Econ 2 Spring 2014 Feed

Links for the Week of May 15, 2016

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Econ 1: Spring 2016: U.C. Berkeley: Required Purchases

Required Purchases:

  • Robert Frank, Ben Bernanke, Kate Antonovics, and Ori Heffetz: Principles of Economics http://amzn.to/1Zpuoj5 (New York: McGraw-Hill: 9781259897580) be sure to order and buy ISBN 9781259897580 from the Berkeley bookstore
  • Partha Dasgupta (2007): Economics: A Very Short Introduction http://amzn.to/1ZpuFCQ (Oxford: Oxford University Press: 9780192853455)
  • Milton Friedman and Rose Director Friedman (1970): Free to Choose: A Personal Statement http://amzn.to/1NbvEPU (New York: Mariner Books: 9780156334600)
  • Tom Slee (2006): No One Makes You Shop at Wal-Mart: The Surprising Deceptions of Individual Choice http://amzn.to/234zCph (New York: Between the Lines: 9781897071069)
  • i>Clicker+ Student Remote http://amzn.to/1ZpvkEe (New York: W.H. Freeman: 9781464120152)

Econ 1: Spring 2016: UC Berkeley: Resources

Moving this too off of the main course syllabus page, which is getting too crufty...


Resources:


Econ 1: Spring 2016: UC Berkeley: Office Hours

Moving this off of the main syllabus page, which is getting too crufty...


J. Bradford DeLong's office hours: please email delong@econ.berkeley.edu to reserve yourself a slot; usually Tu 9-11 in Evans Hall 691 at Cesar Chavez, but also by appointment, and with extra hours arranged week-by-week.

GSI Office Hours:

  • Ranchithaa Anatory: W 9-11 in 211 Wellman.
  • Elsa Augustine: M 1-3 in Evans 640.
  • Waheed Baksh: MW 11-12pm in 211 Wellman.
  • Claire Boone: M 9-10, Th 9-10 in Golden Bear Cafe Evans 640.
  • Tiffany Chang: W 1-3 at Havilland Commons FSM Cafe.
  • T. Woody Kongsamut: M 2-4 in Evans 542.
  • Christian Lambert: Tu 1-3 in Evans 542.
  • Nikhil Rao: M 9-10, 12-1 PM in 211 Wellman.
  • Chimi Dolkar Sherpa: W 9-11 in 211 Wellman.
  • Andrew Spreen: M 4-5 Th 1-2 in 211 Wellman.

Also: Cal Econ Tutors | @CalEconTutoring | Student Learning Center:

  • Denny Lai (SLC) denny.lai@berkeley.edu:
  • Khuyen V. Nguyen (SLC) kvn@berkeley.edu:
  • Max Mueller (Econ) mwmueller@berkeley.edu: Tu 8-9:30, We 12-1, Th 8-9:30 and 11-12, F 8-10
  • Peter McCrory (Econ) peter.mccrory@gmail.com: M 12-1:30, Tu 11-12, W 3-4:30, Th 11-12 and 2-4.

Econ 1: Spring 2016: U.C. Berkeley: Microeconomics: Where and How Markets Go Wrong


Course Master Syllabus Page: http://www.bradford-delong.com/course-syllabus-econ-1-spring-2016-uc-berkeley.html This Page: http://www.bradford-delong.com/2016/03/econ-1-spring-2016-uc-berkeley-microeconomics-how-markets-go-wrong.html Edit: http://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f08003883401b7c81e37c2970b/edit


Econ 1: Spring 2016: U.C. Berkeley: Microeconomics: What Markets Get Right


Course Master Syllabus Page: http://www.bradford-delong.com/course-syllabus-econ-1-spring-2016-uc-berkeley.html This Page: http://www.bradford-delong.com/2016/03/econ-1-spring-2016-uc-berkeley-what-markets-get-right.html Edit: http://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f08003883401b8d1a85849970c/edit


Econ 1: Spring 2016: UC Berkeley: Thinking Like an Economist


Course Master Syllabus Page: http://www.bradford-delong.com/course-syllabus-econ-1-spring-2016-uc-berkeley.html This Page: http://www.bradford-delong.com/2016/03/econ-1-spring-2016-uc-berkeley-thinking-like-an-economist.html Edit: http://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f08003883401b7c81e35e7970b/edit


Econ 2: Spring 2014: UC Berkeley: Final Exam: Good Luck, All--As a Group, You'll Do Fine...

Final Exam is Tomorrow, Friday at 8 am - 11 am

234 Hearst Gym

Open Book - paper only

Bring: Blue Books, Calculator, writing pen/pencil. If you don't bring a calculator, you'll have to do the calculations without one. There will be a double-sided answer page to hold the "problem" answers, but you must do the work to arrive at the answers in your blue books.


Econ 2: Spring 2014: UC Berkeley: Final Exam

Final Exam is Tomorrow, Friday at 8 am - 11 am

234 Hearst Gym

Open Book--paper only

Bring: Blue Books, Calculator, writing pen/pencil. If you don't bring a calculator, you'll have to do the calculations without one. There will be an "Answer Paper" to fill out your answers at the end of the exam, but you must turn in your Blue Books.

Last minute administrivia:

Please check your bCourse HW set grades to make sure you have the right scores, etc. Everyone should have all grades for all HW sets. We will add your paper grades this weekend. After tomorrow, all grades will stay as they are.

Please pick up your HW sets from both Connie B and M at the end of the exam.

Lastly, it was a pleasure working with all of you. We hope you stay in touch.

We wish you a lot of luck on the exam and hope you have an amazing summer.

Best,

Connie B and M


Needless to Say: Crowdsourcing the Answers to the Problems on the Sample Finals Would Be Fun and Welcome: Contributions Appreciated...


Week 15: Review

Week 15: Things to Review:


Week 13 and Week 14: Budget, Long-Run Growth, Review: Econ 2: Spring 2014: UC Berkeley

Week 13 and Week 14

April 21:

April 23:

April 28:

April 30:


Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: E. "Say's Law"

Back in 2009 University of Chicago Professor and (now) Nobel prize-winner Eugene Fama wrote:

Bailouts and stimulus plans are funded by issuing more government debt.... The added debt absorbs savings that would otherwise go to private investment.... [S]timulus plans do not add to current resources in use. They just move resources from one use to another.... I come back to these fundamental points several times below....

The Sad Logic of a Fiscal Stimulus: In a "fiscal stimulus," the government borrows and spends the money on investment projects or gives it away as transfer payments to people or states. The hope is that government spending will put people to work.... Unfortunately, there is a fly in the ointment.... [G]overnment infrastructure investments must be financed -- more government debt. The new government debt absorbs private and corporate savings, which means private investment goes down by the same amount....

Suppose the stimulus plan takes the form of lower taxes... we can't get something for nothing this way either... lower tax receipts must be financed dollar for dollar by more government borrowing. The government gives with one hand but takes them back with the other, with no net effect on current incomes...

Fama’s argument is that the government cannot increase its total planned expenditure without somebody else decreasing their planned expenditure—that any cash the government spends must be either borrowed from or taxed from private individuals, who then must cut their planned expenditure by as much as the government increases its. This is, it seems to me, the doctrine called “Say’s Law”. Write a 20-minute essay trying to convince Professor Fama he is wrong.


Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: D. Elasticities

Consider the demand curve:

P = 30 - Q/30000

  1. What is the elasticity of demand at Q = 900000?
  2. What is the elasticity of demand at Q = 450000?
  3. What is the elasticity of demand at P = 30?
  4. What point on the demand curve maximizes total revenue?
  5. Why wouldn't a monopolist ever produce a quantity more than 450,000?

Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: F. The Income-Expenditure Framework

Suppose that it is December 2018 and you are in charge of forecasting the state of the economy in 2020. You believe that potential output in 2022 will be $20 trillion, with a 2% inflation rate, and your baseline forecast given current policies for output in 2020 is $19.4 trillion. You also believe that the marginal propensity to consume is 2/3, and you are working in the income-expenditure model. Suppose, also, that you believe the aggregate supply curve is strongly kinked with inflation anchored at 2%/year: that whenever potential output is above actual real expenditure the inflation rate is 2%/year, but if expenditure rises above the level consistent with output equal to potential output times the price level at 2% inflation, inflation accelerates and the price level rises to keep actual output from rising above potential.

  1. Suppose that the federal government undertakes an extra $200 billion fiscal stimulus infrastructure construction program for 2020, and the Federal Reserve remains passive. How does this change your forecast of GDP and inflation in 2020?

  2. Suppose that the federal government undertakes an extra $400 billion fiscal stimulus infrastructure construction program for 2020, and the Federal Reserve remains passive. How does this change your forecast of GDP and inflation in 2020?

  3. Suppose that the federal government undertakes an extra $400 billion fiscal stimulus infrastructure construction program for 2020, but the Federal Reserve acts to keep inflation from rising above 2%/year. How does this change your forecast of GDP and inflation in 2020? What components of GDP do you think rise and what components of GDP do you think fall in this scenario?

  4. How would your answer to (1) have been different if potential output were not $20 trillion but $21 trillion?

  5. How would your answer to (2) have been different if potential output were not $20 trillion but $21 trillion?

  6. How would your answer to (3) have been different if potential output were not $20 trillion but $21 trillion?


Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: G. The Government Budget

In the first quarter of 2014 the Commerce Department’s Bureau of Economic Analysis estimated that local, state, and the federal government purchased $716.2 billion worth of goods and services, in a context in which total GDP in that quarter was $3,986.6 billion—government purchases were thus 17.9% of the entire economy. Do you believe that this number is lower than is optimal, about optimal, or too high to be optimal? Why? What things have you learned in this course that have changed or confirmed your view of this question?


Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: H. Next Time

This is the first time we have taught Econ 2 since 2007, so we are especially anxious for feedback. Write a four-paragraph essay. Pick one element of the course that you thought worked best, and explain why you thought it worked best. Pick one element of the course that you thought worked badly but needs to be improved, and explain how you think it could be improved. Pick one element of the course that you thought worked badly and should be dropped. and explain why it should be dropped. And pick one topic not covered in the course that you think should be added, and explain why it should be added.


Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: B. Supply and Demand: Bubble-Tea Drinks Near Crony Capitalism University

B. Supply and Demand: (20 minutes—if you are not through after 20 minutes, skip to the next question): In the central part of the state of Euphoria there is an enormous suburban sprawl, somewhere in the middle of which is Tall Stick, home of Crony Capitalism University. [Founded by a nineteenth-century Robber Baron who told his British investors that their money was safe in his enterprises because he was not just a financier but also a big wheel in the dominant political party and an ex-governor of the state of Euphoria. Ha, ha! Silly British investors! What they thought would be their profits became instead the core endowment of CCU.] We will look at the daily market for bubble-tea drinks near CCU.

Suppose that the quantity of bubble-tea drinks demanded and the quantity of bubble-tea drinks supplied daily are given by the equations:

  • Demand: P = -10 + Q/800
  • Supply: P = 20 - Q/1600

where P is the price of a bubble-tea drink in dollars:

  1. What is the market equilibrium price?
  2. What is the market equilibrium quantity?
  3. What is the producer surplus?
  4. What is the consumer surplus?
  5. Explain, intuitively, why the distribution of producer and consumer surplus is what it is.
  6. What would the distribution of consumer and producer surplus be if the supply curve equation were: {IF (10>P) THEN (Q=0)} AND {IF (P≥10) THEN (Q=16000)?

Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: C. Natural Monopoly

C. Natural Monopoly: (20 minutes—if you are not through after 20 minutes, skip to the next question): All of the 10,000 students at Crony Capitalism University are addicted to The Social Network. The Social Network has no costs: the programming has been done, and the maintenance, bandwidth, and cloud-storage costs are negligibly small. The Social Network sells ads at $1/minute per student—thus if every student watches an ad the advertiser pays The Social Network $10,000; if half the students watch an ad the advertiser pays The Social Network $5,000; and if no students watch an ad the advertiser pays The Social Network $0. The students at CCU who do not install ad-blocking software on their browsers see all ads. The students at CCU who do install ad-blocking software on their browsers see no ads. The fraction F of CCU students who install ad-blocking software is given by the following equation:

  • F = 0 + Q/300

where Q is the number of minutes of advertisements TSN sells.

  1. What is the revenue curve for advertisements sold by TSN—that is, how much money does TSN earn as a function of how many ads it sells?
  2. What is the profit-maximizing number of ads that TSN as a natural monopolist sells?
  3. Suppose that it costs each CCU student $300 to install ad-blocking software—they have to hire computer-science majors from Euphoric State as consultants to do the job, you see. Assuming watching each one-minute ad is equally painful in utility terms to each CCU student, what is the willingness--to-pay of CCU students for ad-blocking software?
  4. Suppose that CCU decided to charge each of its students a flat fee and use that money to get TSN to supply an ad-free version to CCU students. How large a fee would CCU have to charge to induce TSN to take the deal? Qualitatively, which CCU students would gain from this arrangement relative to the natural-monopoly equilibrium? Which CCU students would lose?

Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: A. Identifications

A. Identifications (20 minutes—if you are not through after 20 minutes, skip to the next question): Briefly, in one or two sentences, explain the terms set out and how they have been used in the course:

  1. “Utility”
  2. “Social Welfare” or “Societal Well-Being”
  3. Market Failure
  4. Quotas
  5. Willingness-to-Pay
  6. Non-Rivalry and Non-Excludability
  7. “Say’s Law”
  8. Output Gap

https://www.icloud.com/iw/#keynote/BAJyIHj2wec7YuneZJmB9uqBj63LabiLvkqF/20140430_Econ_2_Sample_Final_Exam_II_Answers_DRAFT.key


Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: B. Supply and Demand

In the central part of the state of Euphoria there is a small city, Avicenna, which is the home of Euphoric State University. [“Avicenna” is a corruption of the Arabic Ibn Sina, the byname of the great eleventh-century Iranian Abu Ali al-Husayn ibn Abd Allah ibn Sina: academic administrator, Quran reciter, astronomer, chemist, geologist, psychologist, theologian, mathematician, physicist, physician, poet, and paleontologist.] We will look at the daily market for espresso-based drinks in Avicenna.

Suppose that the quantity of espresso drinks demanded and the quantity of espresso drinks supplied daily are given by the equations:

  • Demand: Q = 20,000 - 2000P
  • Supply: Q = max(-16000 + 8000P, 0)

where P is the price of an espresso-based drink in dollars:

  1. What is the market equilibrium price?
  2. What is the market equilibrium quantity?
  3. What is the producer surplus?
  4. What is the consumer surplus?
  5. Explain, intuitively, why the distribution of producer and consumer surplus is what it is.
  6. What would the distribution of consumer and producer surplus be if the supply equation were: P = 3.6?

Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: C. Elasticity

Still in Avicenna—same setup as B—but this time we have different supply and demand curves

  • Demand: P = 148.413 x Q(-0.5)
  • Supply: P = 1/54.598 x Q

    1. What is the elasticity of demand at Q = 1?
    2. What is the elasticity of supply at Q = 1?
    3. What is the market equilibrium price
    4. What is the market equilibrium quantity?
    5. What is the producer surplus?
    6. What is the consumer surplus?
    7. At what quantity is total revenue maximized?

Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: D. Externalities

Externalities can be subtle… Let us move across the bay and 60 miles south from Avicenna to the town of Tall Stick, home of Crony Capitalism University…

The 10,000 students at CCU do two things with their disposable incomes of $5,000/year each:

  • Buy gourmet pizzas at $20/pizza
  • Rent BMWs at $5000/year

Utility of each student:

  • U = (number of pizzas) + 500(if renting BMW) - (1/20)(number of other students renting BMWs)

This utility function thus has both envy and spite…

  1. If nobody rents a BMW, what is the utility of a typical student?
  2. If nobody else rents a BMW, what is the utility of a student who rents one?
  3. If everybody else rents a BMW, how does a typical student spend his or her money?
  4. If everybody else rents a BMW, what is the utility of a typical student given his or her choices?
  5. Since it made sense for each student to rent a BMW, how come moving from a situation in which nobody rented one to one in which everybody rented one reduced average utility from 250 (which is the answer you should have gotten for D.1) to 1/20 (which is the answer you should have gotten for (D.4)?
  6. What is the optimal externality-compensating Pigovian tax on BMW rentals at CCU?

Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: E. "Envy"

Back in January 2012 Republican presidential candidate Mitt Romney said:

You know, I think it's about envy. I think it's about class warfare. When you have a President encouraging the idea of dividing America based on the 99 per cent versus one percent—and those people who have been most successful will be in the one per cent—you have opened up a whole new wave of approach in this country which is entirely inconsistent with the concept of one nation under God. The American people, I believe in the final analysis, will reject it…

This is an argument that when we do benefit-cost calculations with a utility function like the one in D:

  • U = (number of pizzas) + 500(if renting BMW) - (1/20)(number of other students renting BMWs)

We should count the first two terms and add them up as parts of our social welfare function and throw away the third term.

Write a short essay of three paragraphs: the first paragraph should set out what are, in your estimation, the strongest reasons for rejecting Mitt Romney’s argument; the second paragraph should set out what are, in your estimation, the strongest reasons for Mitt Romney’s argument; and the third paragraph should choose a side and explain why you chose the side you did.


Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: F. Macroeconomic Policy

Suppose that it is December 2016 and you are called to Washington to audition for a cabinet-level post in the next administration and to advise him or her on the proper size of the economic stimulus program.

Your forecast is that, were 2018 to be a normal business-cycle time, that the level of real GDP in 2018 would be $17.0 trillion/year. You are conducting your analysis in the income-expenditure framework where: Y = C + I + G + X , C = co + cy(Y - T). You believe that cy = 0.5.

You project that there will be little change from trend in consumer confidence co, which you project at $2.5 trillion/year in 2018. you project that business demand for investment spending will be $3.5 trillion/year in 2018. You project that exports will be $2 trillion/year in 2018. And you project that the Federal Reserve will not take additional steps to stimulate the economy.

  1. What level of government purchases spending G do you recommend for 2018? Explain why?
  2. Suppose that the President-Elect’s political advisors say that it is very important, politically, to cut government spending. What do you say in response?
  3. Suppose that the collapse of the euro suddenly drives up interest rate spreads, and leads you to forecast that I in 2018 will be not $3.5 trillion but $2.5 trillion. How do you change your recommendation for G?

Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: G. Economic Growth

In 8300 BC there were roughly 5 million people in the world—with an average standard of living of about $500/year. In 1700 there were roughly 640 million people in the world—with an average standard of living of about $500/year. In 1900 there were roughly 1.6 billion people—with an average standard of living of about $1000/year. Today there are roughy 7.4 billion people— with an average material standard of living of $8000 dollars per year.

  1. Use the Rule of 72 to calculate the average population growth rate and the average global real GDP growth rate between 8300 BC and 1700 AD.
  2. Use the Rule of 72 to calculate the average global real GDP growth rate between 1700 and 1900 AD.
  3. Use the Rule of 72 to calculate the average global real GDP growth rate between 1900 and 2014
  4. How much faster has global real GDP growth been over 1900-2014 than it was over 8300 BC-1700 AD?
  5. How much faster has global real GDP growth been over 1900-2014 than it was over 1700-1900?
  6. What would global real GDP be in 2100 if it were to grow as rapidly between now and 2100 as it grew from 1900-2012?
  7. If there are 10 billion people in the world in 2100 and if global real GDP be in 2100 if it were to grow as rapidly between now and 2100 as it grew from 1900-2014, what would average living standards be in 2100?

Econ 2: Spring 2014: UC Berkeley: Sample Final Exam I: H: Next Time

  • This is the first time we have taught Econ 2 since 2007, so we are especially anxious for feedback.
  • Write a four-paragraph essay:
    • Pick one element of the course that you thought worked best, and explain why you thought it worked best.
    • Pick one element of the course that you thought worked badly but needs to be improved, and explain how you think it could be improved.
    • Pick one element of the course that you thought worked badly and should be dropped. and explain why it should be dropped.
    • And pick one topic not covered in the course that you think should be added, and explain why it should be added.

Econ 2: Spring 2014: UC Berkeley: Administrivia for April 21, 2014


.pdf | .ppt


What Was I Thinking as 2008 Turned into 2009?: Wednesday Focus: April 16, 2014

Over at the Washignton Center for Equitable Growth: The slides from the talks I was giving as 2008 turned into 2009. The huge hole in them is the lack on my part of any consideration of the possibility that we might not do what was necessary--that we might fail to use fiscal and banking policy on a large-enough scale to rebalance aggregate demand at full employment in a short-run of two to three years...

Sigh...

I simply assumed that the political and economic logic would work together: the political logic was that all incumbents of whatever party were at grave risk in the next election if unemployment was still high in 2010 and even more so in 2012, and that the economic logic behind using expansionary fiscal policy to get spending up to potential output was crystal-clear. I thought it obvious:

  1. that inflation was not a threat unless and until unemployment reproached its natural rate,
  2. that all economists recognized that even in a near-Ricardian world the multiplier on government purchases was near one in the absence of monetary-policy offset,
  3. that there would be no monetary-policy offset for a few years,
  4. that even deficit hawks would recognize that as long as long-term real interest rates stayed low the market was telling us that worrying about the projected future debt-to-GDP ratio was not appropriate.

These all seemed to me to be barely worth noting, or not even worth noting.

Silly me... READ MOAR

Continue reading "What Was I Thinking as 2008 Turned into 2009?: Wednesday Focus: April 16, 2014" »


Econ 2: Spring 2014: UC Berkeley: Administrivia for April 16, 2014

Finish Essentials, chapter 14 "Aggregate Demand and Aggregate Supply", 15 "Fiscal Policy”. Start chapters 16 and 17: “Money, Banking, and the Federal Reserve” and “Monetary Policy”

M Apr. 14: The Lesser Depression:

  • Fiscal Austerity/Monetary Orthodoxy/Financial Paralysis/Employment Hysteresis/The Euro/Doing Problems with AD-AS, etc…

W Apr 16: The Lesser Depression/The Government Budget

Further Reading:

  • Aviva Aron-Dine et al.: The RAND Health Insurance Experiment, Three Decades Later/CBO: Economic and Budget Outlook 2014/J. Bradford DeLong: The Budget and Macro Policy: A Primer

Final Exam: Friday May 16, 8-11 AM, Hearst Gymnasium


20140416 Administrivia 2.pdf | 20140416 Administrivia 2.ppt | 20140416 Administrivia 2.key


Econ 2: Spring 2014: U.C. Berkeley: Administrivia for April 14, 2014


20140414 Administrivia.pdf | 20140414 Administrivia.ppt | 20140414 Administrivia.key