Economics 314

Macroeconomic Theory

Spring 2012

Course Information

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 and lab parts of this course, you will spend extensive time doing macroeconomics, both theoretical and empirical.

You may become somewhat frustrated that this course focuses on basic theories that have been developed to explain macroeconomic events in "normal times." We will have relatively little to say about the remarkable disruption of macroeconomic activity that has occurred since 2007, but I will provide a reading list at the end of the course for those who wish to expore the emerging literature on the "Great Recession."

Class Format

This class meets for a total of four hours per week, 11am-noon on Mondays, Wednesdays, Thursdays, and Fridays. The Monday, Wednesday, and Friday sessions will be held in Library 389; the Thursday classes will be in Eliot 314. Most weeks, about three of those hours will be a lecture/conference session that will examine macroeconomic theory. The remaining time (usually Thursday'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. Students lacking this preparation are responsible for completing remedial reading at the beginning of the semester to achieve comparable familiarity with macroeconomics.

Mathematics: Math 111 or equivalent background in calculus is an important prerequisite. Many of the readings, including Romer's textbook, use advanced mathematics. The emphasis in this course is on the theoretical content of macroeconomics, not on the mathematical method, 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 and Wednesdays from 1:30 to 3:00. 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 latter section may include take-home or pre-announced questions and 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 or econometric tools to examine macroeconomic behavior. No prior econometric 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. Homework problems and projects will be due at the beginning of class on Wednesday. They will be returned in lab the following day, at which time they will usually 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. Each student is required to do at least 5 of the 10 papers. Each paper is a seminal or recent study related to the material we are covering in class during the 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 Friday. Exams in this class will include analysis of published macroeconomic studies; these assignments are designed to prepare you for that kind of analysis.

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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, 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 will be available on reserve. 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 a new edition of the text that is being used at Reed for the first time this semester. Students with copies of older editions will find that many sections have not changed, but they should check very carefully to make sure that they get all the relevant material. In particular, a new chapter has been added and considerable material in many chapters has been changed.

As the title implies, this book is written at a high level and 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 should help you with the difficult sections, especially when the difficulty is math-related. We will cover at least seven of the eleven chapters in the Romer text. We will cover almost all of Chapters 1 through 7, but this will leave little time for Chapters 8 through 12. We will definitely cover parts of the chapter on unemployment. Next in priority will be investment. The consumption chapter will be covered along with the consumption theory discussed in 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 (and will be taught next fall).

A "background" text is N. Gregory Mankiw's Macroeconomics, any recent edition. This is an excellent text at the "intermediate" level that complements Romer. Some of you may have used it in Econ 201. It provides a treatment of macroeconomic topics that presumes less background preparation. The three editions are sufficiently similar that you should be able to use any of them. The reading list shows chapter references from the fifth edition, which will be on reserve. I did not request any copies for the Bookstore because my experience is that few students buy this text. If you would like a copy, you may order one.

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 basically unchanged from the 2010 version. 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. The coursebook may be purchased for $20.00 from Lois Hobbs in Vollum 112. This includes (at below actual cost) a binder with chapter dividers and all coursebook chapters. Based on the experience of past students, it is strongly recommended that you purchase a paper copy of the coursebook. However, coursebook chapters will be available on the Web site for those who want to read it on screen.

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. All articles will be available online; most are linked through the class Web site. 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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