Econ 305: Intermediate Macroeconomic Theory I

Macroeconomic Theory and Policy (2008), by David Andolfatto.

Free download available here.

Teaching Assistants
Mamoon Ul Kader
WMC 1616, Thursday 11.30-12.30

Mengying Zhu
WMC 1613, Tuesday, 2.30-3.30

Adesikeola (Sike) Olateru-Olagbegi
WMC 1657, Wednesday, 1.30-2.30

Office Hours (Instructor)
WMC 2684, Tuesday 11.30-12.30 (or by appointment)

Exam Dates
Midterm 1: Thursday, Jun 11, 2015
Midterm 2: Tuesday, Jul 14, 2015
Midterm 3: Thursday, Aug 06, 2015
Note: there is no final exam.

Homework Questions available here.

Important Notice: Dead Grandmother Alert.

Course Grade
Your course grade will be based on the following formula: Grade = 50-50 weighting of best 2 out of 3 midterms.

Sober assessments of my teaching ability available here, on

Course Outline

[1] Economic Methodology.
A brief overview of how economists generally go about trying to understand things.
Lecture slides: The Science of Economics.

The Methodology of Postive Economics (Milton Friedman, 1966).
What are Economic Models? (Sam Ouliaris, IMF 2011) .
Big Questions and Big Numbers (The Economist).
Dani Rodrik on Growth, Development, and Modeling, Timothy Taylor, 2015.

Optional material:
Milton Friedman on Greed (interview with Phil Donahue, 1979).
Moral Misunderstanding and the Justification of Markets (Paul T. Heyne, 1998).

[2] The Gross Domestic Product [Chp1]. Measurement issues; definitions, data.
Lecture slides:
The Gross Domestic Product.
The GDP: Caveats and Some Data.

The Essential Macroeconomic Aggregates, Lequiller and Blades 2014.
Eyeballing the World Economy, Timothy Taylor, 2012.
GDP and Social Welfare in the Long-Run, Timothy Taylor, 2015.
200 Countries, 200 Years, 4 minutes, Hans Rosling, 2010.

Optional material:
An Overview of BEA's Source Data and Estimating Methods for Quarterly GDP, Katz 2006.
Understanding National Accounts, Lequiller and Blades 2014.

[3] Output and Employment [Chp2&3]. A static neoclassical model designed to explain time allocation choices (employment),
real wages, and GDP as function underlying productivity. A simple extension to incorporate uncertainty. Irrational and
rational expectations; multiple equilibria; self-fulfilling prophecies and "animal spirits."

Lecture slides: Interpreting the Business Cycle.

Actual and Potential GDP (David Altig, June 2005)

Optional material:
Beyond Shocks: What Causes Business Cycles? An Overview (Jeffrey Fuhrer and Scott Schuh, New England Review, 1998).

[4] Redistributive Policies and Employment Across Nations [Chp6:129-141] and here. What accounts for the differences in employment
across nations? Investigating some of the theoretical effects of government fiscal policies on employment patterns.
Lecture slides: The Employment of Nations.
Additional reading: Why Do Americans Work More than Europeans? (Ed Prescott, WSJ October 2004)
Additional reading: Seven Questions About Income Inequality (Laura Fieveson, June 2012)

[5] Consumption and Saving [Chp5]. A simple two-period (dynamic) model designed to explain consumption/saving choices, the
determination of the current account, and the real interest rate.
Lecture slides: Consumption and Saving.

[6] Capital and Investment [Chp7]. Extending the simple dynamic model to incorporate domestic capital expenditure.
Lecture slides: Capital and Investment.
Optional reading: How central banks view the world, Andolfatto 2003.

[7] Government Deficits [Chp6: 142-152]. An application of the simple dynamic model to understand and interpret government deficits;
the Ricardian Equivalence Theorem.
Reading: The Public Purse  (Economist Magazine, November 24, 1990), Page 1, Page 2.
Lecture slides: Fiscal Policies. (I will not examine you on the first part of these slides; focus on the latter part, beginning with Dynamic Endowment Model.)

[8] Unemployment [Chp4]. The modern theory of unemployment. (In terms of the theory of unemployment, focus on slides, rather than text.)
Lecture slides: Employment, Unemployment, and Turnover
Additonal readings:
Many Moving Parts: A Closer Look at the U.S. Labor Market
(David Andolfatto and Marcela Williams, 2011)
Interpreting the Beveridge Curve (Andolfatto blogpost, Dec. 18, 2010)
The Great Canadian Slump: Can it Happen in the U.S.? (Andolfatto blogpost, Dec. 22, 2010)

[9] Monetary Theory [Chp8]. (I would recommend giving chapter 8 a quick read; focus on lecture slides)
Lecture slides I: Money.
Lecture slides II: A simple OLG model.
Reading: What is Money? How is it Created and Destroyed?
Optional readings:
Banking Panics in the U.S.: 1873-1933 (EH Net)
Lender of Last Resort Policies: From Bagehot to Bailout (Angela Redish, 2001)
The Federal Reserve System (Wikipedia)
On a Correct Measure of Inflation (Alchian and Klein, 1973)

[10] International Monetary Systems
Lecture slides: International Monetary Systems
Reading: Sovereign Debt: A Modern Greek Tragedy (Fernando Martin and Chris Waller)
Reading: Global Early Warning and the IMF (Doyle, 2014)
Lecture slides: Sovereign Debt: A Modern Greek Tragedy
Lecture slides: The Euro Area Crisis (Orphanides, 2013)

[11] The Great Recession
Lecture slides: The U.S. Recession of 2007-201? (by Robert E. Lucas, Jr.)
Optional readings:
Seven Sects of Macroeconomic Error, Part I (by Brad DeLong)
The Economic Crisis from a Neoclassical Perspective (by Lee Ohanian)

Final exam will cover all materials above this point (except for optional readings).

[12] Growth and Development [Chp9]. We did not have time to cover this section, so will not constitute exam material.

Old Exams