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Eco 306 W1A

Eco 306 W1A. Overview of Course Current Macro Position and Issues, John Berdell jberdell@depaul.edu. ECO 306 Home Page. http:/www.depaul.edu/~jberdell Select Eco306 ID: macro PW: theory. Today’s Outline. 1 Course requirements 2A LR Growth: why it matters 2B LR Growth: policy issues

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Eco 306 W1A

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  1. Eco 306 W1A Overview of Course Current Macro Position and Issues, John Berdell jberdell@depaul.edu

  2. ECO 306 Home Page http:/www.depaul.edu/~jberdell Select Eco306 ID: macro PW: theory

  3. Today’s Outline 1 Course requirements 2A LR Growth: why it matters 2B LR Growth: policy issues 3A SR Fluctuations 3B SR Forecasting 4 SR Policy Issues 5 Syllabus Overview

  4. 1 Course Requirements Myeconlab homework, constitutes most of exams 2 Data exercises from web page due w5 and w9 Exams 20% multiple choice 50% short answers from the problem sets 30% essays linked to outside readings Paper: US Macro Outlook and Research Review Demonstrate familiarity with basic macro stats. Evaluate the economy’s current position in the business cycle and competing forecasts.

  5. 1 Homework Myeconlab Homework: First half of course First batch due Mon 9/27/2010 2 am 1 Ch 1 2 Ch 2 3 Ch 2 Numerical 5 4 Ch 3 5 Ch 3 Numerical 9 6 Ch 4 7 Ch 4 Numerical 7 8 Ch 5 9 Ch 5 Numerical 3 10 Ch 6 11 Ch 6 Numerical 2 12 Ch 6 Numerical 5

  6. Midterm • Multiple choice from chapter MC/TF questions. • Several problems from the 6 numerical problems in the homework. • One essay question.

  7. Homework second half • 13 Ch7 • 14 Ch8 • 15 Ch 9 • 16 Ch 9, Numerical 4 • 17 Ch 10 • 18 Ch 10 Numerical 1 • 19 Ch 10 Numerical 2 • 20 Ch 11 • 21 Ch 11 Numerical 1 • 22 Ch 11 Numerical 3 • 23 Ch 12 • 24 Ch 12 Numerical 4 • 25 Ch 13 • 26 Ch 14 • 27 Ch 15

  8. Final • Final is cumulative • Multiple choice from chapter MC/TF questions • Problems from the 12 numerical problems • One essay question

  9. Homework and Exam Problems • See helpful hints documents: NI.doc, Solow.doc, ISLM.doc, etc. These have solved examples in them of all the numerical problems arranged by topic. • Solved answers to the book’s problems have been posted on the class web page. • Myeconlab and exam problems are very similar but with altered numerical values.

  10. 1 Our Text Able/Bernanke/Croushore Macroeconomics Seventh or Sixth Ed. Purchase instructions on D2L

  11. Myeconlab • Go to www.myeconlab.com • To join your instructor's course, please complete the following two steps: 1. REGISTER for MyEconLab, and, 2. ENROLL in your instructor's course To Register for MyEconLabTo register, you will need a student access code and a course ID. If you don't have an access kit, you can purchase access online at http://www.myeconlab.com.You will have the choice to purchase access with or without a full etext. Once enrolled in your professor's course, you will also have the option to purchase a discounted version of your text.See details on D2L, you will need the course ID

  12. Intermediate Macro is: Study of Growth Is: Growth Accounting What are the sources of growth Solow Growth Model What is the equilibrium position of the eco? Comparative Growth How has growth varied over countries and in response to different policies? Advanced Macro would give lots of attention To Econometric methods and issues.

  13. Intermediate Macro is: The study of economic fluctuations The extended use of the ISLM model that you began to see in principles. How do changes in spending behavior and gov. policies affect the quarter to quarter rate of growth? How do financial markets fit in? Advanced macro is based on explicit intertemporal maximization.

  14. 2 Why do we care about growth? 2A Growth-Poverty links

  15. Location of Poverty From WDR

  16. Change in Poverty

  17. Growth and Poverty

  18. 2 Across countries

  19. 2 In Philippines

  20. 2 In Southern Luzon

  21. Current Macro Position • Labor Market • Demand and Sector Balances • Fiscal Policy Conflict • Monetary Accommodation and Currency Wars • Forecasts

  22. Some Sources • JP Morgan Chase, Markets and the Economy, senior chief economist, James Glassman • FT, Sir. Martin Wolf, Chief Economist • Moody’s-Dismal Scientist, Mark Zandi, Founder and Chief Economist

  23. Labor Market 9.1% Unemployment No job growth August 2011 Commodity price spikes unlikely to cause inflation in the absence of wage inflation. You will estimate Okun’s Law (growth of output vs change in Ue rate) in this class.

  24. Labor Very high long term un-employment. Ue benfits are by state with Federal assistance. State benefit funds in crisis. 99 week max only with 2 extensions.

  25. We forgot about cycles…. • “Each state determines the appropriate funding level for their own trust fund, and for many years, the general policy trend has been to keep payroll taxes very low. According to the Government Accountability Office, unemployment trust funds are in historically poor financial condition. Total state reserves in 2000 came to about $54 billion. That number had dropped to $38 billion by the end of 2007 when the recession hit.[1]  This meant that many states entered the economic downturn with underfunded unemployment trust fund balances and by the end of 2009, balances (excluding loans) had fallen to -$15.4 billion, the lowest level in the program’s history” http://www.ncsl.org/?tabid=22475

  26. Labor Need growth > 3 or 3.5% Need monthly job creation > 100-125K

  27. Labor Months to get back to pre-recession employment levels (while absorbing the 125K entrants each month) Brookings Institution, Nov 5 2010. Unrealistic. http://www.brookings.edu/opinions/2010/1105_jobs_greenstone_looney.aspx?rssid=looneya

  28. Demand-Sector Balance Balances “Balance sheet” recessions are tough. Businesses have excess cash and are hording it.

  29. Demand-Sector Balance Balances “Balance sheet” recessions are tough. House holds want to pay down debt or save.

  30. Demand-Sector Balance Balances “Balance sheet” recessions are tough. Net exports can only do so much.

  31. Demand-Sector Balance Balances Households saved too little. Housing ATM is now broken. Good BEA graph site: http://www.bea.gov/

  32. Housing • Consumers respond to their wealth. Middle income households are reliant on housing wealth rather than equities.

  33. Housing • Housing ATM has been broken for some time now.

  34. Balance Sheet Recessions • We will look at Japan and the GD as examples of balance sheet recessions. • 1930’s Irving Fisher introduces “debt deflation” • 1990 Japan starts 2 lost decades

  35. Japan: GDP stagnation The Economist/ Free exchange blog 23 Aug 2010 http://www.economist.com/blogs/freeexchange/2010/08/growth_3

  36. Krugman (Keynesian view) • “But the truth is that policy makers aren’t doing too much; they’re doing too little. Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth. “ Lost Decade Looming? By PAUL KRUGMAN NYT Published: May 20, 2010 http://www.nytimes.com/2010/05/21/opinion/21krugman.html

  37. Japan Austrian View • In non-population adjusted figures, Japan's real GDP grew by 26% in total these years [1990-2007], the lowest in the OECD. In comparison the figures are 63% for the U.S and 44% for the EU.15. • But during this period the U.S saw its potential labor force (the number of people between 15-65) increase by 23% and the EU.15 by 11%, while Japan had a decrease of 4%. • Between 1990-2007, GDP per working age adult increased by 31.8% in the United States, by 29.6% in EU.15 and by 31.0% in Japan. The figures are nearly identical! Japan has simply not been growing slower than other advanced countries once we adjust for demographic change. http://motherjones.com/kevin-drum/2010/05/japans-lost-decade-not-really-lost http://super-economy.blogspot.com/2010/05/paul-krugman-wrote-in-nyt-that-we-are.html

  38. Japan %U rate 15 to 24 yr olds http://www.stat.go.jp/english/data/roudou/lngindex.htm

  39. Japan’s Stocks and Bonds • Japan’s ‘lost decade’ wins fresh attention • By James Mackintosh • Published: August 31 2010 19:33 | Last updated: August 31 2010 19:33 • “Central bankers have yet to work out how Japan in the 2000s avoided the dark side of deflation, the Great Depression-style downward spiral of rising debt and falling output. But for investors Japan carries just one lesson: deflation means falling shares and rising bonds, even if the economy survives.” • http://www.ft.com/cms/s/0/f1001b8c-b52a-11df-9af8-00144feabdc0.html

  40. This is JP Morgan Chase again • 2011Q2/2010Q4 = 0.7 (Far below 3 or 3.5) • 2011Q2/2009Q2= 2.4

  41. http://www.economy.com.ezproxy2.lib.depaul.edu/dismal/pro/release.asp?r=usa_gdphttp://www.economy.com.ezproxy2.lib.depaul.edu/dismal/pro/release.asp?r=usa_gdp see page for C I G X-M, I actually strong for Q2 2010

  42. Growth or Spending? • Tremendous disagreement over the role of expectations in the near term growth process. What will revive confidence? More government spending or austerity and supply-side measures?

  43. Growth • If long term growth were known to be faster then expectations would carry us out of our short term growth trap. With fast long term growth any downturn is (by definition) followed by a strong ‘pop’ in growth. 5% or more. Consumers and Businesses, confidently expecting this pop will spend in anticipation. Problem solved.

  44. Spending View • Business surveys report absence of demand rather than supply factors as reason for low hire rates. • NFBI Small Business Economic Trends (Survey)

  45. Demand-Sector Balance Balances When government spending falls (even when that spending is high) it is a negative contribution. Mark Zandi http://www.economy.com/mark-zandi/

  46. Zandi/ • Dismal multipliers

  47. Monetary Policy and Currency Wars • Low interest rates lower currency values of floating currencies.

  48. China and the USA • China continues to buy lots of US gov debt and it is one of the few countries with an inflation problem. • It is an excellent example of a “successful” fiscal stimulus 2008-2010.

  49. China http://www.economy.com.ezproxy2.lib.depaul.edu/dismal/map/default.asp

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