HARVARD UNIVERSITY Department of Economics ECON E-1012 Spring 2013 Thursdays 7:40-9:40 Sever Hall 206

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HARVARD UNIVERSITY




Department of Economics




ECON E
-
1012


Spring 2013

Macroeconomic Theory


Thursdays 7:40
-
9:40


Sever Hall 206



Dr. Hossein S. Kazemi;
kazemi@fas.harvard.edu














Teaching Staf
f: Dr. Martin K. Konan (Section Leader);

email:

mkonan@fas.harvard.edu




Eloi Traore
; email:
eloitraore@fas.havrvard.edu


Required Sections: Fridays 6:00
-
7:
00 p.m. ALL STUDENTS MUST BE ABLE TO ATTEND THE
LECTURES ON THURSDAYS
AND

SECTIONS ON FRIDAYS IN ORDER TO TAKE THE COURSE.







A.

Course Description:

This course provides an analysis of the economy in aggregate. It examines theories of
national income dete
rmination, unemployment, inflation, business cycles (recession and
depression), financial markets, and the global economy. Special attention is paid to the
current financial crisis, central banking in the United States and around the globe, bonds
and equit
ies markets, the evolving debate over the role of the government in the
economy, budget deficits, trade deficits, and the changing nature of work in America.
Prerequisite:
ECON E
-
10a

or Principles of Microeconomics AND Macroeconomics. All
students must have satisfied the prerequisites prior to taking the course. NO
EXCEPTIONS will be permitted.


B.

Textbook:

N. Gregory Mankiw,
Macroeconomics
, Seventh

edition, Worth Publishe
rs, 2010
.


C.

Study Guide:

Roger T. Kaufman,
Study Guide and Work book
for use with
N. Gregory Mankiw
‘s
Macroeconomics
, Seventh e
dition, Worth Publishers, 2010.


D.
Additional Readings
:



1.

Daniel Yergin and Joseph Stanislaw,
The Commanding Heights: The

Battle for the World
Economy
, Touchstone Books 2002.


2.

Wall Street Journal


3.

The Economist


E.

Exams, Grading, Writing Assignments and Participation



There will be three exams, two midterms accounting for 50% of your final grade (25% each) and a
final exam
, which will account for 30%.


During the semester, there will be several writing assignments. The assignments are weighted as
10% of your total grade. Assignments are due in the following class automatically, unless I mention
otherwise. Missing class
do
es not
waive or extend the deadline for submitting an assignment.


The remaining 10% is given to you class preparedness and participation.



The following dates have been selected for the two midterms and the final:


1
st

Exam: Thursday February 28
th



2
nd

Exam: Th
ursday April 11
th



Final Exam: Thursday May 16
th


“Make
-
up” exams
will not

be given for missed scheduled exams except in the case of a
reasonable and valid excuse, which is submitted to me promptly. These excuses are subject to
my appr
oval, and I may require further substantiation. If you have not received my approval for a
make
-
up exam, you must take the exam as scheduled. For approved excuses, a make
-
up exam
will be scheduled at the time of the final exam and in accordance with the Un
iversity’s make
-
up
exam policy.


You are required to attend all classes AND sections
AND

take the exams as scheduled. If your
schedule prevents

you from attending all classes,
sections
and taking exams as scheduled
this
spring
,

you should not take th
is

c
ourse unless you are a non
-
credit student.



F.

Reading Schedule



I.

Introduction to Macroeconomics



a.

Science of Macroeconomics



b.

How Economists Think



c.

Economic Model Building



d.

Micro Thinking and Macro Modeling



Reading Assignment:
Chapter
s 1 Mankiw



II.

The Data of Macroeconomics

a.

GDP

b.

Measuring GDP



c.

Real Versus Nominal GDP



d.

The Consumer Price Index

e.

GDP Deflator Versus CPI



Reading Assignment:
Chapter 2 Mankiw



III.

The Classical Theory: Money and Inflation

a.

The Economy in the Lo
ng Run

b.

The Quantity Theory of Money

c.

The Fisher Effect

a.

Hyperinflation

d.

The Classical Dichotomy

e.

Open Economy

f.

Exchange Rates





Reading Assignment:
Chapter 3,4 and 5 Mankiw





IV.

The Classical Theory: Unemployment

a.

Natural Rate of Unemployment

b.

Frictional Unemplo
yment

c.

Structural Unemployment

d.

Patterns of Unemployment

e.

Recent Developments in the Employment Market


Reading Assignment:
Chapter 6 Mankiw




V.

Business Cycle Theory: Economy in Short Run I



a.

Aggregate Demand and Supply

b.

Stabilization Policy

c.

Commodity M
arket and the IS Curve

d.

Money Market and the LM Curve

e.

Short Run Equilibrium

f.

IS
-
LM and Fiscal/Monetary Policy

g.

Endogenous Growth Theory

h.

The Mundell
-
Fleming Model

i.

Fixed and Flexible Exchange Rates

j.

Interest Rate Differentials



Reading Assignment:
Chapters 9,
10, 11 and 12 Mankiw


VI.

Business Cycle Theory: Economy in Short Run II

a.

Models of Aggregate Supply

b.

The Sticky
-
Wage Model

c.

The Imperfect
-
Information Model

d.

The Sticky
-
Price Model

e.

Phillips Curve

f.

Adaptive Expectations and Inflation Inertia

g.

NAIRU

h.

Rational Expectati
ons

Reading Assignment:
Chapter 13 Mankiw



VII.

Macroeconomic Policy Debates

a.

Stabilization Policy

b.

Rule Versus Discretion

c.

Inflation Targeting

d.

Taylor Rule

e.

Traditional View of Government Debt

f.

Ricardian View of Government Debt

g.

Balance Budgets Versus Optimal Fiscal

Policy

Reading Assignment:
Chapters14 and 15 Mankiw





VIII.

Microeconomic Foundation of Macroeconomics I



a.

Keynes’s Consumption Function



b.

Irving Fisher’s Intertemporal Budget Constraint



c.

Modigiliani’s Life
-
Cycle Hypothesis



d.

Friedman’s Per
manent
-
Income Hypothesis

f.

Hall’s Random
-
Walk Hypothesis

g.

Laibson’s Pull of Instant Gratification

h.

Investment



Reading Assignment:
Chapter 16 and 17 Mankiw



IX.

Microeconomic Foundation of Macroeconomics II

a.

Money Supply

b.

Instruments of Monetary Policy

c.

Money

Demand

c.

Portfolio Theories of Money Demand

d.

Transactions Theory of Money Demand

e.

Baumol
-
Tobin Model of Cash Balance

f.

The theory of Real Business Cycles

g.

The neutrality of Money

h.

New Keynesian Economics



Reading Assignment:
Chapters 18, 19 Mankiw