ECON 303 Intermediate Macroeconomics Instructor: Bernard Malamud –Office: BEH 502 Phone (702) 895 –3294 Fax: 895 – 1354 » Website: Office hours: MW 11:30 – 12:30 pm, 2:30 – 3:30 pm and by appointment

Course Objectives Refresh your command of Macroeconomic terminology  eco-talk Macro Facts Schools of thought

Course Objectives Master MODELS –Demand Side Models  AD Multiplier IS – LM –Supply Side Models  AS Wage setting – Price setting Phillips Curve –Role of Expectations … in theory and in practice –Stabilizing an Unstable Economy Understanding the financial crisis and S l u m p Revolution and evolution in macro-thought –Solow Growth Model

Macro – variables: Real and Nominal Output … Real GDP… Growth Rate Employment – Unemployment Wage level – Price level Inflation … CPI, GDP Deflator Interest rates Macro Time Frames Short-run … sticky price Medium-run … price adjusts Long-run … economic growth

The State of Macro…a la Krugman Keynes (1936): Y = C + I + G –Economics of effective demand The “Golden Age” (1946 ~ 1973): Fiscal dominance Monetarist challenge: G crowded out/M-matters-most –Friedman: Avoid monetary mischief “Freshwater” dominance: Rat-X/Efficient Markets –Lucas: confusion  recession –Prescott: supply shocks  intertemporal substitution  recession “Saltwater” acquiescence: Rat-X with frictions –New Keynesian models/Monetarist policies Housing bubble: end of the “Great Moderation” –Behavioral finance/return of Keynes?

Macro Facts: Recession and Slump

Macro Facts: Double Dip Recession??

Macro Facts: Unemployment Natural rate from CBO based on demographics & changing labor market institutions, e.g., temporary employment.

Macro Facts: Deflation Threat Over???

Macro Facts: Federal Debt

Americans Do Debt 11 Household mortgages Business debt Consumer credit Federal Gov’t Total Debt Non-Financial Sectors

Macro Facts: Bank Excess Reserves

M1/Monetary Base=M1/(Currency + Reserves)

Macro Facts: Trade Deficit, Goods & Services Imports Exports

Major currencies/$ Broad basket of currencies/$

Average annual rates of growth, , world and main regions World Western Europe Europe 1 Western offshoots(b) Japan Asia (excluding Japan) Latin America Eastern Europe Africa

Where to Find the Numbers

Macroeconomics The course is divided in three parts: Short -run / Medium-run / Long-run Short – run (sticky price): IS / LM  AD IS: Y = C + I + G C = c 0 + c 1 Y D = c 0 + c 1 (Y - T) I = I 0 + b 1 Y - b 2 i  Y = {spending multiplier} x {autonomous spending} LM: (M/P) d = (M/P) s (M/P) d = L(Y,i) M s = [1/(c + r(1-c))]H = {money multiplier} x {monetary base} Medium – run (flexible price): AD/AS IS/LM  AD PS/WS  AS PS: P = (1+ μ)(W/A) WS: W= P e A e f(u,z) In medium - run, P e = P  (W/P) WS = (W/P) PS = A / (1+ μ)  Natural/Structural/Equilibrium Rate of Unemployment (u n )  “Full - employment” rate of output (Y FE )  The Green Shaft  SRAS and MRAS When AD or AS shift: MR equilibrium  SR equilibrium  P  new MR equilibrium Long – run (factor supplies change): Growth Steady state: s(Y/AN) = (δ + g N + g A )(K/AN) For simple Cobb-Douglas function: Y = K α (AN) 1-α  Y/AN = {s/((δ + g N + g A )} α/(1-α) Golden - rule saving rate = α Productivity and equilibrium rate of unemployment: A e = A only in long - run  “Natural rate” decreases with unexpected increase in A

Americans Do Debt 19 Household mortgages Business debt Consumer credit Federal Gov’t