Economics 221 Spring 2017 Dr. Stokes
Professor: Houston H. Stokes 722 UH
TA: Yuhao Chen
Class Web Page www.uic.edu/~hhstokes/class/e221.htm
Texts:
Macroeconomics Robert J. Gordon, 12th edition 2012 Addison-Wesley / Pearson
“Lecture Notes,” Prepared by Houston H. Stokes and available on web under class web page in file macronotes.docx..
Tests:
There will be two tests, each will be worth 25%. The final is worth 30%. There will be 4 problem sets, each worth 5%. All class tests will allow the student to bring in two sheets of notes. The emphasis of the course is on practical problem solving. Students are expected to do the reading prior to class. The reading consists of the text and the lecture notes.
Computer Resources
Computer resources are available on the class web page FTP location: Files for download
include:
IS-LM solution.xlsx Solve Closed Economy IS-LM Model
Open IS-LM solution.xlsx Solve Open IS-LM Model
Project_1.xlsx Set up for Project # 1
consumption.b34 Does Problem using B34S (not needed)
consumption.dct Consumption Data in Stata Format
consumption.do Does Problem using Stata
consumption.out Consumption Model output
e221bib.doc Assignment sheet
e221skil.doc Skill inventory
gordon12_appendixA1_2.xls Gordon Data in Excel format
macronotes.docx Macro notes for course
overshooting.xlsx Illustrates problem of overshooting
Fiscal and Monetary Multipliers.docx Derivation of Multipliers
The file macronotes.docx contains an outline of material to be presented in class. It is
recommended that all students download this file prior to the lecture. The file e221skil.doc
can be optionally be filled out and turned within the first week. In it the student give his/her
background and goals for the course. Print out macronotes.docx and bring to class to help
you follow the lectures.
Problem Sets:
Problem sets must be typed to receive full credit. Questions to be answered are shown later.
Study Tips:
Students are expected to study the chapter summaries and questions. Macroeconomics is best learned by problem solving, not memorization. The main purpose of this class is to equip you with the tools of analysis that will allow you to interpret economic policy changes and economic trends. What is needed is a systematic way to analyze these changes. Once the aggregate effects are determined, the micro links can be built using regression models and other tools. Excel problems will be shown in class.
I. Introduction and Measurement
Weeks 1-2
Chapter 1 Introduction
Chapter 2 Measurement of Income Prices and Unemployment
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Project # 1
Do E221 Project 1.xlsx For your answer print the filled in excel file.
On an attached sheet type the formulas you used for each column.
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II. Short Run: Business Cycles and Policy Responses
Week 3 Chapter 3 Income and Interest Rates
Week 4 Chapter 4 Strong and Weak Policy Effects in the IS-LM Model
Week 5 Chapter 5 Financial Markets, Financial Regulation, and Economic Instability
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Project # 2
1. Define carefully and IS and LM curves.
for 2- 4 Answer True or False and defend your answer
2. A point to the right of the IS curve represents excess demand for real balances.
3. Fiscal policy is least effective if the LM curve is flat
4. The more sensitive investment is to interest rates, the more effective fiscal policy.
5. Using the open IS_LM solution program open IS-LM solution.xlsx and the model listed in question 10 page 116, solve for the equilibrium interest rate and real output. Discuss the results.
Next increase the money supply to 2100 and resolve the system and discuss the results..
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Midterm # 1
Week 6 Chapter 6 The Government Budget, the Government Debt and the Limitations of Fiscal
Policy
Week 7 Chapter 7 International Trade, Exchange Rates and Macroeconomic Policy
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Project # 3
1. Answer true or false and justify your answer. Assume the exchange rates are defined in terms of the dollar price of the foreign currency. If the forward exchange rate increases, everything else equal, the more likely importers are to purchase the foreign currency forward.
2. What is the relationship between a country's foreign exchange rate and its new exports? Why?
3. "Perfect capital mobility with fixed exchange rates forces monetary policy to be accommodative; in effect, fiscal policy gains control of monetary policy." Explain carefully
4. Answer true or false and justify your answer. Assuming a monetary union, a countries ability for an independent Fiscal Policy is limited, however an independent monetary policy is a possible course of action.
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III. The Price Level, Inflation and Unemployment
Week 8 Chapter 8 Aggregate Demand, Aggregate Supply and the Great Depression
Week 9 Chapter 9 Inflation: Its Causes and Cures
Chapter 10 The Goals of Stabilization Policy: Low Inflation and Low Unemployment
Midterm # 2
IV. The Long Run: Economic Growth, Success and Failure
Week 10 Chapter 11 The Theory of Economic Growth
Week 11 Chapter 12 The Big Questions of Economic Growth
V. Monetary Policy and the Sources of Instability
Week 12 Chapter 13 Money, Banks and the Federal Reserve
Week 13 Chapter 14 The Goals, Tools and Rules of Monetary Policy
Week 14 Chapter 15-16 Economics of Consumption and Investment Behavior
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Project # 4
1. Discuss why a rapid and thus unexpected increase in economic growth can cause an increase in the savings rate.
2. Distinguish between gross investment and net investment. Can gross investment ever be negative? Can net investment ever be negative?
3. Define “interest pegging.” How might the Federal Reserve implement such a policy. Discuss the conditions under which such a policy might be destabilizing.
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VI. The Evolution of Macroeconomic Ideas
Week 15. Chapter 18 Conclusion: Where we stand
Week 16 Final Exam