Economics 314

Macroeconomic Theory
Spring 2017
Course Information

Course Content
Class Format
Prerequisites
Office Hours
Exams and Other Assignments
Grading
Texts and Other Readings

Course Content

This course is a detailed examination of modern macroeconomic theory. Its central subject matter concerns the relationships among major aggregate economic variables such as national output, the interest rate, unemployment, and inflation. Emphasis will be placed both on theory and on empirical tests using contemporary and historical data. Considerable attention will be devoted to the analysis of the microeconomic foundations underlying macroeconomic theories.

Educational research and my own experience suggest that students learn best when they actually "do" the subject they are studying, rather than just reading or listening to lectures about it. In macroeconomics, "doing" consists of solving theoretical problems involving macroeconomic models and performing statistical and econometric tests using actual macroeconomic data. In the homework part of this course, you will spend extensive time doing macroeconomics, both theoretical and empirical.

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Class Format

This class meets for a total of four hours per week, 9 to 10am on Mondays, Wednesdays, Thursdays, and Fridays in Vollum 116. Most weeks, about three of those hours will be a lecture/conference session that will examine macroeconomic theory. The remaining time (often Thursday's or Friday's class) will be at least partially devoted to discussion of the weekly assignments.

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Prerequisites

Economics: The only economics prerequisite is Econ 201. The coverage of macroeconomics in Econ 201 varies among instructors. If you feel that your macro preparation is weak, you should undertake remedial reading from an introductory macro text (Mankiw's is excellent) during the beginning weeks of the semester.

Mathematics: Math 111 or equivalent background in calculus is an important prerequisite. Many of the readings, including Romer's textbook, use more advanced mathematical methods. The emphasis in this course is on the theoretical content of macroeconomics, not on the mathematicals, but it will be very difficult to understand the theory if the math is a constant struggle. The coursebook will help you learn enough mathematics and econometrics to understand the macroeconomics. For those who require further assistance, we can arrange review sessions or individual tutoring as needed.

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Office Hours

The instructor will hold office hours in Vollum 229 on Mondays from 1:30 to 3:00 and Tuesdays from 10:00 to 11:30. Students for whom these hours are inconvenient may make appointments at other times by contacting the instructor at extension 7308 or by email to parker@reed.edu.

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Exams and Other Assignments

Exams: There will be an analytical mid-term exam, which will include both take-home and in-class components. The final exam will consist of two parts: a "second mid-term" covering the final section of the course and a comprehensive section that stresses applications of the general concepts of the entire course. The final exam may include take-home or pre-announced questions and/or may involve analysis of a selected outside reading.

Homework and Projects: There will be weekly homework and project assignments for this course. Some of these will consist of problems from the textbook. Others will be hands-on projects using statistical, econometric, or simulation tools to examine macroeconomic behavior. No prior econometrics background is assumed, though those who have taken Math 141, Econ 311, or Econ 312 will find these skills handy at times. Homework and projects will be done in teams of two students, with partner assignments rotating regularly throughout the course. By the end of the semester you will have worked with most of your classmates. Homework problems and projects will be due at the beginning of class on Wednesday. They will be returned in class the following day, at which time aspects that require clarification will often be discussed. Because of the instructor's tight schedule for reading homework and because they are done in pairs, late work will be heavily penalized. No homework will be accepted after 5:00pm Wednesdays.

Paper of the week: Most weeks, there will be a "paper of the week" assigned. One of the difficulties of a textbook-based course such as this one is that students get very limited exposure to actual economic research as published in professional journals. The paper of the week assignment is intended to give you an opportunity to read a few primary research papers. Each student is required to do at least 7 of the 10 papers. Each paper is a seminal study related to the material we are covering in class during that week. You are to read the paper and respond to a set of questions about it assigned by the instructor. Responses to the questions are due at the beginning of the class on Fridays.

9am Quiz: For most class periods, a brief quiz will be handed out shortly before 9am. Students will have until approximately 9:05 to answer the questions on the quiz, which will cover the topic of the day's class based on the readings. At 9:05, class will commence with individual students being invited to answer the questions, often on the board. The questions will be designed to launch the instructor's lecture topics for the day.

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Grading

Grades will be based on all information the instructor has about your level of understanding of macroeconomics. This includes evidence from exams, homework, projects, class participation (particularly responses to the 9am quizzes), and individual discussions.

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Text and Other Readings

There is a major textbook for this course, plus a coursebook of supplemental materials written by the instructor. Additional readings from economics journals and books will be available on reserve or linked from the reading list. The texts and readings are designed to work together to give you a comprehensive overview of modern macroeconomics.

The principal text is David Romer's Advanced Macroeconomics, 4th edition. This is the current edition of the text; it is a considerable revision of previous editions. It includes a new chapter and considerably re-organizes the material covered in previous editions, so using an earlier edition is not advised.

As the title implies, this book is written at a high level and is intended for graduate students. The main difference between the preparation of Reed undergraduates and beginning graduate students is that the latter can be assumed to know a lot more math and to have a more complete background in macroeconomics. Some of the sections of Romer's book are quite difficult; others are fairly transparent. The coursebook (see below) should help you with the difficult sections, especially when the difficulty is math-related. We will cover almost all of Chapters 1 through 7, but this will leave relatively little time for Chapters 8 through 12. We will definitely cover parts of the chapter on unemployment. Next in priority will be investment. Parts of the consumption chapter will be covered along with the Ramsey growth model of Chapter 2. The final chapters on policy will receive lower priority because an entire course on monetary and fiscal policy is offered in the Reed curriculum.

A "background" text is Burda and Wyplosz's Macroeconomics: A European Text, 6th edition. This is an excellent, comprehensive text at the "intermediate" level that complements Romer. It is the text that I use for Economics 304, the less mathematical version of macroeconomics. There are two copies of this text on reserve in the library for your use.

The instructor wrote the first edition of the Econ 314 Coursebook in 1998 especially for this class. Revisions have been made regularly to improve the book based on experience, new literature, and changes in course content. This year's coursebook is a substantial revision of the previous one (2014–15). Some sections of coursebook chapters present background material not covered adequately in other readings; others provide supportive interpretations of the mathematical analyses in the texts. A recent bequest to the Economics Department by Reed alumnus Jack Stendal established a fund that allows the department to provide at no charge a binder with chapter dividers and all coursebook chapters. Coursebook chapters will also be available on the Web site for those who want to read it on screen. You will receive the first batch of coursebook chapters along with the binder and dividers at the beginning of the class. Subsequent chapters will be distributed in class as they are written/revised.

Readings from sources other than Romer's text will be on reserve in the Reed Library. In cases where a published book is cited, the entire book is on reserve. (Many of these are also available as e-books through the library Web site.) All (or nearly all) articles will be available online and are linked through the class Web site. Some of these links may require that you be connected to the Reed network in order to access the Reed Library's subscription to the journals. Successful class conferences depend on all students being adequately familiar with the assigned readings. Students who come to class unprepared to discuss the assigned materials not only diminish their own involvement with the course but unfairly "free-ride" on the preparation of others. If it is beneficial to conference interaction, the instructor may call on individual students to answer questions during class. Evidence of preparation will count heavily in the class participation component of your grade.

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