This course explores core topics in macroeconomics, including national statistics, consumption and saving, unemployment, inflation, business cycles, monetary and fiscal policy, economic growth, and population dynamics. The course discusses short-run and long-run economic fluctuations in the United States and abroad. It also presents models describing such fluctuations: the IS-LM model of business cycles, the matching model of unemployment, models of inflation, the Malthusian model of pre-industrial growth, and the Solowian model of modern growth.
- Akerlof (2002) – This essay discusses macroeconomic models and their assumptions, and it isolates six macroeconomic phenomena that macroeconomic models should be able to explain.
This section introduces key macroeconomic concepts: gross domestic product (GDP), inflation, and unemployment.
- Kuznets (1934) – This report produces the first estimates of GDP in the United States.
- Kuznets (1952) – This paper measures GDP in the United States between 1869 and 1948.
IS-LM model of business cycles
This section presents the IS-LM model. Its goal is to explain the fluctuations of GDP observed over the business cycle. The model is also useful to understand the effects of monetary and fiscal policy.
- Expenditure function
- IS submodel
- LM submodel
- OMO, ZLB, and money multiplier
- IS and LM curves
- Monetary and fiscal policy
- Hicks (1937) – This paper builds the IS-LM model from Keynes’s General Theory.
- Krugman (2018) – This essay argues that the IS-LM is still good enough for policy work.
Matching model of unemployment
The IS-LM model does not feature unemployment, which is problematic because high unemployment is the most costly consequence of recessions. To explain the existence of unemployment and the fluctuations of unemployment over the business cycle, this section develops a matching model of unemployment.
- Matching function
- Labor supply
- Labor demand
- Equilibrium of the matching model
- Labor-market policies
- Unemployment types
- Michaillat (2012) – This paper shows how to introduce job rationing into a matching model of unemployment. It also shows that a mild amount of wage rigidity is sufficient to generate realistic fluctuations in unemployment over the business cycle.
- Landais, Michaillat, Saez (2018) – This paper develops a static matching model of unemployment. It represents its equilibrium with labor demand and supply curves in an employment-tightness plane.
Models of inflation
This section introduces the Phillips curve and discusses fluctuations in inflation over the business cycle. It also briefly presents the quantity theory of inflation and discusses episodes of hyperinflation.
- Phillips (1958) – This paper discovers a negative relation between unemployment and wage inflation in the United Kingdom.
- Samuelson, Solow (1960) – This paper discovers a negative relation between unemployment and price inflation in the United States. (It also finds a negative relation between unemployment and wage inflation in the United States.)
Malthusian model of growth
Moving away from short-run, business-cycle fluctuations, this section turns to long-run macroeconomic fluctuations. It describes long-run fluctuations in the pre-industrial period using the Malthusian model of growth.
- Ashraf, Galor (2011) – This paper describes fluctuations in population and output per worker in the pre-industrial era. It then develops the Malthusian model of growth to explain these observations.
Solowian model of growth
This final section describes long-run fluctuations in the modern, industrial era using the Solowian model of growth.
- Production and saving
- Output per worker in the Solowian model
- Golden rule
- Technological progress
- Balanced growth
- Solow (1956) – This paper develops the basic Solowian model of growth.
- Solow (1957) – This paper adds technical progress to the Solowian model of growth.