1. ECON Macroeconomics 1

2. Lecturer Vincent Hogan D205 JHN
Office Hours: Tuesday 11–12 and by appointment

3. Objective This course will build on ECON 10020 many similar themes
but more rigorous treatment
More Case studies

4. Reading Material Any Macro book will do.
Notes will be posted on Blog (see below)
Main Text:
Robert J Gordon, Macroeconomics, Pearson International 11th edn;
Any Macro book will do.
e.g. Mankiw, Blanchard etc
Some “pop economics” books are also very useful
When Markets Collide: Investment Strategies for the Age of Global Economic Change by Mohamed El-Erian 

5. Available on Amazon or audible
The Return of Depression Economics and the Crisis of 2008 by Paul Krugman
Irrational Exuberance - by Robert J. Shiller
Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof and Robert J. Shiller
Available on Amazon or audible

6. Websites There are a couple of useful blogs
(hi quality debate)
The following web sites are useful for data:
Online access via the UCD library to OECD and IMF databases

7. My Blog Old version of course in on blackboard
No longer updated
New material posted on my blog
Vincenthogan.ie
What’s the difference?
Same basic material
Change presentation
Not sure yet!

8. Tutorials Start in week 3 Problem sets from next week
Solutions online via blog
Old fashioned tutorials TBA
NOT for Grade

9. Outline To be amended as necessary Topic 1. A Review of some basics
Topic 2. Not a clue
Topic 3. TBA
Topic 4. ?
Topic 5. Who knows
Topic 6. Anybody’s guess

10. Assessment The main Exam in May will be worth 70%
There will be a mid-term assessment (MCQ) in Feb which will count for 30%

11. The Point of Macro
Macroeconomics is about understanding the behaviour of economic aggregates: total (national) output, employment, the general price level, etc
Micro is about understanding the behaviour of individual entities
The two are related (or ought to be) but the process of aggregation has the potential to make things very complicated
Macro is basically a series of short cuts that allow us cut through the complication of aggregation

12. The Point of Macro This is one reason why macro can be controversial
Plenty of room to disagree on the appropriateness of short cuts in any model
There should not be disagreement because any Model should be
“As simple as it needs to be – but no simpler”
Empirically validated i.e. it really does explain the world (the scientific method)

13. Implication for the Course
We will start with simple models and add to them as we need to understand more phenomena
I will present empirical justification of each model i.e. show that it works under what circumstances

14. Ideology and Macro
Macro much more than macro is influenced by ideology
This is even true in the profession
This should not happen if the scientific method is applied
Although more difficult in economics than natural science
I will point out ideological issues as we go
See the current crisis

15. The Big Questions Three important Questions:
How do we ensure High Employment / Low Unemployment ?
How do we generate Price Stability / Low Inflation?
How do we Growth the economy?
Our concern is with the first two: the last is more a long-run matter and is left to Macro II

16. A Word on Growth Really Important question
Why and how are some countries richer than others?
Example of Zambia vs Korea
Ireland vs Everybody pre Celtic Tiger

19. Our Focus: Economic Cycles
Fluctuations in economic activity: GDP in Booms and Recessions
Real GDP
Actual
Boom
Trend
Recession
Time

20. Why Care?
Economic Cycles may seem trivial in comparison to growth so why bother with them?
Two reasons:
Recessions may be short run phenomena but can cause a lot of pain if you are in them
Misunderstanding cycles could lead to wrong policies that undermine long term growth

21. CYCLES AND UNEMPLOYMENT
Unemployment tends to fall in booms and rise in recessions
Real GDP
Actual
Trend
Time
U %
Unemployment Rate (U%)
Time

22. CYCLES AND INFLATION
Inflation often falls in recessions and accelerates in booms
Real GDP
Actual
Trend
Time +
Inflation Rate (%) 
Time _

23. Cyclical Misery
Over the cycle unemployment and inflation can cause plenty of human misery
Misery index is the sum of the two
Aside: later we will look at whether moderate unemployment and inflation are really costly
As you know from first year
A recession will tend to increase U and lower 
A boom will tend to decrease U and raise 
There would seem to be a trade-off between U and 
While this may be true in the short-run, it may not be so in the long-run
Investigating the nature of this trade-off an whether we can take advantage of it is a huge question we will spend a lot of time on it

24. STABILISATION – “NATURAL” GDP, etc.
If cycle causes problems then we should stabilise the economy to be close to Trend GDP
R J Gordon calls this “Natural” GDP
Broadly this corresponds to a level of GDP where output and employment are such that inflation is stable.
The corresponding “natural” rate of Unemployment is a concept we shall meet later.
It depends on structural features of the labour market: labour mobility, wage flexibility, levels of unemployment benefits, etc.
The Natural Unemployment rate is not fixed: it can be influenced by policy (and history).

25. STABILIZATION: TARGETS AND INSTRUMENTS
A useful framework is to think in terms of
(a) policy targets or objectives
(b) policy instruments.
A coherent policy must have at least as many targets as instruments.
Think of dart boards and darts
Our targets in the short/medium term are
(i) Full-employment GDP (“natural” GDP)
(ii) price stability, or low inflation
Our instruments are
Fiscal Policy
Monetary Policy
There will be trade-offs between the targets
There will also be important questions about which policy one assigns to which target.

26. Example: The Current Crisis
Talk of targets and instruments may sound abstract but is relevant to current situation and not understood by Merkozy
Four targets:
Control deficits
Re-capitalise banks
Provide Liquidity to markets
Boost employment
One Instrument allowed: Fiscal policy
Others not allowed: Monetary policy