MACROCAT INTERMEDIATE
MACROECONOMICS
Purpose and Scope of the Course: Guided by the readings and other materials available through the course web site, the lectures will develop the analytical tools needed to deal with such issues as unemployment, inflation, business cycles, and economic growth. An effort will be made to strike a balance between acquiring technical skills and achieving economic understanding. After completing the course, students should have a solid grasp of the several competing macroeconomic frameworks and their significance for public debate and policy prescription. They should also be able to identify the many misconceptions and fallacies in the following passage, which was penned in 1934 by a Albert Einstein:
 Synopsis
and Stocktaking: The course
begins
with the ideas that existed prior to the publication of John Maynard
Keynes's General Theory of Employment, Interest, and Money
(1936)
and traces the macroeconomics that has evolved out of the Keynesian
Revolution. Classical economics, which dates from Adam Smith's Wealth of Nations (1776), reflects the summary judgment that markets work––implying a policy recommendation of laissez faire. It is this judgment that Keynes called into question and that lies at the root of modern debate. Is there a market mechanism that coordinates economic activities over time? More pointedly, does saving get translated into investment? The Austrian economists, particularly F. A. Hayek, focused attention on the rate of interest and showed how intertemporal coordination is (or, at least, can possibly be) achieved in a market economy. Keynes rejected the classical and Austrian views and made the summary judgment that the saving-cum-investment nexus of the market economy is failure-prone. The perceived absence of vital market mechanisms caused him to recommend policy activism as an alternative means of securing full employment.  
The simplest Keynesian model (Y = C + I + G)* ignores both
interest-rate
and price-level considerations; the extended models (ISLM** and
AggS/AggD***)
incorporate interest-rate effects (ISLM) and both interest-rate and
price-level
effects (AggS/AggD). All the Keynesian constructions reflect the notion
that
some markets (for goods, for labor, and/or for loanable funds) fail to
work––or work perversely or
work
too sluggishly––to maintain full
employment. A quarter of a century after the publication of Keynes's General Theory, a trumped-up classical model was introduced into macroeconomic textbooks by Gardner Ackley. This model, which no known classical economist ever endorsed, either ignores the saving-cum-investment coordination mechanism or fails to integrate that mechanism into the classical framework. But the relevance and plausibility of this model rests on the summary judgment that the market has no problem in translating saving into investment. Although Milton Friedman launched a significant counter-revolution against Keynesian thinking during the third quarter of the twentieth century by reviving some classical views about the role of money in a market economy, Keynesian policies in one from or another have been––and continue to be––the order of the day in the United States and in developed economies throughout the world. 
In addition to
Classicism, Keynesianism, Monetarism, and Austrianism, other schools of
thought–– New Classicism (Robert
Lucas), Real Business Cycle Theory
(Edward
Prescott) and New Keynesianism (Gregory Mankiw)––will be considered. By
the end of the term, the student should have a good understanding of
the
core of ideas that unite the various schools of thought as well as the
major issues that separate them.
**In ISLM analysis, equilibrium is achieved when Investment (I) equals Saving (S) and the Demand for Money (L) equals the Supply of Money (M). ***In AggS/AggD analysis, equilibrium is achieved when Aggregate Supply equals Aggregate Demand, where AggS and AggD are each conceived as a relationship between income (Y) and the price level (P). The logical integrety of this construction is threatened by tha fact that the two P-Y relationships (underlying AggD and AggS) are based on different–and conflicting–assumptions about the way a market economy functions. Organization and Exam
Schedule:
The course is divided into three lecture series as shown in
the
table below. Additional readings and other material may be added as
appropriate.
The subject matter covered in class will
parallel
the posted readings, but in some instances the lectures will go beyond
the readings. The analytics of macroeconomic phenomena will
be
the primary focus of the lectures. The Readings, Handouts, PowerPoint
files,
Study Problems, and Links available through this web site should be
helpful. The Readings
reinforce
and elaborate upon the ideas presented in class.The Handouts
summerize some of the key concepts discussed in class and give the
students
a preview of test material. The PowerPoint
files are the ones shown in class and are made available here for
reinforcement
and review. The Links are intended to
anchor
class material to some of the institutions, policy actions, and
macroeconomic
data being discussed. Class Attendance:
Students are required to attend all class meetings and to arrive before
the lecture begins. (Late-arriving students create a distraction for
other
students and for the instructor.) The students will be
required to sign an attendance roster each day. A harsh penalty will be
imposed on any student who signs the attendance roster for another
student:
The signer and possibly the signee will forfeit all attendance
points. Examinations: There will
be two fifty-minute exams (scheduled for September 22 and October 27)
and a
comprehensive final exam as scheduled by the university (December
10). The
exams will be of mixed format, with some question requiring a short
answer,
some requiring a graphical and/or algebraic answer, and some
fill-in-the-blanks and multiple-choice questions. The wearing of caps,
hats, bonnets, sombreros, motorcycle helmets, ski masks or other
headgear is not
allowed during the exam. Make-ups: Students will not be permitted to take the exams early or late. Should it become necessary for a student to miss an exam, he or she should notify the instructor in advance of the exam date. Students with excused absences will be required to take a make-up exam as arranged by the professor. Grading System: One-fourth of your course grade is based on attendance. Each student begins the course with 100 attendance points. Then, beginning with the second week of class (i.e., beginning on Monday, August 25), he or she loses two points for each unexcused absence. Late-arriving students can be counted as absent at the discretion of the professor. Course grades will be based on the four equally-weighted numerical scores (for attendance, for each of the two fifty-minute exams, and for the comprehensive final exam). Hence, if a student has five unexcused absences (for an attendance score of 90) and has exam scores of 73, 76, and 85, his or her course average would be (90 + 73 + 72 + 85)/4 = 80. Letter grades for the course will be determined by applying a 10-point scale to the student's course average. That is, 90 and above is an A; 80 to 89 is a B; 70 to 79 is a C; 60 to 69 is a D. Lecture Series I-----------------------------------------------------------------------------------------------------------------------------------------------
Roger W.
Garrison, Time
and
Money: The Macroeconomics of Capital Structure, London:
Routledge,
2001
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Only
a fraction of the available human labor in the world is now needed for
the production of the total amount of consumption goods necessary to
life.
Under a complete 