1Economics 202A Fall 2007 Lecture IMy Name: George AkerlofOffice: 685 Evans HallPhone: 642-5837527-9050 and 527-3542 (home)e-mail: [email protected] hours: Thursday 4-6, unless otherwise announcedT.A.: Max KasyOffice: 608-5 EvansOffice hours: Monday and Wednesday 3-4I will teach the first half of the course and then Maury Obstfeld will teach thesecond half.I am told that the course is being rationed. I know that this is very unfortunate. Everyone who wants to take the course who is not already enrolled should giveme your name and e-mail after the class.Let me make various announcements and notices about the arrangements of thecourse:1. Section Times and Places are:M 4-6P, 385 LECONTE and alsoW 4-6P, B56 HILDEBRAND 2. Next Monday is Labor Day holiday. Since there is a section scheduled forMonday that poses a problem. Especially since that section is soimportant, we are going to do the following.Max will give a section this Thursday evening, August 30, from 6:10 to 8 in145 McCone Hall.He will do a review of time series processes in section.That will be the section for this week. There will be no section next week. Second, unfortunately and unavoidably, I have to be in Washington to givea Brookings Paper next Thursday.2George Perry, who is a very good friend of mine is retiring. There is ameeting in his honor and I had no choice about this. I think this is a bad time to miss a class, so I will give a replacement classnext Tuesday from 6:10 to 7:30. It will be in Room 150 of the GoldmanSchool of Public Policy, which is across the street. You are to do the first problem set and hand it in next Tuesday. Theproblems are on the Course Website.3. Four notes about organization and grades:1. There will be a mid-term. It will take place 2/3's of the way through theterm so as not to take place at the same time as your other midterms. It will betwo or three weeks after your other midterms. 2. There will be a final examination.3. The problem sets are to be handed in.4. The major incentive for doing the homework is that we will model someexam questions after homework problems.4. I wish to emphasize that you are welcome to visit my office at any time. Iwill be delighted to talk to you at any time.5. The textbook is by David Romer and is entitled Advanced Macroeconomics,Third Edition. Let me know if you have any trouble getting a copy of thetextbook. If they have run out of the textbook at the ASUC book store please askthem to get you a copy or get one quickly yourself. The textbook and my own thinking are in close agreement about thematerial, but I think that it is my obligation to teach you how I think aboutmacroeconomics. So I will follow the textbook, but I will not follow itexactly.The marginal cost of the textbook is 0 for anyone who is planning to take202B since this will probably also be the textbook for that course.In addition to the textbook there is a Reader of articles.You absolutely need to purchase the Reader.It is as important, if not more so than the Textbook.It is available at Copy Central at 2560 Bancroft Way. If they have run out they will make you a copy within 24 hours. I want youto take care of that as soon as possible.3I was told that you can also order online or you can call, so that a copy isreserved for you.I have been assured that the reader is ready and so there should be nodifficulties.I have made the reader for this half of the course, and Maury will make asecond volume of the reader available when he takes over. 6. In past years I have made copies of my lecture notes available after thelecture has been given. I will send them to Eleanor Lee to post on the web. In the past there has been some problem with my Greek letters not beingduplicated. Please let me know if that has occurred. The lectures will havethe typescript of the lectures, but not the diagrams.Also Max will put materials on his website, and the course website has aconnecting link.7. There is considerable reading, and this is a hard course. So please get towork immediately. The work you do in this first week of class is especiallyimportant because the concepts that I am going to teach you now are usedover and over again.8. For those of you who were not, or are not currently undergraduateeconomics majors, if you do not feel comfortable with macroeconomics atthe level ofBlanchardDornbusch and FischerGordonHall and TaylorMankiwor any other standard intermediate macroeconomics text, I would suggestthat you take the course next year, not this year. Let me give you a good test for yourself of whether or not you are ready totake this course. In order to be ready to take this course you have to have a model of themacroeconomy in mind.This should be a model that you would use to look at the effect of changesin taxes, the money supply, and wages on different parts of the economy.If such a model is not natural to you, then you need to do some seriouspreparation for the course by reviewing a good macroeconomics text book.I would recommend Blanchard. First, since growth does not come first inhis book, you do not need to wade through 200 pages before you get to4what is interesting and relevant. Second it is the book whose view of macrois closest to what I consider the baseline for this course.David Romer’s Chapter 5 gives an excellent review.9. Previous students in this course suggested that the following is a usefulmessage:This is a difficult course. However, it is difficult in the way that economicsis difficult, not the way that math is difficult.Math is hard because it is hard to figure out.But economics is hard in the sense that a large number of steps are taken. Each of these steps is obvious and easy, but at the end of the sequencesomething emerges that is surprising, and not quite obvious.It is difficult to know exactly where the biting, identifying assumption hasbeen made, and therefore it is often surprisingly difficult to retrace the logic.Students who have done well in the past have taken the readings and thelectures quite seriously, and have actively worked on them. I remember always when I was taking economics classes, and to this day, Ialways thought that I understood everything perfectly until I discoveredlater that I had missed a great deal. The implication of this is that this is unlike math where you know if youunderstand it or not. Here you have a special responsibility to be careful.This is a very important note. Students underestimate the