Economia 5
PRELIMINARIES

• Name: Marco Del Negro
• Office: CIE, Camino Sta. Teresa
• Email: delnegro@master.ster.itam.mx
• Phone: 628 4197, ext. 2962
• Office hrs by appointment
• Home page: http://master.ster.itam.mx/~delnegro/
  Eco5/Eco5_s00.htm

MECHANICS

• Grades: Final (60%), Midterm (40%), Homework
  Penalty for late homeworks
• English
  You can write answers in Spanish
• Math
• Questions!!!
• Class Attendance and Participation
• Rely on class notes; book: Abel & Bernanke (Addison-Wellesley)

COURSE OUTLINE

PART I: MEASURING THE ECONOMY

• MEASURING THE ECONOMY (Ch. 2)
• INFLATION, CONSUMER PRICE INDEX, AND RELATIVE PRICES (Ch 2)
• SAVINGS, WEALTH, AND THE CURRENT ACCOUNT (Ch 2)
  

PART II: CONSUMPTION AND SAVINGS IN CLOSED AND OPEN ECONOMIES

• CONSUMPTION: THE INTERTEMPORAL CHOICE (Ch. 4 and 8)
• TAXES IN THE INTERTEMPORAL MODEL: RICARDIAN EQUIVALENCE (Ch. 8)
• THE DETERMINANTS OF THE CURRENT ACCOUNT (ENDOWMENT ECONOMY) (Ch. 5)
  

PART III: PRODUCTION AND INVESTMENT IN CLOSED AND OPEN ECONOMIES

• THE PRODUCTION FUNCTION (Ch. 3)
• INVESTMENT IN A CLOSED ECONOMY (Ch. 4)
• THE INTEREST RATE IN A CLOSED ECONOMY WITH PRODUCTION (Ch. 8)
• INVESTMENT AND CAPITAL FLOWS IN AN OPEN ECONOMY (Ch. 5)
• GOVERNMENT SPENDING, INVESTMENT, AND THE CURRENT ACCOUNT (Optional)
• THE WORLD INTEREST RATE (Optional)
  

PART IV: THE LABOR MARKET

• LABOR DEMAND AND LABOR SUPPLY (Ch. 3)
• EQUILIBRIUM IN THE LABOR MARKET (Ch. 3)
  

PART V: GROWTH

• ECONOMIC GROWTH: SOME EMPIRICAL REGULARITIES (Ch. 6)
• THE SOLOW GROWTH MODEL (Ch. 6)
• THE GOLDEN RULE OF CAPITAL ACCUMULATION AND THE SOLOW GROWTH MODEL WITH EXOGENOUS TECHNOLOGICAL PROGRESS (Ch. 6)
• THE CONVERGENCE CONTROVERSY (Ch. 6)
• ENDOGENOUS GROWTH (Ch. 6)
  

PART VI: MONEY, MONETARY POLICY, AND EXCHANGE RATES

• MONEY (Notes only)
• MONEY SUPPLY AND MONEY DEMAND (Notes only)
• INFLATION AND SEIGNORAGE (Notes only)
• MONETARY POLICY AND THE UNEMPLOYMENT/INFLATION TRADE OFF (Ch. 13)
• MONETARY POLICY AND THE LENDER OF THE LAST RESORT (THE BANKING SYSTEM: FUNCTIONING AND REGULATION) (Ch. 15)
• EXCHANGE RATES (NOMINAL AND REAL) AND MONETARY POLICY IN THE OPEN ECONOMY (Ch. 14)

SO WHAT? Why should one be interested in Macroeconomics?

Address questions like:

• What is going on in the economy?
• Are the government, the IMF, the Central Bank... doing the right thing?
• Can they do better than this? How?

The ultimate goal is to address policy issues, that is, issues that are relevant to the individual. Examples:

• Why do some countries' economies grow faster than others?
• Why do some countries stop growing? What happened in Mexico (1995)? What is going on in Asia?
• Why do financial crises occur?
• How should the Central Bank set interest rates? Should the Central Bank be independent from the Government?
• Should Mexico have fixed or flexible exchange rates?