Homework #2

Here is the second homework, due at the start of class on Thursday. It uses the Keynes assumptions from the previous post.

Simple Keynes Model Assumptions

Here are some notes for a simple model of Keynes. Note that is NOT the standard Keynesian model that is in all the textbooks (chapter 12 in Williamson's Third Edition). This model allows aggregate demand to affect the economy. When aggregate demand affects the economy then financial frictions can have real effects on the economy. This is at the heart of Keynes' Theory in The General Theory, not sticky nominal wages. The sticky nominal wages are just an assumption so that the financial frictions and investor psychology can affect the economy. For this last point see the new and very intersting book by Akerlof and Shiller: Animal Spirits. We will be talking about this in class on Tuesday.

Exam One Solutions

Suggested solutions and a general grading algorithm for exam one can be found here.

Homework #1

The first homework, due Thursday is here.

Since we will be going over the homework in class, you have to turn the homework in at the start of class.

Homework and Extra Credit

In order to improve your performance for the rest of the class I am providing you an incentive to work hard the last two weeks of class. There will be two homeworks, one each due on the last two Thursdays of the semester. Each homework will be graded for completion, based upon effort not on whether the answer is correct. For each homework that you successfully complete your exam grade for my portion of the class will be augmented. Your exam grade consists of the weighted average of the two exams. The first exam is worth 40% and the last exam is worth 60%. Therefore your exam grade for my portion of the class is given by

exam grade=0.4*exam 1 % correct+0.6*exam 2 % correct

The exam grade will lie between 0 and 1.

Your exam grade will be augmented by the following algorithm:

• exam grade>0.9: each homework raises exam grade by 0.005
• 0.9> exam grade >0.8: each homework raises exam grade by 0.01
• 0.8> exam grade >0.7: each homework raises exam grade by 0.015
• 0.7> exam grade >0.6: each homework raises exam grade by 0.02
• 0.6> exam grade: each homework raises exam grade by 0.025

If you do two homeworks and the first homework raises your exam to a higher class (such as from 0.79 to 0.810) then the second homework raises your exam grade based upon the new category.

Note that this algorithm provides you some insurance in the case of poor exam performance.

Sample Questions

Here are some sample questions to work on for class on Tuesday and for the exam/quiz on Thursday. The exam will only be two questions and will not take the whole class time, thus I am referring to it as an exam/quiz. Another excellent source are the sample questions in the back of Chapter 8.

Update:

Here are some solutions for the questions.

IU Economics Forum

We had a very educational and quite often entertaining forum on Friday afternoon concerning the current economic crisis. Thanks goes out to Eric Leeper for organizing the forum.

All of the presenters at the forum have graciously allowed me to post their slides:

• Eric Leeper: Introduction
• Gregory F. Udell: "Should We Have Expected More from the Fed"
• George M. von Furstenberg: "Governance Effects of Current US Financial-Crisis Management: Executive Branch to the Rescue"
• Ellis W. Tallman and Elmus R. Wicker: "One More Observation in in 2008: Financial Crises in U.S. History"
• Bill Witte: "The Economic Situation and Outlook"
• Brian Peterson: "The Federal Reserve and the Credit Crisis: Non-Traditional Monetary Policy Responses"
• Eric Leeper: "Fiscal Policy Response: Unprecedented Stimulus"