ECON 385—Intermediate Macroeconomic Theory II (Fall 2022)
Instructor: Dmytro Hryshko
Course delivery: Remote asynchronous teaching e-mail: [email protected]
Course Description: This is an undergraduate course in macroeconomics that will extend your knowledge of the issues of economic growth and business cycles (how the economies behave in the long and short run, respectively). Our thinking as economists will be organized by models. We will start the course with (the math of exponentially growing functions and) the Solow growth model. You will learn what drives the stan- dard of living in the world economies in the long run; how various policies and shocks (e.g., policies stimulating savings rates or affecting fertility, thereby reducing/increasing population growth rates) affect the standards of living in the short and long run and how the model fares against the data. We will also discuss the fundamental causes of prosperity (culture vs. geography vs. institutions). We will next start talking about the so-called equilibrium unemployment theory, that is, a theory explaining why unem- ployment is an unavoidable feature of any economy. To this end, we will discuss the Diamond-Mortensen-Pissarides search and matching model. You will learn what determines unemployment rate and how various shocks and policies affect unemployment rate and aggregate output and apply the model to understand the dynamics of unem- ployment rate in the U.S. and Canada during the recent Great Recession. We will then develop an understanding of one of the building blocks of aggregate demand, personal consumption. We will start with a two-period model and talk about some basic things like intertemporal smoothing of consumption, income and substitution effects, marginal propensity to consume, the Ricardian equivalence, etc. You will learn how today and future income and changes in the real interest rate affect current consumption. We will also talk about how credit-market imperfections (constraints on borrowing due to lack of commitment to debt contracts or asymmetric information) affect consumption and apply the model with credit-market imperfections to the Great Recession data. We will then talk about the Permanent Income Hypothesis, first with no income risk and then
introducing the risk to household incomes. You will learn how households behave in the model, smoothing their consumption over time. Then we will discuss models allowing for precautionary savingsthat add realism to household savings decisions. We will apply the consumption model augmented with precautionary motives to the data on personal savings in the U.S. The course will be concluded with a discussion of the modern AD-AS model that explicitly incorporates monetary policy manipulating interest rates to achieve the goals of price stability. The model will help understand the disinflation episode of the early 1980s in the U.S., the macroeconomic implications of the recent pandemic, and the recent worldwide surge in inflation.
Course Setup: Lectures will be uploaded to your eclass weekly. We will also have a weekly zoom hour, during which I will answer your questions and solve problems related to the course material, which will be uploaded to your eclass in advance. Your attendance is critical for the continuation of those meetings. I will record those meetings, and they will be available for viewing for one week only! In the past, students found those meetings useful because they were devoted to solving problems related to the course material, assignments, and exams.
Recommended texts and coursepack: There is no required textbook. A coursepack distributed digitally via eclass (https://eclass.srv.ualberta.ca/portal/) will cover selected chapters from the following texts:
Gregory Mankiw and William Scarth. 2014. Macroeconomics, Worth Publishers, 5th Canadian Edition. [referred to as M below]
Stephen Williamson. 2018. Macroeconomics, Pearson Education Inc. NY, 6th Edition.
[referred to as W below]
CharlesJones. 2017. Macroeconomics, W. W. Norton & Company Inc. NY, 4th Edition.
[referred to as J below]
Acemoglu, Laibson, List. 2018. Macroeconomics, Pearson, 2nd Edition. [referred to asA below]
Prerequisites: ECON 281 (intermediate micro I), ECON 282 (intermediate macro I), and ECON 299 (quantitative methods in economics) or equivalent, and MATH 156
or equivalent (permitted as a corequisite). The requirements are strictly enforced—
registration will be cancelled if a student has not passed the prerequisite classes (or equivalents).
Grading: Evaluation will be based on your performance on a midterm (30%) and final (40%) exams, and two problem sets (30%, each 15%). Tentative due dates for the problems and the midterm exam are listed below. Your final grade will be calculated as follows: 0.30·M+0.40·F+0.15·HW1+0.15·HW2, where M is the midterm grade (percent out of 100), F—same for the final, HW1, HW2—same for each respective problem set.
Each numerical grade will be converted into a letter grade, ranging from F to A+. Your final grade depends on your absolute performance (i.e., on your raw grade calculated in accordance with the formula above), and on your relative performance (i.e., your standing in the class distribution of grades). Problem sets will be posted on your eclass at least one week prior to their respective deadlines.
Assignments/exams Weight Tentative due date Time
Homework 1 15% October 17 2 PM Edmonton time
Online midterm exam 30% October 28
Homework 2 15% December 2 2 PM Edmonton time
Online final exam 40% set later by the university
Theminimumletter grade (your absolute performance) will be determined according to the table below:
Num. Grade Letter Grade Num. Grade Letter Grade
97-100 A+ 93-96 A–
86-92 A– 79-85 B+
72-78 B 65-71 B–
60-64 C+ 55-59 C
50-54 C– 45-49 D+
40-44 D 0-39 F
Notes:
1. Our communication outside of class will be arranged via eclass. I will post there copies of selected chapters from the course pack as we progress through the course
work, sample exams, assignments, your midterm exam, solutions to your assign- ments and the midterm exam, readings, my notes, etc.
2. You will not have make-up exams, or extra credit essays. Please plan your work on the course appropriately and put your effort into reading the text and solving the problems assigned.
3. The midterm and final exams will be set online. You are not allowed to work with others on your exams.
4. You may work on your problem sets in groups but you should submit your own solved problem set (you may solve your assignment together but the write-up should be done by each student individually). Please write all of your group members on your own submission’s first page so that it’s easier for my TA to grade them.
5. Problem sets and exams should be uploaded to your eclass prior to the deadline, after which submission will be locked. If you send me assignments or exams by email after the deadline, each minute past the deadline will cost you 5% of the grade.
6. In case you miss the midterm exam, its weight will be transferred to the final exam but your final exam will be different from the final exam of the rest of the class—
it will be longer, and it will contain extra questions testing your knowledge of the material covered in the midterm exam, appropriately weighted to reflect the original weight of the midterm material in the final grade.
7. The finalexam will becumulative; that is, it will contain questions from the first part of the course (before the midterm examination). However, I will only ask about the core issues from the first part of the course, that is, the final exam will not cover the material from the first part of the course in depth. This qualification does not apply to those students who will miss the midterm exam—they will be tested on the first part of the course in depth.
8. Audio or video recording of lectures, labs, seminars or any other teaching envi- ronment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommodation plan. Recorded material is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the instructor.
9. As per request of the University administration, please be aware of the following statement: “Policy about course outlines can be found in the Evaluation Procedures and Grading System section of the University Calendar.”
10. As per request of the University administration, please familiarize yourself with the following statement: “The University of Alberta is committed to the high- est standards of academic integrity and honesty. Students are expected to be fa- miliar with these standards regarding academic honesty and to uphold the poli-
cies of the University in this respect. Students are particularly urged to famil- iarize themselves with the provisions of the Code of Student Behaviour (online at www.governance.ualberta.ca) and avoid any behaviour which could poten- tially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can re- sult in suspension or expulsion from the University.” http://www.ualberta.ca/
current-students/academic-resources/academic-integrity
Topics:
1. Introduction (organization of the course, what is covered, basic concepts for the analysis of economic growth). [September 1, Week of September 5-9]
2. Growth facts (Charles Jones “The Facts of Economic Growth,” Handbook of Macroe- conomics, Vol. 2A, 2016). [Week of September 5-9]
3. Solow model: theory (Ch. 7, 8 of M). [Weeks of September 12-16 and 20-23]
4. Solow model: Cobb-Douglas example (class notes). [Week of September 26-30]
5. Accounting for technological progress and evaluating the Solow model against the data (Ch. 7, 8 of M). [Week of September 26-30]
6. Fundamental and proximate causes of prosperity (Ch. 8 of A). [Week of October 17-21]
7. Search and unemployment (Ch. 6 of W). [Weeks of October 3-7 and 10-14]
Midterm exam will cover topics 1–7
8. A two-period model of consumption (Ch. 9 of W). [Week of October 24-28]
9. Credit market imperfections and consumption in the aggregate (Ch. 10 of W).
[Week of October 31–November 4]
10. Permanent income hypothesis and precautionary savings (my notes). [Week of November 14-18]
11. Macroeconomics of the short run (Ch. 10–14 of J). [Weeks of November 21-25 and November 28-December 2]
12. COVID-19 and the macroeconomy (https://web.stanford.edu/~chadj/Macroeconomics_
Covid.pdf). [Week of December 6–December 10]
13. Other topics, time permitting.
Final exam will cover topics 1–12 with a more in-depth treatment of topics 8–12
