeconomics that are required to study macroeconomic issues. After we have
examined these micro tools, we will focus on the definition, measurement, and uses of macroeconomic variables. In
particular, we will study the measurement of output, the national income accounts (i.e., the relationship between
income and expenditures), price indexes, the unemployment rate, and the labor force.
I.
BASIC ECONOMIC ISSUES
A. Economic Problems, Decisions, and Constraints
1. Ch. 1 and appendix in CF
2. Ch. 2 in CF
B. Market Analysis
1. Ch. 3 in CF
2. Ch. 4, pp. 75-82 in CF
II.
INTRODUCTION TO MACROECONOMICS
A. Overview
1. Ch. 5 in CF
2. W. Mears, "Economic Advisers Stick to Basics," Maine Sunday Telegram, 3/31/91. [2190]
B. Measurements of Macroeconomic Activity
1. Ch. 6 and 7 in CF
2. G. Becker, "Housework: The Missing Piece of the Economic Pie," Business Week, 10/16/95. [2190]
3. R. Lowenstein, "New Recipe for the GDP Leaves Sour Taste," The Wall Street Journal, 12/21/95.
[2190]
4. J. Schlesinger, "U.S. to Alter Calculations, Increasing Economic Growth, Productivity Levels," The
Wall Street Journal, 9/8/99. [2190]
5. N. Kulish, "What's a Recession? Two Negative Quarters? Not Really," The Wall Street Journal, 1/10/01.
[2190]
6. K. Madigan, "How Reliable is the Consumer Price Index?," Business Week, 4/29/91. [2190]
7. J. Berry, "Where Do You Draw the Bottom Line?," The Washington Post National Weekly Edition,
2/20-26/95. [2190]
8. B. Motley, "Bias in the CPI: 'Roughly Right or Precisely Wrong'," Economic Letter, Federal Reserve
Bank of San Francisco, Number 1997-16, May 23, 1997. *
9. D. Wessel, "Money Inflates Debate About Altering CPI," The Wall Street Journal, 10/2/95. [2190]
10. J. Madrick, "How Much Does One Really Know about the Real Rate of Inflation," The New York
Times, 12/27/01. [21]
11. A. Karr, "Data Mask Slump's Injury to Work Force," The Wall Street Journal, 1/26/91. [2190]
12. R. Valletta, "Measuring Available and Underutilized Labor Resources," Economic Letter, Federal
Reserve Bank of San Francisco, Number 2000-06, March 3, 2000. *
Ec 134, Macroeconomics Principles - 4
13. Finance and Economics, "Counting the Jobless," The Economist, 7/22/95. [2190]
14. J. Eig, "Shrinking Week: Do Part-Time Workers Hold Key to When The Recession Breaks?," The
Wall Street Journal, 1/3/02. [21]
15. G. Remal, "State Cutbacks Erase Family's Income," Kennebec Journal, 1/12/96. [2190]
16. K. Dunham and G. Ip, "Work Shift: Weak Economy Takes Unusually Heavy Toll on White-Collar
Jobs," The Wall Street Journal, 11/5/01. [21]
17. W. Poole, "Recession Fears May be Overstated," The Regional Economist, Federal Reserve Bank of
St. Louis, April 2001. *
18. R. Shiller, "A Recession Unlike Any Other," The Wall Street Journal, 11/27/01. [21]
19. R. Hall, et al, "The Business Cycle Peak of March 2001," NBER Reporter, Fall 2001, pp. 1-6. *
20. M. Porter, "How to Profit From a Downturn," The Wall Street Journal, 11/12/01. [21]
21. A. Malabre, "Stocks as an Indicator: Good Record - Usually," The Wall Street Journal, 4/7/86. [2190]
SECTION 2
THE DETERMINATION OF OUTPUT IN A FIXED PRICE MODEL:
SHORT-RUN ANALYSIS
In this section, we will begin with the development of the first model of the aggregate economy. In this fixed-price,
fixed-interest rate model, we will emphasize the role that the demand for goods and services plays in determining the
equilibrium level of economic activity. The ability of fiscal policy (i.e., changes in government expenditures and/or
taxes) to affect the economy will also be examined.
We will then introduce money and asset markets to the model; a brief introduction to bond market analysis will be
included here. We will first define money, then discuss why individuals demand this asset, and finally study what
factors influence the quantity of money in the economy (e.g. the banking system and Federal Reserve policy). In this
short-run model, we will examine how monetary policy (i.e., changes in both the money supply and interest rates)
affects economic activity. We will also re-examine the effectiveness of fiscal policy.
III.
THE DETERMINATION OF OUTPUT IN A FIXED PRICE MODEL
A. Aggregate Expenditure, Equilibrium Output, and Fiscal Policy
1. Ch. 8 and appendix in CF
2. Ch. 16, pp. 330-337 in CF
3. Ch. 9 in CF
4. Appendix A to Ch. 9 in CF
5. Appendix B to Ch. 9 in CF
6. Ch. 15, pp. 311-312 in CF
7. Ch. 15, pp. 313-314 in CF
8. Ch. 20, pp. 410-413 in CF
9. Ch. 15, pp. 301-303 in CF
10. N. Kulish, "Business Inventories Rose for November, Possibly Adding Evidence of Slowdown," The
Wall Street Journal, 1/17/01. [2190]
11. B. Wysocki, "Pessimism Tends to Hit Capital Spending," The Wall Street Journal, 10/26/98. [2190]
12. G. Ip, R. Simison, and J. Schlesinger, "Glut Check: Did Corporate America Go a Little Overboard with
Capital Spending?," The Wall Street Journal, 12/4/00. [2190]
13. J. Lublin, "Businesses Delay Projects in Wake of Terror Attacks," The Wall Street Journal, 11/13/01.
[21]
14. G. Ip, "Vital Signs: A Few Economic Clues Should Show When Recession is Ending," The Wall Street
Journal, 1/4/02. [21]
15. W. Liesman, "Consumer Mood Swings to Angst," The Wall Street Journal, 12/22/00. [2190]
16. G. White, "Main Street Mentality Boosts Auto Sales," The Wall Street Journal, 11/2/98. [2190]
Ec 134, Macroeconomics Principles - 5
17. C. Whalen, "Putting a Human Face on Economics," Business Week, July 31, 2000. [2190]
18. S. Liesman, "Various Theories Seek to Link Consumption with Market Activity," The Wall Street
Journal, 10/30/00. [2190]
19. J. McKinnon, "Surplus Forecast Rises, as Does Debate," The Wall Street Journal, 1/26/00. [2190]
20. A. Murray, "Obstacle to Recovery: States' Fiscal Squeeze," The Wall Street Journal, 6/17/91. [2190]
21. A. Bennett and C. Georges, "Balanced-Budget Proposal Challenged By Many Economists," The Wall
Street Journal, 1/6/95. [2190]
22. J. Katz, "When the Economy Goes South: What Happens in a Recession?," Regional Review, Federal
Reserve Bank of Boston, Vol. 9, No. 1, Q3 1999, pp. 24-32. *
23. S. Liesman, C. Rhoads, and R. Frank, "The Global Slowdown Surprises Economists and Many
Companies," The Wall Street Journal, 12/21/00. [2190]
B. Money, Banking and Monetary Policy
1. Appendix A to Ch. 11, pp. 233-234 in CF
2. F. Mishkin, Chapter 6, "The Behavior of Interest Rates," in The Economics of Money, Banking and
Financial Markets, 1997, Addison Wesley, pp. 104-118. [2191]
3. M. Phillips, "Foreigners' Share of Treasurys is Growing," The Wall Street Journal, 12/20/99. [2190]
4. Ch. 10 in CF
5. F. Mishkin, Chapter 17, "Determinants of the Money Supply," in The Economics of Money, Banking
and Financial Markets, 1997, Addison Wesley, pp. 435-442. [2191]
6. A. Higgins, "Twilight Economy: Lacking Money to Pay, Russian Firms Survive on Deft Barter System,"
The Wall Street Journal, 8/27/98. [2190]
7. A. Bodipo-Memba, "Fed Orders $50 Billion in Extra Currency in Case of Year 2000 run on Banks,
ATMs," The Wall Street Journal, 11/20/98. [2190]
8. J. McKinnon, "Money Supply Soars as Y2K Approaches," The Wall Street Journal, 12/17/99. [2190]
9. L. Clark, "The Federal Reserve may be hiring outside the law," The Wall Street Journal, 7/22/86.
[2190]
10. Ch. 11 in CF
11. C. Duff, "Rubin Hears Refrain: Show me the (Old) Money as Americans Register Dislike of New $20
Bill," The Wall Street Journal, 4/5/99. [2190]
12. "U.S. Monetary Policy: An Introduction," Weekly Letter, Federal Reserve Bank of San Francisco,
Number 99-01, January 1, 1999.*
13. R. Wirtz, "The Zen of Greenspan," The Region, Federal Reserve Bank of Minneapolis, December
1999. *
14. K. Madigan, "Greenspan for Greenhorns: How to decode the moves of the Fed and its chairman,"
Business Week, February 7, 2000. [2190]
15. D. Fettig, A. Rolnick, and D. Runkle, "The Federal Reserve's Beige Book: A better mirror than crystal
ball," The Region, Federal Reserve Bank of Minneapolis, March 1999. *
16. R. Parry, "The U.S. Economy After September 11," Economic Letter, Federal Reserve Bank of San
Francisco, Number 2001-35, December 7, 2001. *
C. Interest Rates, Output and Macroeconomic Policy
1. Ch. 12 in CF
2. Ch. 15, pp. 306-310 in CF
3. G. Mankiw, "Wrong Time for Tax Cuts," The Wall Street Journal, 10/31/91. [2190]
4. C. Neely, "The Federal Reserve's Response to the September 11 Attacks," The Regional Economist,
Federal Reserve Bank of St. Louis, January 2002, pp. 12-13. *
5. D. Wessel, "Just Call it Irrational Exuberance: Cartoonists Warm to Fed's Chief," The Wall Street
Journal, 12/31/98. [2190]
6. J. Schlesinger, "That Amazing Alan Greenspan: Moving Furniture, Moving Markets," The Wall Street
Journal, 11/5/98. [2190]
7. D. Wessel and J. Connor, "Treasury May Buy Back Debt with Idle Cash," The Wall Street Journal,
1/11/99. [2190]
Ec 134, Macroeconomics Principles - 6
8. M. Friedman, "The 1990s' Boom Went Bust. What's Next?," The Wall Street Journal, 1/22/02.
[Personal Folder: A15]
SECTION 3
FLEXIBLE PRICES AND THE MACROECONOMY:
INTERMEDIATE-RUN AND LONG-RUN ANALYSIS
In this section, we will introduce the supply side factors to the model. To do this, we will need to consider those
factors which influence firms' decisions to produce goods and services. Our attention, therefore, will turn to the
labor market. Particular emphasis will be placed on the determination of wages, prices and, subsequently, output.
The factors which affect both aggregate prices (and inflation) and output will now be examined. In this flexible price
model, we will re-examine the short-run and long-run effectiveness of monetary and fiscal policy. And finally, we
will examine what factors determine output over longer periods of time.
IV.
FLEXIBLE PRICES AND THE MACROECONOMY
A. Output and Aggregate Prices
1. Ch. 13 in CF
2. F. Mishkin, Chapter 24, "Aggregate Demand and Aggregate Supply Analysis," in The Economics of
Money, Banking and Financial Markets, 1997, Addison Wesley, pp. 603-624. [2191]
3. Ch. 14, pp. 287-298 in CF
4. Ch. 15, pp. 304-306 in CF
5. Ch. 18 in CF
6. L. Clark, "Entering the Wage-Price Spiral," The Wall Street Journal, 7/8/94. [2190]
7. B. Wysocki, "The Mixed Blessings of Low Unemployment," The Wall Street Journal, 3/22/99. [2190]
8. W. Poole and H. Wall, "Price Stability and the Rising Tide: How Low Inflation Lifts All Ships," The
Regional Economist, Federal Reserve Bank of St. Louis, January 2000. *
9. D. Wessel, "Beware: Low Inflation Isn't All Good News," The Wall Street Journal, 12/92. [2190]
10. B. Trehan, "Lessons from the oil shocks of the 1970's," Weekly Letter, Federal Reserve Bank of San
Francisco, 11/9/90. [2190]
11. S. Liesman and J. Schlesinger, "The Price of Oil Has Doubled This Year: So, Where's the Recession?,"
The Wall Street Journal, 12/15/99. [2190]
12. C. Rhoads and G. Sims, "G-7 Sees 'Cloud' in Oil-Price Shock," The Wall Street Journal, 9/25/00.
[2190]
13. P. Coy, D. Fairlamb, M. Arndt, J. Green, R. Miller, A. Barrett, and J. Oleck, "Revenge of the Old
Economy," Business Week, September 25, 2000. [2190]
14. R. Miller, "The 70's Specter That's Haunting Greenspan," Business Week, 7/31/00. [21]
15. J. Hilsnerath and R. Rundle, "Will Economy Feel California's Tremors?," The Wall Street Journal,
1/8/01. [2190]
16. L. Cohn, "The Farmer's Almanac and the Fed," Business Week, 5/17/99. [2190]
17. G. Ip, N. Kulish, and J. Schlesinger, "New Model: This Economic Slump Is Shaping Up to Be A
Different Downturn," The Wall Street Journal, 1/5/01. [2190]
18. J. Hilsenrath, "An After-Bubble Baedeker: How to be Really Cool as the Economy Chills," The Wall
Street Journal, 1/10/01. [2190]
19. D. Wessel, "The Price is Wrong, and Economists are in an Uproar," The Wall Street Journal, 1/2/91.
[2190]
20. R. Barro, "Keep Political Hands Off the Fed," The Wall Street Journal, 8/26/92. [2190]
21. A. Blinder, "Paul Volcker was the Babe Ruth of Central Banking," Business Week, 6/29/87. [2190]
22. D. Mitchell, "Supply-Side 'Alchemy' at Work," The Wall Street Journal, 1/17/96. [2190]
Ec 134, Macroeconomics Principles - 7
23. R. Parry, "Low Inflation and Central Bank Independence," Weekly Letter, Federal Reserve Bank of
San Francisco, Number 92-26, July 17, 1992. [2190]
24. J. Schlesinger and P. Landers, "Parallel Woes: Is the U.S. Economy At Risk of Emulating Japan's Long
Swoon?," The Wall Street Journal, 11/7/01. [21]
B. Determinants of Economic Growth
1. Ch. 17 in CF
2. B. Wysocki, "Low U.S. Savings: How Big a Problem?," The Wall Street Journal, 12/21/98. [2190]
3. R. Miller, A. Reinhardt, W. Zellner, S. Forest, and S. Rosenbush, "Still Pumped Up," Business Week,
November 13, 2000. [2190]
4. C. Cornwell and B. Trehan, "Information Technology and Productivity," Economic Letter, Federal
Reserve Bank of San Francisco, Number 2000-34, November 10, 2000. *
5. C. Whalen, "Today's Hottest Economist Died 50 Years Ago," Business Week, December 11, 2000.
[2190]
6. D. Wessel, "Capital: A Green(span) Light For Productivity," The Wall Street Journal, 11/8/01. [21]
7. D. Wessel, "The Long Run Arrives Early, The Wall Street Journal, 8/2/99. [21]
8. J. Kaufman, "Technology and Time for the Poor," The Wall Street Journal, 8/16/01. [21]
9. H. Varian, "For Too Many, Social Security Is Main Retirement Plan," The New York Times, 12/20/01.
[21]
Note: Those articles followed by a number in brackets are on reserve in Miller Library; the number represents the
call number at the reserve desk. The order of the articles in the folder is similar to that found in the reading list.
Those articles followed by an asterisk (*) can be accessed electronically via this course's reserve reading list. The
link to the on-line version of each of these articles is included in the list of reserve readings on the library's web site.