ECON 303 Intermediate Macroeconomics



Instructor:

Bernard Malamud

–Office:

BEH 502 Phone (702) 895 –3294 Fax: 895 – 1354

»

Email: [email protected]

Website: www.unlv.edu/faculty/bmalamud Office hours: TR 12-1 pm; 2:30 – 3:30pm; and by

appointment

Macro News

2007 CPI Inflation: 4.1 %, highest in 17 years!

– Core CPI up only 2.4%.

2007 Housing Construction: Down 25% – Clark County Home Sales: New – 45% Existing – 40% December Index of Industrial Production: No gain December Index of Leading Indicators: Down 0.4% December Unemployment Rate: 5.0%, up from 4.7% December Retail Sales: Down 4% Index of Consumer Sentiment: Down 18%, Nov - Nov S & P 500 – December 31, 2007  1468 – January 17, 2008 [ Philadelphia Beige Book ]  1333

January 22, 2008: 75 Basis Point Fed Funds Rate Cut

Macro News

2008 CPI Inflation: ~1 %, lowest in 40 years!

– Core CPI up 2.4%.

2007 Housing Construction: Down 25% – Clark County Home Sales: New – 45% Existing – 40% December Index of Industrial Production: 5 ½ % December Index of Leading Indicators: Down 0.4% December Unemployment Rate:6.7%, 7.2% up from 5% last year December Retail Sales: Down ~4% Index of Consumer Sentiment: Down ~30%,Nov - Nov S & P 500 – January 8, 2008  901 vs. December 31,2007  1468

January 22, 2008:75 Basis Point Fed Funds Rate Cut to 4% Latest Target FFRATE: 0 - .25%

Timely Targeted

Today’s Headlines

Temporary

R o b u s t

•

Timely IMF: Global Stimulus Package

(as there is an urgent need for action)

· Large

(because the drop in demand is large)

· Lasting

(as the recession will likely last for some time)

· Diversified

(as there is uncertainty regarding which measures will be most effective)

· Contingent

(to indicate that further action can be taken)

· Collective

(all countries that can should expand G-T given the severity and global nature of the downturn)· •

Sustainable

(to avoid debt explosion in the long run and adverse effects in the short run).

Stimulus Program Proposals: Re-emergence of Fiscal Policy

Grants/loans to states “Shovel-ready” infrastructure

– Unintended consequence…hold back

Military spending Green investment

– Environment, energy

Tax cuts

– Investment tax credit – Sales tax rebate

Automatic stabilizers

– $Trillion deficits as far as eye can see

Obama Speech: January 8, 2008

“We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future,” Mr. Obama said. “And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world. In short, a bad situation could become dramatically worse.” He said he aimed to

double the production of alternative energy within three years, a seemingly ambitious target; computerize all medical records in the country within five years, a move he said could save lives, money and jobs; modernize 75 percent of federal buildings and improve energy efficiency in 2 million homes; upgrade classrooms, libraries and laboratories in thousands of schools, and expand broadband access to rural areas .

Mr. Obama blamed the current economic morass — in particularly stark terms — on “an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington.” “I understand that some might be skeptical of this plan. Our government has already spent a good deal of money, but we haven’t yet seen that translate into more jobs or higher incomes or renewed confidence.”

He insisted that only government could “break the vicious cycles that are crippling our economy,” prevent “the catastrophic failure of financial institutions,” restart the flow of credit and restore the regulations needed to prevent such a crisis in the future.

Y = C + I + G + Ex - Im

Course Objectives

Refresh your command of … Macroeconomic terminology



eco-talk Macro Facts Schools of thought

Course Objectives

Master

MODELS

–

Demand Side Models



AD Multiplier IS – LM

–

Supply Side Models



AS Wage setting – Price setting Phillips Curve

–

Role of Expectations … in theory and practice

–

Stabilizing an Unstable Economy Understanding the current crisis

Macro - variables

Output … Real GDP … Growth Rate Unemployment Inflation … CPI, GDP Deflator

Macro Time Frames

Short run … sticky price Medium run … price adjusts Long run … economic growth

Where We’re Heading Develop tools to address macro questions:

–

What drives expansions and recessions?

–

What holds inflation in check?

–

Can the unemployment rate be too low?

What causes unemployment?

–

Why do growth rates differ across countries?

Where to Find the Numbers

http://research.stlouisfed.org/fred2/ www.bls.gov/data/ www.economist.com

www.bea.doc.gov

http://www.gpoaccess.gov/eop/ www.oecd.org

The Federal Funds Rate and Its “Real” Value

Real interest rate = Nominal rate – Expected Inflation

Facilities: Primary dealers, commercial paper TermAssetBackedSecuritiesLoanFacility(TALF) •CITI

Financial crisis of 2007 –2008 Specific issues United States housing market correction Subprime mortgage crisis · World food price crisis · Energy crisis ( Central Asia ) ( timeline , List of writedowns ) · Global financial crisis · · Automotive industry crisis · List of entities involved ( Bankrupt or acquired banks , Bankrupt retailers ) · 2008 East Asian meetings By country Belgium · Iceland · Russia Legislation and policy Banking (Special Provisions) Act 2008 · Housing and Economic Recovery Act of 2008 · Economic Stimulus Act of 2008 Program · Emergency Economic Stabilization Act of 2008 · Term Asset-Backed Securities Loan Facility · · Troubled Assets Relief 2008 United Kingdom bank rescue package · China Stimulus Plan · Obama stimulus plan Company failures New Century Financial Corporation · American Freedom Mortgage Bernard L. Madoff Investment Securities LLC · American Home Mortgage · Lehman Brothers ( bankruptcy ) · Mervyns · · NetBank Icesave · Terra Securities ( scandal ) · Sentinel Management Group · Kaupthing Singer & Friedlander · Yamato Life · Washington Mutual · Government bailouts and takeovers Northern Rock Mac ( ( nationalisation ) takeover ) · AIG · · IndyMac Federal Bank Bradford & Bingley · Fortis · · Fannie Mae Glitnir · ( takeover ) · Hypo Real Estate Freddie · Dexia · Landsbanki · Kaupthing · ING Group · Citigroup · General Motors · Chrysler Company acquisitions Ameriquest Mortgage Lynch · Countrywide Financial · Washington Mutual · · Bear Stearns Derbyshire Building Society · Alliance & Leicester · · Merrill Cheshire Building Society · HBOS · Lehman Brothers · Wachovia Scarborough Building Society · Sovereign Bank · National City Corp.

· Barnsley Building Society ·