Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Answers to Second Midterm Exam
1. (33 points) Consider the following macro model:
MV(r) = PY ;
Vr > 0
Y = C[(1- )Y, r) + I(R, r) + G
0 < C(1- )Y < 1; Cr < 0 IR > 0 ; Ir < 0
Y = Y* Fixed
a. De
Syllabus-Fall, 2013
Ec onomic s 18
Quantitative Intermediate Mac roec onomic s
D. Ric hards
Fall, 2013
Course Sylla bus
I. Introduction (W e e k 1)
A. Aggregate Ec onomic Ac tivity : Meas urement and Meaning
B. Three Central Is s ues in Mac roec onomic s
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Fifth Problem Set
1. Suppose that aggregate output (in logs) is described by the following equation:
yt = y* + 1[mt E(mt)] + 2yt-1 + t
where 1 and 2 are positive parameters and t is a random
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Answers to First Problem Set
1. a. Current Account = X M = National Savings Investment = $1451.0 1793.0 = -342.
This would not include the net interest/profit earned on investments abroad (th
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Answers to Second Problem Set
Y = K11/ 3 E 2 3
k
1. a. From we have that output per effective worker Y/E = y = where k =
/
( = ) 2 3 1= k = 4 3 2
41 3k8 32 k30.08333 = 8
K/E. From E = E0e0.0
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Third Problem Set
1. Consider the following IS-LM model:
The Goods Market
The Money Market
Y = C(Y, r) + I(R, r) + G
L(Y, r) = M/P
0 < CY < 1; Cr < 0 IR > 0 ; Ir < 0
LY > 0 ; Lr < 0
Assume th
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Second Problem Set
1. Let aggregate production be described by: Y = K 1 3 E 2 3 . Let E = E0e0.03t. Assume that society
maintains a constant savings rate of s = 0.12, and that there is no dep
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Third Problem Set
1. Consider the following IS-LM model:
The Goods Market
The Money Market
Y = C(Y, r) + I(R, r) + G
L(Y, r) = M/P
0 < CY < 1; Cr < 0 IR > 0 ; Ir < 0
LY > 0 ; Lr < 0
Assume th
Economics 18Lecture 20
I. STANDARD SHORT-RUN DYNAMICS: DISCRETE TIME
A. Aggregate Supply
1. Okuns Law: Ut U* = (Yt Y*)
e
2. Phillips Curve: T = (Ut U*) + t
3. Expectations: e e1 = ( t 1 e1 )
t
t
t
e
Static Expectations: t = t 1 Or = 1
4. Supply Curve:
e
Economics 18Lecture 24
I. INTRODUCTION TO THE NEW KEYNESIAN ECONOMICS
A. Goals
1. A Theory Of Sluggish Wage & Price Adjustment
2. Explanation As To Why Voluntarily Chosen Wage And Price
Behavior Creates Welfare Problems
B. Preview: Sluggish Wage & Price A
Economics 18Lecture 23
I. KEY RESULTS OF THE KEYNESIAN REVOLUTION
A. Aggregate Demand Shocks Affect Output as Well as Prices
1. Aggregate Supply Curve is NOT vertical
2. Wages and Prices are sticky in the Short Run
B. Evidence Consistent the wage-price st
Economics 18Lecture 21
I. CLASSICAL/KEYNESIAN POLICY & POLICY RULE DEBATES
A. THE DEBATE IN LARGER TERMS:
1. Classical, Non-Interventionist PolicyLet The Economy
Respond To Demand (And Supply Shocks) On Its Own
2. Keynesian: Active Stabilization Through D
Economics 18Lecture 22
I. THE EMERGENCE OF THE NEW CLASSICAL MACRO
A. THE POLICY DEBATE BACKGROUND
1. Interventionist/Feedback Policy Rule (Keynesian) versus NonInterventionist Policy Rule (Classical)
2. Choice of Policy Instrument(s)
3. What is the Effec
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
First Problem Set
1. Consider the following data approximates for the U.S. economy in 2009 (data in billions of dollars):
Total Private Savings
2448.0
Federal Savings (NIPA)
-1204.0
State & L
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Fourth Problem Set
1. Consider the following IS-LM model:
The Goods Market
The Money Market
Y = C[(1- )Y, r) + I(R, r) + G
0 < C(1- )Y < 1; Cr < 0 IR > 0 ; Ir < 0
L(Y, r) = M/P
LY > 0 ; Lr <
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Answers to Fourth Problem Set
1. a. Increases in R will shift out the IS and AD curve while decreases in R shift both curves in.
r
LM
IS
IS
IS
b.
P
AD
AD
AD
R
LM
LM
LM
Constant
r target
IS
IS
The Solow Growth Model
Assume Cobb-Douglas: Y = KaL(1-a)
Population
Growth
Period Rate = n
[Depreciation = 0]
Labor
Force
Capital
Stock
Capital's
Share
Real
Output
Savings
Rate = s
Gross
Investment
Capital
Labor
Ratio
Output Consumption Real
Labor
per Lab
Handout # 4 Introduction to (Neo)Keynesian Economics
4.1.
The Failure of the Classical Macro Model
4.1.1
Historical Background
In the 1920s, the economy of Great Britain entered a prolonged period of stagnation and
decline. The heavy debt incurred during
Handout # 6 The New Classical Macroeconomics
6.1
Introduction The Failure of the Neo-Keynesian Model
6.1.1
Historical Background
In 1969, the rate of unemployment was 3.4% and the rate of inflation as measured by the
Consumer Price Index was 6.1%. Five ye
Handout # 5 A Keynesian Approach to Wages and Prices
5.1
Introduction
As we emphasized in the last handout, the IS-LM model describes and summarizes the
forces that lie behind aggregate demand. In this respect, there is nothing particularly Keynesian
abou
Handout # 2 Classical Macroeconomics
2. Long-Term Trend in Output
We saw in Chapter 2 that the most dominant feature of the path of output is its long-term
growth trend. Average output in the United States since 1900 has grown at 3.1 percent per
annum. Po
Tobins q
Tobins q is the ratio of the market value of a firm to the replacement
cost of its assets. This statistic can be used to predict investment
spending or to control for a firms current and future profitability in
empirical studies of corporate stru
Didthestimuluswork?Areviewofthe
ninebeststudiesonthesubject
Posted by Dylan Matthews at 02:32 PM ET, 08/24/2011
If you ask the Obama administration, economists are virtually united in
thinking the 2009 stimulus package worked. Im absolutely convinced, an
Handout # 3 The Classical Model in the Short Run
3.1 Introduction
In this handout, we examine the determination of output, prices, and interest rates in the
short run as implied by classical analysis. The basic economic growth model described earlier
may
1.1
Handout # 1 Macroeconomics Basics
Basic Issues in Macroeconomic Analysis
The purpose of this handout is to introduce you to the key issues in macroeconomics which
we will be discussing in this course. In order to do this, we must simultaneously consid
Economics 18
Quantitative Macroeconomics
D. Richards
Fall, 2013
Fifth Problem Set With Answers
1. Suppose that aggregate output (in logs) is described by the following equation:
yt = y* + 1[mt E(mt)] + 2yt-1 + t
where 1 and 2 are positive parameters and t
Economics 18Lecture 18
I. NEO-KEYNESIAN WAGE AND PRICE SETTING
A. MARKUP PRICE-SETTING BEHAVIOR:
PRICES ARE A MARK-UP OVER NORMAL UNIT LABOR COST
1. Pt = (1+)Wt= (1+)Wt
= (1+)Wt
a. CUSTOMER RELATIONSHIPSCOST-BASED PRICING
b. IN LONG RUN, WITH CONSTANT MAR
Economics 18Lecture 17 FALL, 2013
I. KEYNESIAN/CLASSICAL: AGGREGATE DEMAND & SUPPLY
A. CONSIDER THE TWO EQUATIONS OF THE IS-LM MODEL
1. IS: Y = C[(1-)Y, r] + I(R,r) + G
2. LM: L(Y,r) = M/P
B. TOTAL DIFFERENTIATION YIELDS:
1. IS:
2. LM:
[1 CY-T(1 - )]dY (C
ECONOMICS 18LECTURE 1, FALL 2013
I. PRELIMINARIES
A. COURSE MECHANICS
1. PROBLEM SETS AND EXAMS
a. FIVE PROBLEM SETS (UNGRADED)
b. THREE EXAMS
i. TWO MIDTERMS (30 PERCENT EACH)
ii. ONE FINAL (40 PERCENT)
2. ALL EXAMS ARE OPEN BOOK AND OPEN NOTE
3. TEXT: C
ECONOMICS 18LECTURE 6, FALL 2013
I. KEY INSIGHTS OF THE NEOCLASSICAL GROWTH MODEL
WITHOUT TECHNOLOGICAL PROGRESS
A. THE ROLE OF SAVINGS
1. SAVINGS RATE s DOES NOT DETERMINE GROWTH RATE
2. SAVINGS RATE s DOES DETERMINE
a. LONG-RUN LEVEL OF Y AND y
b. MARGI