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Intermediate Macroeconomics (ECON 122)

Spring 2018

Instructor: Michael Peters

Office: 28 Hillhouse Avenue, Room 212
Phone 203-436-8475
Classes: MW 11:35 - 12:50, LC 102
Office hours: Monday 4 - 5, HH28, Office 212

This class aims to provide a solid foundation in modern macroeconomics. Macroeconomists study the aggregate
economy and are therefore concerned with a wide array of topics: inflation, unemployment, economic growth and
monetary policy are all subjects of macroeconomic analysis. Especially since the global financial crisis in 2008,
macroeconomics has taken center stage both in the public debate and for policy-makers. In the last decade the US
and many other countries around the globe have experienced their worst economic crisis since the great depression,
have been subject to bank-runs and credit freezes and witnessed a variety of (unconventional) policies like bail-outs
of financial institutions or large scale fiscal stimuli.
The goal of this class is to develop the main theoretical and empirical tools macroeconomics has to offer to
understand such events and to articulate and evaluate policy responses. Hence, while the course will involve
extensive discussions about real-world examples and current events, its purpose is methodological. In particular,
it will follow the tradition of modern macroeconomics to rely on solid micro-foundations based on microeconomic
principles. In doing so we will therefore study the interaction of individual agents in the economy (i.e. households,
firms, policy-makers, financial institutions, ...) and analyze the aggregate consequences. In terms of topics, we
will discuss both the long-run performance of the economy (that is understand the process of growth and the
accumulation of physical capital) and the causes of (and potential remedies for) short-run fluctuations. This latter
part will draw extensively on the experiences of the recent financial crisis.

Two completed terms of Introductory Economics, Micro and Macro (two of ECON 110, 115, 116) and a math
course, either MATH112 or 115 or 118 or 120. Students will have plenty of opportunities to refresh their memory
and to practice basic univariate calculus again.

Requirements for Credit

Class attendance is both mandatory to earn credit and necessary to learn the subject. Beyond class attendance,
there are three requirements, listed below. The weight each of them carries towards the final score is given in
1. Weekly problem sets [20%], all of which carry an equal weight. Students are encouraged (but, by no means,
required) to work on homework assignments in small groups. In order to get credit, each student must hand
in her/his own copy of the solutions and write on it clearly her/his own name and the names of the students
(s)he worked with, if any. While it can be very instructive to discuss the assignments with your classmates,
I want to stress that it is critical to try the assignment on one’s own - both to follow the material of the
class and (as a consequence) to do well in the exam. Problem sets are due at the end of the lecture at the
respective due date and there will be no exceptions without a letter from the College Dean. In return, the
worst problem set will be dropped. The problem sets will be graded on a check/check-plus basis.
2. A mid-term exam [30%], in class, on Monday, October 19th. The exam will be closed-book.
3. A final exam [50%] on Monday, May 7th, 2pm. The exam will be closed-book.

Grading will be on a curve and the grade distribution will strictly adhere to the official distribution:
A/A- : 44%
B+/B/B-: 50%
C+ and below: 6%

• Textbook: The main textbook for this class is Charles Jones, Macroeconomics, 4th edition, W. W. Norton &
Company, 2017. It is e.g. available at Amazon and at the Yale Bookstore. There are both rental and buying
options. As far as new purchases go, Amazon seems to be somewhat cheaper than the Yale Bookstore. While
the lecture will be based on the 4th edition of the book, you could probably follow the lecture using earlier
editions. However, the references to the respective pages and chapter numbers will be off.

• Lecture Notes: I will also provide lecture notes for the individual classes. These will be made available
prior to class so you can bring print-outs.
• Additional readings: There might also be some additional readings for individual topics. These might be
academic papers, newspaper articles or more detailed explanations of some concepts discussed in class.
• Course Website: The website for this class will be on canvas. It will not only have the lecture notes and
the additional readings, but also all the assignments and solutions. There is also an online-forum, which you
are encouraged to use as many of your classmates are likely to have the same question as you do. We will
check the online-forum regularly and post answers there.

Teaching Fellows
Three of our graduate students working in macroeconomics will assist teaching this course. They will collect the
assignments, grade them, return them, and hold weekly office hours:
• Marcos Frazao (

• Max Perez Leon (

• Gerardo Ruiz Sanchez (
If you have any questions about the material, please contact the TF of your section (see below) first. For all
administrative questions, please contact the head TF, Marcos Frazao.

We will have multiple parallel sections, which you can choose from. The sections will cover the material from the
course, answer questions raised by students and sometimes discuss the solutions to problem sets. The TF of your
section will also grade your problem sets. You will be able to sign up for the section of your choice in the first week
of classes. We will track your preferences and adjust the section schedule accordingly to try to accommodate your

My office hours
I am more than happy to talk to you during my office hours, which are generally on Monday, 4pm - 5pm. However,
this being a big class, I will need to ask you to sign up beforehand, to make sure there is enough time and you are
not standing in line. Please sign up during the week prior to the office hours with Mr Peter Rondina (his office is
located on the first floor of Hillhouse 28). Mr Rondina will NOT be able to sign you up by email.

FAQ - please read carefully
1. I need an exception (e.g., have to miss a deadline for homework, will miss the exam, etc) to the above rules
(e.g., I have a medical issue, family emergency, sports event etc), what do I do?
Before any exception is considered, for any reason, you will need to obtain a letter from the Dean of your
college requesting such an exception. This rule will be adhered to in 100% of the cases.
2. I emailed you but did not get a response, what is going on?
As this is a large class, I sometimes cannot personally email you (even though I try to!). I typically stick
around after each class – feel free to talk to me then or sign up for my office hours.
3. Final exam postponement: when and how can it be done (e.g., conflict with other exams, family emergency,
illness, etc)?
I will strictly adhere to the Yale College Policy. In short: (1) you will need to obtain a letter from the Residen-
tial College Dean; (2) The makeup examination for the fall term are administered to freshmen, sophomores,
and juniors at the end of the second week of classes in the following fall term.
4. When you discuss topics that is not in the book, am I responsible for that material for the exam?
Yes. You are responsible for the material covered on the slides and the readings that will be posted. I will start
many lectures with a “In the News”-section to tie the class material to current events. While I will not test
you on particular details (e.g. specific numbers), you should know the basics of these discussions.
5. I am sitting here, working on my problem set, and I think there is a typo or I do not understand the question.
What do I do?
Check the forum of the website to see if some of your classmates had the same issue and we already posted an
update. If not, contact your TF.

Topics and Schedule

1. Introduction

• Class overview and motivation

2. Measuring the Macroeconomy

3. The Economy in the Long-Run

• Factor Demand, Factor Supply and the Equilibrium Wage

• Understanding Income Differences Across the World: The Role of Capital and Technology
• The Solow Growth-Model: Steady-States and Transitional Dynamics
• Idea-based growth model
• Long-run Growth and the Structural Transformation
• Inflation in the long-run

4. Short-Run Fluctuations

• Micro-Foundations of Individual Behavior: Consumption and Investment

• Consumer Debt and Deleveraging during the Great Recession
• Short-run fluctuations: The IS-MP Model
• Credibility and Monetary Policy
• Dynamic Stochastic General Equilibrium Models
• Fiscal Policy: The Government Multiplier

5. International Economics

• International Trade, Trade Deficits and Foreign Debt

• International Finance
• The Euro Crisis

A schedule of classes and problem set is contained in Table 1.

Week Date Monday Wednesday Friday Problem Sets

1 15-Jan Class 1 Class 2
2 22-Jan Class 3 Class 4 Problem Set 1
3 29-Jan Class 5 Class 6 Problem Set 2
4 5-Feb Class 7 Class 8 Problem Set 3
5 12-Feb Class 9 Class 10 Problem Set 4
6 19-Feb Class 11 Class 12 Problem Set 5
7 26-Feb Class 13 Class 14
8 5-Mar Class 15 Mid term exam
9 12-Mar Spring recess Spring break Problem Set 6
10 19-Mar Spring recess Spring recess Problem Set 7
11 26-Mar Class 16 Class 17 Problem Set 8
12 2-Apr Class 18 Class 19 Problem Set 9
13 9-Apr Class 20 Class 21
14 16-Apr Class 22 Class 23 Problem Set 10
15 23-Apr Class 24 Class 25
16 30-Apr Reading period

Table 1: Schedule of Classes

Below you find a tentative plan for the readings for the respective classes. I will update the schedule as we go along
to make sure we stay in sync as the class is progressing. I will make sure to update the schedule in advance so you
know what the next week will be about. The required readings stem mostly from the course textbook (Charles
Jones, “Macroeconomics”, 4th edition) and cover the respective topic of the class. For some of the weeks I will also
put some additional readings on the class website.

Week Lecture Topic Required Readings Additional Readings
1 1 Introduction Jones, Ch. 1
1 2 Measurement Jones, Ch. 2
2 3 The Classical Economic Model: Jones, Ch. 3
The Economy in the Very Long Run Jones, Ch. 4, 4.1-4.2
2 4 The Classical Economic Model: Jones, Ch. 4, 4.3-4.5
Development Accounting
3 5 The Solow Model I: Jones, Ch. 5, 5.1-5.4
The Steady-State
3 6 The Solow Model II: Jones, Ch. 5, 5.5-5.10
Transitional Dynamics & Convergence
4 7 The Solow Model II: Jones, Ch. 5, 5.5-5.10
Transitional Dynamics & Convergence
4 8 Endogenous Growth: Jones, Ch. 6 + Appendix
Growth and Ideas
5 9 Long-run growth and Structural Change I Handout

5 10 Long-run growth and Structural Change II

6 11 Inflation in the Long-Run: Jones, Ch. 8

Quantity Theory + Fiscal Causes
6 12 The Short Run: Jones, Ch. 9
Potential Output and the Phillips Curve
7 13 Microfoundations I: Jones, Ch. 16
7 14 Microfoundations II: Jones, Ch. 17
9 15 Consumer Debt, House Prices Jones, Ch 10
and Deleveraging

Midterm and Spring Break

11 16 Economic Fluctuations I: Jones, Ch. 11
The IS Curve
11 17 Economic Fluctuations II: Jones, Ch. 12
Monetary Policy and Phillips Curves I
12 18 Economic Fluctuations II: Jones, Ch. 12
Monetary Policy and Phillips Curves II
12 19 Stabilization Policy I Jones, Ch 13.1-13.6

13 20 Stabilization Policy II: Jones, Ch. 14

The Great Recession & the Zero Lower Bound
13 21 Credibility in Monetary Policy: Jones, Ch 13.7
14 22 DSGE Models I Jones, Ch 15
14 23 DSGE Models II Jones, Ch 15
15 24 International Trade and Deficits Jones, Ch. 19
15 25 Recap

Table 2: Reading Schedule