Macroeconomics 1 - Exercise Class for "Hold 7"

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# E-mail address: paul.sharp@kabelnettet.dk
# You are always welcome to email questions or suggestions for improving the teaching.
# You need this program! 
# Compulsory homework to be handed in to me in weeks 10, 14 and 17. There will be a test on Wednesday, 12 May 2004 from 14-16. Three of these must be passed by me if you wish to participate in the exam in June.

Classes 10-13 every Tuesday


Required preparation

(in addition to following the lectures and reading the associated required reading to date)

What we did

7: February 10   None! After an introduction to macro, I went through "Introduktion til modelanalyse", which you can buy at studiekontoret. We looked at some examples of "kausalanalyse", and then you had a chance to try for yourselves, with Exercise 2 here.
8: February 17 Hjemmeopgave 1, 2002, opgave 2.5 ANSWERS


Hjemmeopgave 1, 2000, opgave 1.8 ANSWERS

* Read "Introduktion til modelanalyse", including the full answers to the exercises we went through last time. Some of the (economic) details will be a bit beyond you at this stage, but we will (I promise!) work through the intuition in due course. Right now, it is important that you understand how to use "kausalanalyse", and how to solve the model using substitution. Don't worry too much about "5. Totaldifferentiering". This isn't too important at this stage, and we will return to it later.

* You should also make sure that you have finished Hjemmeopgave 1, 2002, opgave 2 which you started in class. I will quickly go through this with you.

* If you have time, it is a good idea if you look at Exercise 1 here, which should be fairly easy, apart from the last two questions . . . I will go through it in class.

Some brave volunteers went up to the blackboard and went through Hjemmeopgave 1, 2002, opgave 2. Answers to question 2.5 are available under "downloads".

We then went through Hjemmeopgave 1, 2000, opgave 1. Answers to question 1.8 are available under "downloads".

Finally, you had a chance to look at Exercise 1 here.

9: February 24   * Make sure that you have completed Hjemmeopgave 1, 2001, opgave 1, which you started in class.

* Look at section 5 in "Introduktion til modelanalyse". This is about total differentiation. You may find it a bit tricky, but read it anyway. Then try and solve questions 3.e, 6, 7 and 8 in the same note.

* Read my answer to Hjemmeopgave 1, 2000, opgave 1.8! (Above, under downloads.)

In the first lesson we went through Hjemmeopgave 1, 2001, opgave 1.

In the second lesson I introduced total differentiation and went through exercises 3.e and 6 in "Introduktion til modelanalyse".

In the last lesson, you had a chance to look at Exercise 2 in Harboe, which we also went through on the blackboard.

10: March 2   * Try and do Exercises 7 and 8 in "Introduktion til modelanalyse". Don't worry if you have problems with total differentiation - we will look through them carefully in class.

* Then look at Exercise 3 here. Many of the questions will sound familiar, but that's no bad thing. It is important that you understand the basics now - it will make the rest of the course so much easier. As always, if you have any questions - just ask or send a mail!

We went through Exercises 7 and 8 in "Introduktion til modelanalyse".

We then looked at Hjemmeopgave 1, 2002, opgave 3. We didn't quite finish . . .

11: March 9   We need to finish the last two questions in Hjemmeopgave 1, 2002, opgave 3. (3.9 and 3.10)

We will then go through Hjemmeopgave 1.


We finished Hjemmeopgave 1, 2002, opgave 3 and went through Hjemmeopgave 1.
12: March 16   * Look at Exercise 1 here. You will notice that we now have money in our model. This gives us the opportunity of, for example, looking at concepts like inflation. Again, many of the questions will seem familiar - we use the same methods again, but on a slightly more complicated model.

* Then look at Exercise 2 here. This is an introduction to some concepts that become relevant when looking at an open economy (remember, we have only looked at economies that have been totally isolated from the wider world until now): interest parity, exchange rates, amongst others.

We only managed to look at the first exercise. We will look at the second next time. I apologize for not being as well prepared as I usually am, but my daughter had been ill the evening before. I made a mistake when going through question 1. The quantity equation is both an "adfærdsrelation" and a "ligevægtsbetingelse" - but more on this next time.
13: March 23 Hjemmeopgave 2, 2002, opg. 3.9 ANSWERS * Look at Exercises 2 and 3 here. When we look at models of an open economy, we can start thinking about issues which are of fundamental importance for a modern economy like Denmark, which is integrated into the world economy: for example, how interest rates are determined and whether import restrictions are a good idea. However, you might want to think about how the model differs from the reality of Denmark's situation today: it does, in at least one crucial respect - try and think what this might be! We talked about "Forårspakken" and you filled in some evaluation forms for me, which we then looked at. One thing I forgot to comment on was that somebody wrote that we are somewhat behind in relation to Claus' lectures. This is entirely intentional! Otherwise, I have taken your comments on board, and I will try to SPEAK LOUDER, prepare less (!), make slides of the causality analysis, etc.

Then we went through the two exercises. Since we didn't have time for 3.9, the answer appears under "Downloads".

14: March 30 Unemployment statistics * Look at Exercise 2 here. We are now almost at the point when our model can say something about Denmark! We consider the situation with a fixed exchange rate (like DK), and compare it with the situation with a floating exchange rate (like the UK).

* Look at Exercise 1 here. We look some more at one of the most important issues in economics: unemployment. [N.B. If you can answer Exercise 2, then claim your guldøl from Claus!]

I went through the first exercise, and then you had a chance to look at the second exercise in class. After that we went through it quickly.

Finally, we looked at some recent unemployment statistics. We also discussed possible explanations of the unemployment. But not much, because there wasn't much time left! If you are interested, the slide I showed you is available as a .jpg file under "Downloads".

15: April 6 "Flere ældre betyder højere renter" * We will go through Hjemmeopgave 2. We went through Hjemmeopgave 2.

Then we discussed an article about interest rates and Europe's ageing population. (Available under downloads.)

16: April 13   * Look at Exercise 1 here (except 1.13 and 1.14). This is about a model with unemployment. We see how trade unions  and unemployment benefit can affect unemployment, and we look at how government policy can help lessen the problem.

* Look at Exercise 1 here. If you don't have time to look at the previous exercise, try and have a quick look at these questions. They test your general understanding about some of the theories and concepts we have looked at until now.

We went through the two exercises.
17: April 20   * Look at Exercises 1 and 2 here. Repetition.

* Look at Exercise 1 here. Repetition.

We went through the two exercises. Then I introduced the Keynesian cross, using the model in Harboe Exercise 6 (questions a to c).
18: April 27   * We will go through Hjemmeopgave 3.

* We will then complete Lynprøve 2001 with Exercise 3 here. In this exercise we continue our look at the economy in the short run through the IS-LM framework. Notice that we are back in the mysterious world of the "closed economy" (we will look at open economies again later). Notice also how P (price) is now exogenous, representing "sticky prices": the definition of the short run. Finally, you will see that government consumption (G) has disappeared from this model, so don't expect any startling conclusions as to the influence of fiscal policy.


We went through Hjemmeopgave 3 fairly quickly, but used a fair amount of time looking at how to find the IS-LM curves when going through the exercise from the Lynprøve.
19: May 4   * Your homework is to FILL OUT THE EVALUATION FORM. This is really important so PLEASE DO IT NOW!

* Look at Exercise 2 here. This is a model with IS-LM again, but now we have the public sector in our model, so we can look at the effect of fiscal policy.

* If you get time, look at Exercise 2 here. More IS-LM, with a bit of Poul Nyrup Rasmussen thrown in . . .

We noted that we could not the evaluation system to work. I have now been told that it should be working again!

Then we went through the two exercises. We discussed the importance of the kausalanalyse for the exam. Please ask me if you need help with this - it is so important!

The "intuition" in the IS-LM model is rather long and complicated. Use some time trying to understand it and, again, ask me if you are in any doubt.

20: May 11 "Thank heaven for floating rates" N.B. Vi er i HO7!

* Look at Exercise 1 here. Some of these are micro questions - so just look at 1.1, 1.4 and 1.6.

* Look at Exercise 2 here. In this exercise we look at a model for an open economy in the short run.


We went through the two exercises.

We also used some time looking at how to derive the IS* and LM* curves from the Mundell-Fleming model, and at the difference between floating and fixed exchange rates.

Last of all we looked at an article (see under downloads).

21: May 18 "Big spenders are keeping the global economy moving" N.B. Vi er i HO7!

* We will go through lynprøven.

We went through lynprøven.

I handed out an article (from the FT, April 28, 2004) which perhaps shows the relevance of closed economy models for the whole world. Available under downloads.

We ate ice cream.

Remember to send a mail if you have any questions and we can meet if necessary.

Thank you for two great semesters! Good luck with the exam!


Summer vacation   Time to retreat to your summer houses.