Econ202A_Lec1 - Economics 202A Lecture #1 Outline (version...

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Economics 202A Lecture #1 Outline (version 2.0) Maurice Obstfeld About This Course much of the discussion of short-term ±uctuations and the business cycle held o/ until Economics 202B in the spring. Thus, we begin by covering various issues in economic growth theory, the basics of consumption and investment theory, the fundamentals asset pricing, and the long-run linkage between money and the price level. We will depart from this long-run emphasis toward the end of the semester consistency problem in monetary policy, banking instability and (if we get that far), labor markets. We start o/by tackling four issues relating to long-term economic growth: 1. The connections among saving, (exogenous) technology improvements, long-run capital intensity, and long-run per capita income, as recounted by the famous model of Solow (1956). 2. The implications of forward-looking consumers (the Cass-Koopmans- Ramsey model). 3. Issues raised by demographics, including the impact of public debt (primarily Diamond 1965). 4. The implications of viewing growth and technological advance as en- dogenous processes, driven by market incentives (for example, P. Romer 1990). Throughout, I will feature mathematical ²detours³to develop tools and solution methods useful in the application at hand, but also essential to further macroeconomic applications. Growth Theory: Some Salient Facts With the Great Depression of the interwar period over, post-World War II economists began to think about how national incomes were determined 1
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over the long term by capital accumulation and technological progress. In this of David Romer²s textbook is required reading for this section of 202A; also, you might glance at Solow²s original article on JSTOR. 1 Throughout our discussion of growth theories we will ask whether they can help us understand the main features of the global economic landscape, so I present some salient facts at the outset. First of all, and most obviously, there are huge di/erences in output per capita among countries. (See the following table.) Are these caused by dif- ferences in factor endowments? In technology? Something else? This is perhaps the most pressing single question in growth theory ³and in devel- opment economics. The time series data on income per capita re±ect that growth rates of per capita income have di/ered widely over time. Growth theory also seeks to understand why this is so. A key questions is whether countries that are relatively poor will tend to grow more quickly than their richer neighbors, which might even allow them eventually to catch up. Countries in East Asia like China and Taiwan may be doing this, and indeed, some have recently ´graduatedµto high-income status. Others (such as many sub-Saharan coun- tries) show no evidence of catch-up: if anything, their relative position has
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This note was uploaded on 02/28/2012 for the course ECON 202A taught by Professor Akerlof during the Fall '07 term at University of California, Berkeley.

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Econ202A_Lec1 - Economics 202A Lecture #1 Outline (version...

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