Introduction to Topics in Macroeconomics

Transcription

1 Introduction to in Macroeconomics Lecture 1 in Macroeconomics October 6, 2008 Lecture 1 1/16 in Macroeconomics

2 Information Alice Schoonbroodt, room 58/3013 Office hours: Tuesday 14:00 to 16:00 or by appointment Lecture 1 2/16 in Macroeconomics

3 Information Unit webpage: Teaching link Econ 3010 Schedule: 20 lectures and 4 tutorials (weeks 3,5,7 and 9) Lecture 1 3/16 in Macroeconomics

4 Information Course material: The course material mostly consists of lecture notes/slides which will be available on the course website. There will be some references to textbooks, available at the library. The texts I will be referring to the most are D. Romer (1996,2001) Advanced Macroeconomics, McGraw-Hill, Advanced Textbooks in Economics. R. Barro and X. Sala-i-Martin (1995,1998) Economic Growth, McGraw-Hill, Advanced Textbooks in Economics. Throughout the course chapters of "The Elusive Quest for Growth" by William Easterly will constitute required reading. Lecture 1 4/16 in Macroeconomics

5 Information Assessment: 10%: 3 homeworks, best 2 count for 5% final mark 90%: final written examination Marked problem sets are due on Mondays 16:00 of weeks 5, 7 and 9. They will be available (on the course webpage) at least one week before the due date. No late assignments will be accepted. Please, hand in assignments in designated box, Building 58 on the 3rd floor in front of support office. Additional problem sets for practice will be made available throughout the semester. Lecture 1 5/16 in Macroeconomics

6 Learning outcomes Apply the modern dynamic approach to macroeconomics to analyse a wide range of issues relating to economic growth; that is, develop technical skills to contrast and evaluate the contribution of simple and more complex theories to our understanding of real world issues of growth and development. Critically assess and discuss the effects of government policies on people s choices, the macro economy and economic growth. Lecture 1 6/16 in Macroeconomics

7 Learning outcomes Critical assessment of Theories of economic growth: why do some countries grow while others don t? How does fiscal policy affect growth and development? How? Empirical relevance of these theories? How? Take the theories with caution: The Elusive Quest for Growth Economists Adventures and Misadventures in the Tropics by William Easterly, MIT Press Lecture 1 7/16 in Macroeconomics

8 List of Information Why do we care about growth? The Solow model and economic growth Consumption-savings decision The Ramsey model of economic growth Topic 1: Why do we care about growth? Topic 2: The Solow model and economic growth Topic 3: Consumption-savings decision Topic 4: The Ramsey model of economic growth Topic 5: Endogenous growth and human capital Topic 6: Demographics, growth and fluctuations Lecture 1 8/16 in Macroeconomics

9 Why do we care about growth? Why do we care about growth? The Solow model and economic growth Consumption-savings decision The Ramsey model of economic growth Look at a few facts across countries and over time Mortality and growth Health and growth Compare various countries Robert Lucas: Once you start thinking about growth, it gets hard to think about anything else! Lecture 1 9/16 in Macroeconomics

10 Why do we care about growth? The Solow model and economic growth Consumption-savings decision The Ramsey model of economic growth The Solow model and economic growth A basic model to address growth: capital accumulation exogenous growth Simple extensions to address human capital accumulation endogenous growth Lecture 1 10/16 in Macroeconomics

11 Consumption-savings decision Why do we care about growth? The Solow model and economic growth Consumption-savings decision The Ramsey model of economic growth Solow model takes savings rate as given Look at the consumption-savings decision of households Use this framework to learn about the effects of capital gains taxes on savings choices Lecture 1 11/16 in Macroeconomics

12 Why do we care about growth? The Solow model and economic growth Consumption-savings decision The Ramsey model of economic growth The Ramsey model of economic growth Combine Solow growth model and consumption-savings choice Address the effect of fiscal policy (e.g. capital taxes) on household s savings decisions hence, on economic growth Lecture 1 12/16 in Macroeconomics

13 Endogenous growth and human capital Demographics, growth and fluctuations About Easterly Endogenous growth and human capital Besides physical capital accumulation, the household can also accumulate human capital Address a variety of taxes, subsidies and policies e.g. Education subsidies, labor income taxes,... Lecture 1 13/16 in Macroeconomics

14 Endogenous growth and human capital Demographics, growth and fluctuations About Easterly Demographics, growth and fluctuations Use the models developed throughout the course to address questions such as: Why has fertility decreased so sharply in developed countries? Why do poor countries tend to have high fertility rates? How do fertility choices change over long productivity cycles? Demographics and relative prices e.g. housing prices, wages and interest rates Lecture 1 14/16 in Macroeconomics

15 Endogenous growth and human capital Demographics, growth and fluctuations About Easterly About Easterly, MIT Press Webpage Since the end of World War II, economists have tried to figure out how poor countries in the tropics could attain standards of living approaching those of countries in Europe and North America. Attempted remedies have included providing foreign aid, investing in machines, fostering education, controlling population growth, and making aid loans as well as forgiving those loans on condition of reforms. None of these solutions has delivered as promised. The problem is not the failure of economics, William Easterly argues, but the failure to apply economic principles to practical policy work. Lecture 1 15/16 in Macroeconomics

16 Endogenous growth and human capital Demographics, growth and fluctuations About Easterly About Easterly, MIT Press Webpage In this book Easterly shows how these solutions all violate the basic principle of economics, that people private individuals and businesses, government officials, even aid donors respond to incentives. Easterly first discusses the importance of growth. He then analyzes the development solutions that have failed. Finally, he suggests alternative approaches to the problem. Written in an accessible, at times irreverent, style, Easterly s book combines modern growth theory with anecdotes from his fieldwork for the World Bank. William Easterly is Senior Fellow at the Center for Global Development and the Institute for International Economics in Washington, DC. Lecture 1 16/16 in Macroeconomics