Intermediate Macroeconomics

I Introduction......Page 22 Calculating GDP......Page 24 Real versus Nominal......Page 29 The Consumer Price Index......Page 35 Measuring the Labor Market......Page 37 Summary......Page 40 Models and Why Economists Use Them......Page 46 Summary......Page 48 The Early Period: 1936-1968......Page 50 Blowing Everything Up: 1968-1981......Page 51 Modern Macroeconomics: 1982-2016......Page 53 Summary......Page 55 II The Long Run......Page 56 Economic Growth over Time: The Kaldor Facts......Page 59 Cross Country Facts......Page 68 Summary......Page 71 Production, Consumption, and Investment......Page 74 Graphical Analysis of the Solow Model......Page 83 The Algebra of the Steady State with Cobb-Douglas Production......Page 89 Experiments: Changes in s and A......Page 90 The Golden Rule......Page 98 Summary......Page 103 Introducing Productivity and Population Growth......Page 109 Graphical Analysis of the Augmented Model......Page 114 The Steady State of the Augmented Model......Page 115 Experiments: Changes in s and A......Page 118 The Golden Rule......Page 128 Will Economic Growth Continue Indefinitely?......Page 129 Summary......Page 130 Understanding Cross-Country Income Differences......Page 134 Convergence......Page 135 Conditional Convergence......Page 139 Can Differences in s Account for Large Per Capita Output Differences?......Page 141 The Role of Productivity......Page 143 Summary......Page 146 The General Overlapping Generations Model......Page 151 Households......Page 152 Firm......Page 154 Equilibrium and Aggregation......Page 155 Cobb-Douglas Production and Logarithmic Utility......Page 158 The Golden Rule and Dynamic Inefficiency......Page 164 Government Intervention......Page 166 Incorporating Exogenous Technological Growth......Page 173 Summary......Page 177 III The Microeconomics of Macroeconomics......Page 180 A Dynamic Consumption-Saving Model......Page 182 Model Setup......Page 183 Optimization and the Euler Equation......Page 187 Indifference Curve / Budget Line Analysis and the Consumption Function......Page 190 Wealth......Page 203 Permanent and Transitory Income Changes......Page 207 Taxes......Page 209 Uncertainty......Page 211 Consumption and Predictable Changes in Income......Page 216 Borrowing Constraints......Page 218 Summary......Page 223 Multi-Period Generalization......Page 230 The MPC and Permanent vs. Transitory Changes in Income......Page 237 The Life Cycle......Page 240 Summary......Page 244 Model Setup......Page 249 Competitive Equilibrium......Page 250 Identical Agents and Graphical Analysis of the Equilibrium......Page 251 Supply Shock: Increase in Yt......Page 258 Demand Shock: Increase in Yt+1......Page 259 An Algebraic Example......Page 262 Agents with Different Endowments......Page 263 Summary......Page 266 Firm......Page 272 Diversion on Debt vs. Equity Finance......Page 279 Household......Page 281 Equilibrium......Page 291 Summary......Page 293 The Government......Page 296 Fiscal Policy in an Endowment Economy......Page 297 Graphical Effects of Changes in Gt and Gt+1......Page 301 Algebraic Example......Page 304 Fiscal Policy in a Production Economy......Page 305 Summary......Page 308 What is Money?......Page 314 Modeling Money in our Production Economy......Page 316 Household......Page 318 Firm......Page 325 Government......Page 326 Equilibrium......Page 327 Summary......Page 330 Equilibrium Efficiency......Page 335 The Social Planner's Problem......Page 336 The Basic Planner's Problem......Page 337 Planner Gets to Choose Mt......Page 339 Planner Gets to Choose Gt and Gt+1......Page 342 Summary......Page 344 Stylized Facts......Page 348 The Bathtub Model of Unemployment......Page 353 Transition Dynamics: A Quantitative Experiment......Page 354 Two Sided Matching: The Diamond-Mortensen-Pissarides Model......Page 356 The Matching Function......Page 357 Household and Firm Behavior......Page 359 Equilibrium......Page 360 Example......Page 363 Efficiency......Page 364 Summary......Page 366 IV The Medium Run......Page 369 Household......Page 371 Firm......Page 373 Government......Page 376 Equilibrium......Page 377 The Demand Side......Page 378 The Supply Side......Page 382 Bringing it all Together......Page 384 The Nominal Side......Page 385 Summary......Page 388 Equilibrium......Page 391 The Effects of Changes in Exogenous Variables on the Endogenous Variables......Page 393 Productivity Shock: Increase in At:......Page 394 Expected Future Productivity Shock: Increase in At+1......Page 396 Government Spending Shock: Increase in Gt:......Page 399 An Increase in the Money Supply: Increase in Mt......Page 405 Summary of Qualitative Effects......Page 407 Summary......Page 408 Measuring the Business Cycle......Page 413 Can the Neoclassical Model Match Business Cycle Facts?......Page 416 Is there Evidence that At Moves Around in the Data?......Page 419 Summary......Page 422 Measuring the Quantity of Money......Page 425 How is the Money Supply Set?......Page 427 Money, the Price Level, and Inflation......Page 431 Inflation and Nominal Interest Rates......Page 436 The Money Supply and Real Variables......Page 439 Summary......Page 441 Measurement of TFP......Page 446 An Idealized Description of the Labor Market......Page 449 Perfect Financial Markets......Page 450 An Absence of Heterogeneity......Page 451 A Defense of the Neoclassical Model......Page 452 Summary......Page 453 Exports, Imports, and Exchange Rates......Page 455 Graphically Characterizing the Equilibrium......Page 460 Positive IS Shock......Page 468 Increase in At......Page 472 Increase in Qt......Page 475 Increase in Mt......Page 477 Summary of Qualitative Effects......Page 478 Summary......Page 479 V The Short Run......Page 482 The LM Curve......Page 486 The IS Curve......Page 490 The AD Curve......Page 491 Summary......Page 495 The Neoclassical Model......Page 499 Simple Sticky Price Model......Page 504 Partial Sticky Price Model......Page 508 Summary......Page 517 The Neoclassical Model......Page 519 Simple Sticky Price Model......Page 526 Partial Sticky Price Model......Page 536 Comparing the New Keynesian Model to the Neoclassical Model......Page 548 Summary......Page 549 Dynamics in the New Keynesian Model: Transition from Short Run to Medium Run......Page 553 A Non-Optimal Short Run Equilibrium......Page 554 Dynamic Responses to Shocks......Page 557 A Non-Optimal Short Run Equilibrium......Page 565 Dynamic Responses to Shocks......Page 568 The Phillips Curve......Page 577 Implications of the Phillips Curve for Monetary Policy......Page 581 The Possibility of Costless Disinflation......Page 584 Summary......Page 588 Monetary Policy in the New Keynesian Model......Page 592 Policy in the Partial Sticky Price Model......Page 593 The Case for Price Stability......Page 600 The Natural Rate of Interest and Monetary Policy......Page 605 The Taylor Rule......Page 610 The Zero Lower Bound......Page 613 The IS-LM-AD Curves with the ZLB......Page 615 Equilibrium Effects of Shocks with a Binding ZLB......Page 620 Why is the ZLB Costly?......Page 624 Fiscal Policy at the ZLB......Page 628 How to Escape the ZLB......Page 630 How to Avoid the ZLB......Page 632 Summary......Page 634 Open Economy Version of the New Keynesian Model......Page 637 Deriving the AD Curve in the Open Economy......Page 638 Equilibrium in the Open Economy Model......Page 640 Comparing the Open and Closed Economy Variants of the Model......Page 641 Comparison in the Small Open Economy Version of the Model......Page 647 Increase in rtF......Page 651 Increase in Qt......Page 653 Fixed Exchange Rates......Page 655 Summary......Page 661 VI Money, Credit, Banking, and Finance......Page 664 The Basics of Banking......Page 667 Asymmetric Information: Adverse Selection and Moral Hazard......Page 669 The Bank Balance Sheet......Page 674 Credit Risk......Page 677 Liquidity Risk......Page 680 Modern Banking and Shadow Banking......Page 683 Summary......Page 689 Some Definitions and Algebra......Page 691 Open Market Operations and the Simple Deposit Multiplier with T-Accounts......Page 695 The Money Multiplier with Cash and Excess Reserve Holdings......Page 702 Two Monetary Episodes: The Great Depression and Great Recession......Page 715 Great Depression......Page 716 Great Recession......Page 719 Fractional Reserve Banking......Page 723 Summary......Page 724 Model Assumptions......Page 725 Enter a Bank......Page 727 Bank Runs......Page 730 Policies to Deal with Bank Runs......Page 734 Summary......Page 737 Bond Pricing and the Risk and Term Structures of Interest Rates......Page 739 Bond Cash Flow Repayment Plans......Page 740 Yield to Maturity......Page 741 Bond Pricing with No Uncertainty: A General Equilibrium Approach......Page 745 Default Risk and the Risk Structure of Interest Rates......Page 750 No Income Risk......Page 754 No Default Risk......Page 758 Income Risk and Default Risk......Page 760 Time to Maturity and the Term Structure of Interest Rates......Page 763 No Uncertainty: The Expectations Hypothesis......Page 765 Uncertainty and the Term Premium......Page 771 Conventional versus Unconventional Monetary Policy......Page 784 A Model with Short and Long Term Riskless Debt and Long Term Risky Debt......Page 785 Conventional Monetary Policy......Page 792 Unconventional Policy......Page 794 Summary......Page 801 The Stock Market and Bubbles......Page 804 Equity Pricing in a Two Period General Equilibrium Model......Page 806 Comparing Different Kinds of Stocks......Page 813 Moving Beyond Two Periods......Page 818 The Gordon Growth Model......Page 828 Bubbles and the Role of the Terminal Condition......Page 830 A Numerical Example with Bubbles......Page 833 Should Monetary Policy Attempt to Prick Bubbles?......Page 840 Equilibrium Stock Prices with Endogenous Production: the Neoclassical Model......Page 842 Summary......Page 846 Financial Factors in a Macro Model......Page 849 Incorporating an Exogenous Credit Spread......Page 850 Detailed Foundations......Page 852 Equilibrium Effects of an Increase in the Credit Spread......Page 855 The Financial Accelerator......Page 858 Summary......Page 866 Financial Crises: The Great Depression and Great Recession......Page 868 The Great Recession: Some More Specifics on the Run......Page 875 Thinking About the Great Recession in the AD-AS Model......Page 882 Unconventional Policy Actions......Page 889 Federal Reserve Lending......Page 890 Fiscal Stimulus......Page 893 Unconventional Monetary Policy......Page 896 Lingering Questions......Page 903 Summary......Page 904 VII Appendices......Page 928 Variables and Parameters......Page 929 Exponents and Logs......Page 930 Summations and Discounted Summations......Page 931 Growth Rates......Page 933 Systems of Equations......Page 935 Calculus......Page 936 Optimization......Page 942 Measures of Central Tendency: Mean, Median, Mode......Page 952 Expected Value......Page 953 Measures of Dispersion: Variance and Standard Deviation......Page 956 Measures of Association: Covariance and Correlation......Page 959 The Neoclassical Model with an Upward-Sloping Ys Curve......Page 964 The Neoclassical Model with an Intertemporal Dimension to Labor Supply......Page 965 Effects of Shocks with Upward-Sloping Ys......Page 969 Sources of Output Fluctuations with an Upward-Sloping Ys Curve......Page 973 The New Keynesian Model with Sticky Wages......Page 975 Equilibrium Effects of Shocks in the Sticky Wage Model......Page 980 Comparing the Sticky Wage Model to the Neoclassical Model......Page 990 A Non-Optimal Short Run Equilibrium......Page 994 Dynamic Responses to Shocks......Page 996 The AD Curve when the MP Curve Replaces the LM Curve......Page 1004 The Modified Supply Side......Page 1010 The IS-MP-AD-AS Model......Page 1012 The Effects of Shocks in the IS-MP-AD-AS Model......Page 1014