In lecture someone mentioned how if we were cynical we could imagine that AIDS in Africa would contribute towards long run growth. Professor Delong mentioned some reasons why in the Solow Model framework this might not be true. However he also gave the example of the Bubonic plague as a health shock to society which raises long term output. A simliar arguement about AIDS in africa has been made.
This paper by Alwyn Young (professor at University of Chicago Business
School). He tries to quantify the long term income prospects for people
in South Africa. He generally estimates they will be better off.
Abstract here:
----------------------
Abstract
This paper simulates the impact of the AIDS epidemic on future living standards in South
Africa. I emphasize two competing effects. On the one hand, the epidemic is likely to have a
detrimental impact on the human capital accumulation of orphaned children. On the other hand,
widespread community infection lowers fertility, both directly, through a reduction in the willingness
to engage in unprotected sexual activity, and indirectly, by increasing the scarcity of
labour and the value of a woman’s time. I find that even with the most pessimistic assumptions
concerning reductions in educational attainment, the fertility effect dominates. The AIDS epidemic,
on net, enhances the future per capita consumption possibilities of the South African
economy.
--------------------------
LINK TO PAPER: Gift of the Dying in PDF
The paper seems to combine 2 models, but does include what he calls a "solovian" macro-economic framework. So it is somewhat relevant and definitely interesting
In fact he seems to be using a version of the solow model very similar to what was done in class. Here is his "explanation" of why he uses it:
"To close the model, one must specify the evolution of the macroeconomy and, in
particular, the capital stock. Here, any number of frameworks could be used to motivate the savings
rate, e.g. overlapping generations with or without actuarially fair market interest rates, intergenerational
insurance, and/or accidental bequests. I heroically sweep these issues aside and,
following Solow, assume that the savings rate, by some combination of private and public sector
behavior, remains fixed. This allows me to focus on the mechanisms emphasized in this paper,
e.g. fertility and education, and their impact on overall future consumption possibilities. The element
left unexamined, the evolution of the savings rate, will determine the ultimate allocation of
these consumption possibilities across generations."
More lecture notes on economic growth: models with natural resources and with Malthusian population dynamics.
More introduction to growth theory lecture notes--what I'm going to be working from during the lecture.
Two Resources:
- Gapminder: <http://tools.google.com/gapminder/>
- Solow growth model scenario spreadsheet: <http://delong.typepad.com/print/20060829_Solow_growth.xls>
A few graphs:
- World income distribution and telephone usage 2005
- World income distribution and telephone usage 1975
- U.S. nonfarm employment, 1940-2006
- U.S. real GDP per worker, 1950-2006
A simple model, the Solow model, for analyzing an economy with labor L, capital K, and technology E...
- The Solow model assumes:
- The labor force grows at a constant proportional rate n
- The rate of improvement of "technology" is a constant proportional rate g
- Savings leads to investment of a fraction s of output Y in increasing the capital stock K
- A constant proportion delta of the capital stock K wears out each period.
- How much of the cross-country and cross-time pattern of economic growth can we explain with this simple model?
Due at start of lecture on Tuesday September 5
1. Perform the following steps:
a. Using your web browser (ideally Firefox), surf to <http://www.vox.com/>.
b. Click on the "Please sign in" link in the upper right corner of the window.
c. Sign in with email "xxxx" and password "xxxx".
d. Click on the "Organize" link in the upper right corner of the window.
e. If needed, click on the "Photos" button on the left. (It probably won't be needed.)
f. Click on the "+ New" button.
g. By clicking on the "Browse" button in the window that opens, select a photo of yourself to upload.
h. By typing in the "tags" box in the window that opens, associate the photo with your name.
i. Be sure the permissions on the photo are what you wish. Since everyone in the class has the userid and the password, selecting "you only" for the photo means that it can be seen by me and by the rest of the class. Selecting "world" means it can be seen by the world...
j. Look at the photo of the bald man on the "Organize your stuff" page. Guess who the bald man is, and guess what the time series behind him is.
k. Email Brad DeLong (at delong@econ.berkeley.edu) and Joe Rosenberg (at jwr@econ.berkeley.edu) telling us your guess, and whether you were able to successful upload and label the photo.
l. You now have write access to the course website. With great power comes great responsibility. I'd appreciate it if you didn't delete anything, but feel free to add interesting things to the website. Tag the additions you make with your name, and with whatever other category tags will help people find them.
2. Explain whether or not, why, and how the following items are included in the calculation of GDP:
a. Increases in business inventories.
b. Fees earned by real estate agents on selling existing homes.
c. Social Security checks written by the government.
d. Building of a new dam by the Army Corps of Engineers.
e. Interest that your parents pay on the mortgage they have on their house.
f. Purchases of foreign-made trucks by American residents
3. Calculating real magnitudes:
a. When you calculate real GDP, do you do so by dividing nominal GDP by the price level or by subtracting the price level from nominal GDP?
b. When you calculate the real interest rate, do you do so by dividing the nominal interest rate by the price level or by subtracting the inflation rate from the nominal interest rate?
c. Are your answers to (a) and (b) the same? Why or why not?
4. Suppose that the appliance store buys a refrigerator from the manufacturer on December 15, 2005 for $600, and that you then buy that refrigerator on January 15, 2006 for $1000:
a. What is the contribution to GDP in 2005?
b. How is the refrigerator accounted for in the NIPA in 2005?
c. What is the contribution to GDP in 2006?
d. How is the refrigerator accounted for in the NIPA in 2004?
5. Why do DeLong and Olney think that the interest rate and the level of the stock market are importnant macroeconomic variables?
6. What are the principal flaws in using GDP per worker as a measure of material welfare? Given these flaws, why do we use it anyway?
7. Suppose a quantity grows at a steady proportional rate of 3% per year. How long will it take to double? Quadruple? Grow 1024-fold?
8. Suppose we have a quantity x(t) that varies over time following the equation: dx(t)/dt = -(0.06)x + 0.36.
a. Without integrating the equation, tell me what the long-run steady-state value of x--that is, the limit of x as t approaches in infinity--is going to be.
b. Suppose that the value of x at time t=0, x(0), equals 12. Once again, without integrating the equation, tell me how long it will take x to close half the distance between its initial value of 12 and its steady-state value. How long will it take to close 3/4 of the distance? 7/8 of the distance? 15/16 of the distance?
9. Now you are allowed to integrate dx(t)/dt = -(0.06)x + 0.36.
a. Write down and solve the indefinite integral.
b. Write down and solve the definite integral for the initial condition x(0) = 12.
c. Write down and solve the definite integral for the initial condition x(0)=6.
10. What is the difference between the nominal interest rate and the real interest rate? Why do DeLong and Olney think that the real interest rate is more important?
Brad DeLong <mailto:delong@econ.berkeley.edu> Office Hours: T 12-2 Evans 601, or by appointment <http://www.j-bradford-delong.net/>
Joe Rosenberg <mailto:jwr@econ.berkeley.edu> Office Hours: F 9-11 508-5 Evans
Lecture Meets: TTh 2-3:30, 70 Evans
Sections Meet: MW 9-10 47 Evans, WF 11-12, 51 Evans
Course Website: <http://berkeley101bfall2006.vox.com/>
This is the syllabus for Economics 101b, Macroeconomics. It carries the course up until November 7. The syllabus for the rest of the course will be distributed later, and will depend on (a) how the class goes in September and October, and (b) what the currently "hot topics" in the economic news happen to be. The possibility of an American or global recession, the U.S. budget deficit, the looming possibility of a major U.S. dollar-financial crisis, the dilemmas of Federal Reserve policy, and the ongoing industrial revolutions in East and South Asia will certainly be on the second-half syllabus, but there will be other topics as well.
This is the go-faster and do-more version of macroeconomics--the study of the determination of output, production, income, employment, and prices in the economy as a whole.
*TEXTBOOK*
One book is required:
1. The intermediate macroeconomics textbook is the one that Brad DeLong and Marty Olney have written. DeLong and Olney (2005), _Macroeconomics_ 2nd ed. (New York: McGraw-Hill/Irwin) http://www.amazon.com/exec/obidos/asin/0072877588. Here is our explanation of why we wrote it the way we did: http://www.j-bradford-delong.net/Teaching_Folder/manifesto.html
Other things you might want to look at:
1. _The Economic Report of the President_, available online at <http://w3.access.gpo.gov/eop/>, for the U.S. government's view of the state of the economy.
2. _For recent economic data, the CEA-JEC _Monthly Economic Indicators_ <http://www.access.gpo.gov/congress/eibrowse/broecind.html>.
3. Robert Heilbroner's _The Worldly Philosophers_ (New York: Touchstone) <http://www.amazon.com/exec/obidos/asin/068486214X/braddelong00>.
4. Alan Blinder and Janet Yellen's (2001) _The Fabulous Decade_ (New York: Century Foundation) <http://www.amazon.com/exec/obidos/asin/0870784676/braddelong00>.
5. Various intelligent and readable weblogs by economists: [Greg Mankiw](http://gregmankiw.blogspot.com), [Tyler Cowen and Alex Tabarrok](http://marginalrevolution.com), [Mark Thoma](http://economistsview.blogspot.com), [Jim Hamilton and Menzie Chinn](http://www.econbrowser.com/), [Brad Setser](http://www.rgemonitor.com/blog/setser/), [Max Sawicky](http://maxspeak.org/mt/), [Dean Baker](http://www.prospect.org/deanbaker/), the [Economic Policy Institute](http://epinet.org/)
If you want alternative takes at the subject matter, let me recommend two alternative textbooks: Greg Mankiw's _Macroeconomics- <http://www.amazon.com/exec/obidos/ASIN/0716762137/braddelong00>, and Olivier Blanchard's _Macroeconomics_ <http://www.amazon.com/exec/obidos/ASIN/0131860267/bradelong00>. Olivier covers an extraordinary amount of ground at a conceptually (but not mathematically) very sophisticated level. His book is the best introductory macro book for those who can follow it. Greg is a brilliant and thoughtful man who is better than anybody else at making his point of view on economics seem natural and inevitable logical truths. Certainly the clearest introductory macro book.
*GO-FASTER, DO MORE*
Since this is a go-faster do-more course, we will go faster and do more. As a group, the class will be made up of people comfortable using calculus, so we'll feel free to use it in lectures, handouts, and in problem sets (and on exams). If you aren't comfortable using calculus, you probably don't belong here and may well not have a good time.
We will do a lot of things that are not in the book.
*WEB*
Since we will do a lot of things that are not in the book, I will need a place to put them. As some of you know, for the past decade I have been thrashing around, trying to figure out how to use modern electronic computer and communications technologies to supercharge education. The thrashing continues. This year's thrash will be to put the course website at:
><http://berkeley101bfall2006.vox.com>
More about this later...
*GRADES*
We are keenly aware that almost everybody signing up for this course could alternatively take and do very well in Economics 100b. We are anxious not to have students vote with their feet for an easier course and learn less because they fear the consequences of lowering their grade point average. Therefore this course will have a high curve: the idea is that nobody should get a lower grade than they would have gotten had they decided to take Economics 100b.
Grades will be based on the following:
* 20% from a first Midterm Exam to be given Thursday September 21. (This is really early to give a midterm. Nevertheless it is important to give a midterm exam early in the course to serve as a reality check: so that students in trouble can figure out how much trouble they are in, and also--more important--so that at least one of us (DeLong) can figure out how unrealistic and detached from reality his beliefs about his teaching effectiveness are.)
* 20% from a second Midterm Exam to be given October 19.
* 20% from a (short: two hours long) Final Exam to be given December 13.
* 20% from Problem Sets. Problem Sets will be graded either 0 points (didn't hand it in on time), 1 point (handed it in but didn't make much of a successful effort) to complete it, and 2 points (made an effort--largely successful--to solve the problems).
* 10% from a five-page paper due
* 10% from section participation.
No makeup exams will be offered. Students who miss one of the three exams will have their scores for the other exams reweighted to add up to 60%. Students who miss two of the three exams should not expect to pass the course.
Since this is a go-faster and do-more course,
T Aug 29: INTRODUCTION: The Problems of Macroeconomics [Background reading: _Macroeconomics_, chs. 1-3]
Th Aug 31: THE LONG RUN: ECONOMIC GROWTH: Model-Building [Reading: _Macroeconomics_, ch. 4]
T Sep 5: THE LONG RUN: ECONOMIC GROWTH: Model-Building: Capital and Equilibrim
Th Sep 7: THE LONG RUN: ECONOMIC GROWTH: Model-Building: Dynamics and Feedback
T Sep 12: THE LONG RUN: ECONOMIC GROWTH: Application: How Much of the World Can We Explain? [Reading: _Macroeconomics_, ch. 5]
Th Sep 14: THE LONG RUN: ECONOMIC GROWTH: Model-Building: Technology and Organization
T Sep 19: THE LONG RUN: ECONOMIC GROWTH: Application: Technology, Organization, and Political Economy
Th Sep 21: FIRST MIDTERM EXAM ("Professorial Reality Check" Exam)
T Sep 26: THE MEDIUM RUN: Introduction: Full Employment, Flexible Prices, and Accurate Expectations [Reading: _Macroeconomics_, ch. 6]
Th Sep 28: THE MEDIUM RUN: The Real Side: Model-Building: Components of Aggregate Demand
T Oct 3: THE MEDIUM RUN: Model-Building: Full-Employment Equilibrium [Reading: _Macroeconomics_, ch. 7]
Th Oct 5: THE MEDIUM RUN: The Real Side: Application: Government Surpluses, Government Deficits, Investment Booms
T Oct 10: THE MEDIUM RUN: The Real Side: Application: The International Side: Exchange Rates, Net Exports, and Sectoral Shifts
Th Oct 12: THE MEDIUM RUN: The Monetary Side: The Quantity Theory of Money [Reading: _Macroeconomics_, ch. 8]
T Oct 17: THE MEDIUM RUN: The Monetary Side: Inflation and Expectations
Th Oct 19: SECOND MIDTERM EXAM ("Medium Run" Exam)
T Oct 24: THE SHORT RUN: Business Cycles: Model-Building: Sticky Prices and Aggregate Demand [Reading: _Macroeconomics_, ch. 9]
Th Oct 26: THE SHORT RUN: Business Cycles: Model-Building: The IS Curve and Employment [Reading: _Macroeconomics_, ch. 10]
T Oct 31: THE SHORT RUN: Business Cycles: ApplIcation: Stabilization Policy since WWII
Th Nov 2: THE SHORT RUN: Business Cycles: Model-Building: The Phillips Curve and Inflation [Reading: _Macroeconomics_, ch. 12]
T Nov 7: CONCLUSION: Business Cycles: Model-Building: Tying Up the Short-Run and the Medium Run
Th Nov 9:
T Nov 14:
Th Nov 16:
T Nov 21: NO CLASS
T Nov 28:
Th Nov 30:
T Dec 5:
Th Dec 7: FINAL REVIEW
W Dec 13: FINAL EXAM 12:30-3:30
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