Category: M.I.T.

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M.I.T. Suggested Reading Syllabus

M.I.T. Open Economy Macroeconomics. Syllabus and bibliography. Dornbusch, 2000.

 

A genuine regret from my graduate school education was that I had not taken a course with Rudiger Dornbusch. Ex post it became clear that I would have been personally better served not having taken economic history at M.I.T. (all told, I had four semesters of solid economic history courses as an undergraduate at Yale), but unfortunately nobody shared with me the tip to take a trip on this rising star of open economy macroeconomics who began teaching at M.I.T. in 1975.

Rudi Dornbusch inspired many a classmate of mine at M.I.T. and I am sure many an economist beyond. (c.v. at M.I.T.)

_______________

14. 582 — OPEN ECONOMY MACROECONOMICS

R. Dornbusch 
Spring 2000

COURSE OUTLINE:

I.    Some Monetary History

II.    The Basic Open Economy Model

Gold Standard and the Classical Open Economy 
The Dependent Economy Model

III.    Nominal Rigidities and Policy.

Money, Wages, and Employment. 
PPP and Real Exchange Rates 
Pricing in the Open Economy

IV.    Intertemporal Trade.

V.    Finance, Exchange Rates, and Macro Implications

Capital Mobility, Exchange Rates, and Employment. 
Portfolio Diversification and Risk Premia

VI.    Policy Issues

Target Zones 
Currency Boards 
Stabilization and Exchange Rate Management 
Global Capital Markets 
Feldstein-Horioka and Capital Mobility 
Balance of Payments Crises 
Vulnerability, Crises, and Contagion 
EMU and New International Financial Architecture

TEXTS AND SOURCES:

Required readings are denoted with two asterisks (**), recommended readings with one asterisk (*).

** Grossman, G. and K. Rogoff (eds.). Handbook of International Economics. Vol. III, North Holland, 1995.
** Obstfeld, M. and K. Rogoff. Foundations of International Macroeconomics, MIT Press, 1996
Obstfeld, M. and K. Rogoff. Foundations of International Macroeconomics Workbook, MIT Press, 1998.
* Dornbusch, R. Open Economy Macroeconomics, Basic Books, 1980.
* Dornbusch, R. Exchange Rates and Inflation, MIT Press, 1988.
** See also the IMF website (http://www.imf.org) or recent IMF research reports.

Several journals are available online through JSTOR, including The Journal of Money, Credit, and Banking, The Journal of Economic Perspectives, The Journal of Political Economy, The Quarterly Journal of Economics, and The American Economic Review. Please visit JSTOR’s main page if you experience difficulty connecting to any articles from these journals to determine whether you qualify to use their site.

I.  Some Monetary History.

  • Bordo, M. and Capie. Monetary Regimes in Transition. Cambridge University Press, 1994.
  • Bordo, M. and A.Schwartz (eds.). A Retrospective on the Classical Gold Standard 1821- 1931. University of Chicago Press and NBER, 1984.
  • Cassel, G.  Money and Foreign Exchange After 1914, Constable, 1922.
  • Eichengreen, B. (ed) The Gold Standard in Theory and History, Methenu, 1985, Chapter 1.
  • DeGrauwe, P. International Money Post War Trends and Theories. Clarendon Press 198x.
  • Friedman, M.  Money Mischief. Harcourt Brace Hovanovich, 1992.
  • Kindleberger C.  Manias, Panics and Crashes : A History of Financial Crises. Basic Books 1989.
  • Kindleberger C. A.  Financial History of Western Europe. Allen & Unwin 1984.
  • Obstfeld, M. and A.M. Taylor.  Global Capital Markets: Integration, Crises and Growth, unpublished manuscript.
  • Taussig, F.  International Trade, Macmillan,1928. Parts II and III.
  • Yeager, L.  International Monetary Relations, Harper & Row, 1966 Part II.

II. The Basic Open Economy Model.

Gold Standard and The Classical Open Economy

  • ** Calvo, G. “Devaluation: Level versus Rates” Journal of International Economics, Vol ll, No. 2, Pages 165-172, May 1981.
  • * Dornbusch, R. and Mussa, M. “Consumption, Real Balances and the Hoarding Function”, International Economic Review, June 1975. Also in Exchange Rates and Inflation, Chapter 18.
  • ** Dornbusch, R., S. Fischer and P. Samuelson.“Comparative Advantage, Trade and Payments in a Ricardian Model with a Continuum of Goods” American Economic Review Dec 1977. Also in Exchange Rates and Inflation, Chapter 14.
  • Dornbusch, R.  Open Economy Macroeconomics. Chapter 7.

The Dependent Economy Model

  • Calvo, G. and Rodriguez, C. “A Model of Exchange Rate Determination Under Currency Substitution and Rational Expectations”, Journal of Political Economy, No. 3, 1977, pgs 617-625.
  • * Dornbusch, R. “Real and Monetary Aspects of the Effects of Exchange Rate Changes” in Exchange Rates and Inflation, MIT Press 1988, Chapter 3.
  • * Dornbusch, R.  Open Economy Macroeconomics. Chapter 6.
  • ** Mundell, R. A. Monetary Theory, chapt. 10.
  • Salter,W. “Internal and External Balance” Economic Record, 1960.
  • Swan, T. “Economic Control in a Dependent Economy” Economic Record, 1960.

III. Nominal Rigidities and Policy.

Money, Wages and Employment

  • Brock, P. “Investment, the Current Account and the Relative price of Nontraded Goods in a Small Open Economy.” Journal of International Economics, May 1988.
  • ** Calvo, G. “Staggered Contracts and Exchange Rate Policy” in J.Frenkel (ed.) Exchange Rates and International Macroeconomics. University of Chicago Press and NBER, 1983.
  • ** Dornbusch, R.  Open Economy Macroeconomics, chapter 9.
  • * Dornbusch, R. “PPP Exchange Rate Rules and Macroeconomic Stability” In Exchange Rates and Inflation, Chapter 11.
  • Dornbusch, R. “Real Exchange Rates and Macroeconomics: A Selective Survey” Scandinavian Journal of Economics 91: (2), 1989.
  • Kouri, P. “Profitability and Growth in a Small Open Economy” in A. Lindbeck(ed.) Inflation and Employment in Open Economies, North Holland 1979.
  • * Krugman, P. and Taylor,L. “The Contractionary Effects of Devaluation”, Journal of International Economics, August 1978 pp. 445-456.
  • Lizondo, S. and P. Montiel. “Contractionary Devaluation in Developing Countries. An Analytical Survey.” International Monetary Fund Staff Papers, March 1989.
  • ** Obstfeld, M. and Rogoff, K. “Sticky-Price Models of Output, the Exchange Rate, and the Current Account” In Foundations of International Macroeconomics, Ch.9.
  • Rodriguez, C. “A Stylized Model of the Devaluation-Inflation Spiral.” International Monetary Fund Staff Papers, March 1978.
  • Dornbusch, R.  The Effectiveness of Exchange-Rate Changes, Oxford Review of Economic Policy, Vol. 12, No. 3. Pgs. 26-38.
  • ** Dornbusch, R. “The Latin Triangle“

PPP and Real Exchange Rates.

  • Keynes, J.M.  A Tract on Monetary Reform, MacMillan, 1923, chapt. 3.
  • Dornbusch, R. “Purchasing Power Parity” In Exchange Rates and Inflation,Chapter 5.
  • * Frankel, J. and A. Rose. “A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries”Journal of International Economics,40(1) 209-224, 1996.
  • Marston, R. “Real Exchange Rates and Productivity Growth in the United States and Japan” in S. Arndt and D. Richardson (eds.) Real-Financial Linkages Among Open Economies, Cambridge: MIT Press.
  • Obstfeld and Rogoff, K. “Perspectives on PPP and Long-Run Real Exchange Rates” chapter 32 in Grossman G. and K. Rogoff (eds.) Handbook of International Economics, Vol. III., North Holland, 1995. 

Pricing in the Open Economy.

  • Dornbusch, R. “Exchange Rates and Prices” American Economic Review, March 1987. Also in Exchange Rates and Inflation, Chapter 5.
  • ** Frankel, J. and A. Rose “Empirical Research on Nominal Exchange Rates.” chapter 33 in Grossman G. and K. Rogoff (eds.) Handbook of International Economics, Vol. III., North Holland, 1995.
  • * Goldberg P.K. and M. Knetter “Goods Prices and Exchange Rates: What have we learned?” Journal of Economics Literature, vol. XXXV, September 1997, pp.1243-1272.

IV. Intertemporal Models Of The Open Economy

  • Obstfeld, M. and Rogoff,K.  Foundations of International Macroeconomics, parts 1-4.
  • * Obstfeld, M. and Rogoff, K. “The Intertemporal Approach to the Current Account” chapter 34 in Grossman G. and K. Rogoff (eds.) Handbook of International Economics, Vol. III., North Holland, 1995.
  • Fisher, E. O’N and K. Kasa.  Generational Accounting in Open Economies in FRBSF Economic Review, 1997, Number 3.
  • * Dornbusch, R. “Real Interest Rates, Home Goods and Optimal External Borrowing, Journal of Political Economy, Feb 1983 (also in Exchange Rates and Inflation, Chapter 16.)
  • ** Dornbusch, R. “Notes  on Intertemporal Trade”.

V. Finance, Exchange Rates and Macro Implications 

Capital Mobility, Exchange Rates, and Employment.

  • * Dornbusch, R. “Expectations and Exchange Rate Dynamics”, Journal of Political Economy, Dec. 1976 (also in Exchange Rates and Inflation, chapter 4)
  • Frankel, J. and K. Froot. “Using Survey Data to Test Propositions Regarding Exchange Rate Expectations.” American Economic Review Vol. 77, 1987, pp. 133-153.
  • Frenkel, J. and Mussa, M. “Asset Markets, Exchange Rates and the Balance of Payments” in R. Jones and P. Kenen (eds.) Handbook of International Economics, Vol.2, North-Holland 1985.
  • * Krugman,P.  Exchange Rate Instability, MIT Press, 1988.
  • Taylor M. “The Economics of Exchange Rate”.Journal of Economic Literature, Vol.XXXIII, March 1995, pp.13-47.
  • Mundell, R.  International Economics, chapts. 14 -18.
  • De Long, J. Bradford, Shleifer A. , Summers L. , Vishny R.  “Noise Trader Risk in Financial Markets” Journal of Political Economy; V98 n.4 August 1990, pp. 703-38.
  • Frankel, Jeffrey A.; Galli, Giampaolo; Giovannini, Alberto, Editors.  “The Microstructure of Foreign Exchange Markets”.  National Bureau of Economic Research Conference Report Series. Chicago and London: University of Chicago Press, 1996.

Portfolio Diversification and Risk Premia.

  • * Dornbusch, R. “Exchange Rate Risk and the Macroeconomics of Exchange Rate Determination, in Exchange Rates and Inflation, Chapter 7.
  • Frankel, J. and Froot, K. “Forward Discount Bias: Is it an Exchange Risk Premium?”Quarterly Journal of Economics 104:1, 139-162.
  • ** Froot, K. and R. Thaler. “Anomalies: Foreign Exchange”,Journal of Economics Perspectives, vol 4, No. 3, Summer 1990, Pages l79-l92.
  • Krugman, P. “Consumption Preferences, Asset Demands, and Distribution Effects in International Financial Markets.”NBER Working Paper No. 651, March 1981.
  • Mussa,M. “Official Intervention and Exchange Rate Dynamics” in J.Bhandari (ed.) Exchange Rate Management Under Uncertainty,MIT Press 1985.
  • Sachs, J. and Wyplosz, C. “Real Exchange Rate Effects of Fiscal Policy.” NBER Working PaperNo. 1256, Jan. 1984.
  • Neely, Christopher J. “Technical Analysis and the Profitability of U.S. Foreign Exchange Intervention”.  Federal Reserve Bank of St. Louis, July/August 1998.
  • Solnik, Bruno.  “Global Asset Management: Too Hedge or Not to Hedge–a Question That Cannot be Ignored”.  The Journal of Portfolio Management, Summer 1998.
  • Stein, Jerome L. and G. Paladino.  Recent Developments in International Finance: A Guide to Research Journal of Banking and Finance,21 (1998) 1685-1720.
  • Stulz, Rene M.  “International Portfolio Choice and Asset Pricing: An Integrative Survey”, in R. Jarrow et al (eds)Handbooks in OR & MS, vol. 9, Elsevier Science B.V., 1995.

VI. Policy Issues

Target Zones

  • Bertola, G. “Continuos-Time Models of Exchange Rates and Intervention ” In F. van der Ploeg, ed.Handbook of International Macroeconomics, Blackwell, 1994.
  • Bertola, G. and Caballero, R.“Target Zones and Realignments”, American Economic Review, 1992.
  • ** Krugman, P. and M. Miller. (eds.) Exchange Rate Targets and Currency Bands. Cambridge University Press, 1992.
  • ** Svensson, L. “An Interpretation of Recent Research on Exchange Rate Target Zones.”Journal of Economics Perspectives, Vol 6, No. 4, pp. 119-144, Fall 1992.
  • Werner, A. “Exchange Rates and Target Zone Width”. Economic Letters. Dec 1992.

Exchange Rate Regimes and Currency Boards

  • Calvo, G. “On Dollarization”,1999 (www.bsos.umd.edu.econ.calvo.htm)
  • Dornbusch R. and F. Giavazzi,“Hard Currency and Sound Credit: A Financial Agenda for Central Europe” May 1998.
  • Eichengreen, B.“The Choice of Exchanage Rate Regime” (incomplete).
  • Eichengreen, B.  Golden Fetters, Oxford University Press, 1992.
  • Friedman, M. “The Case for Flexible Exchange Rates” in his Essays in Positive Economics. U. of Chicago Press, 1953.
  • **Goldstein, M. Exchange Rate System and the IMF. Institute for International Economics, 1995
  • Hanke, S. and K. Schuler  Currency Boards for Developing Countries. ICS Press, 1994.
  • List of References to Currency Boards by C. Broda.
  • Mihalke D. “Currency Board Arrangements: Issues and Experiences”.International Monetary Fund Occasional Paper No. 151, 1997.
  • Mundell, R. “A Theory of Optimum Currency Areas”, American Economic Review 51, September 1961.
  • Obstfeld, M. and K. Rogoff, “The Mirage of Fixed Exchange Rates” Journal of Economic Perspectives 9, Fall 1995
  • Perry G. E. “Currency Boards and External Shocks: How Much Pain, How Much Gain?”, World Bank Latin American and Caribbean Studies, February 1997.
  • Taussig, F. International Trade, Macmillan, 1928.  Parts II and III.
  • Tornell, A. and A. Velasco, “Fixed vs. Flexible Exchange Rates: Which Provides More Fiscal Discipline?”NBER WP. No. 5108, 1995.
  • * Williamson, J. What Role for Currency Boards? Institute for International Economics, Washington D.C., Sep. 1995.
  • Ghosh, A., A. Gulde and H. Wolf.  “Currency Boards: The Ultimate Fix?” IMF, wp. 98/8
  • ** Williamson, J.  The Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia and Israel, Institute of International Economics, 1996.

Stabilization and Exchange Rate Management

  • Alesina, A. and A. Drazen. “Why are Stabilizations Delayed?” American Economic Review, December 1991.
  • Bruno, M. et. al.  Lessons of Economic Stabilization and its Aftermath.MIT Press, 1991.
  • Calvo, G. “Incredible Reforms” in G.Calvo (ed.) Debt, Stabilization and Development. Oxford: Basil Blackwell, 1989.
  • Caballero, R. Structural Volatility In Modern Latin America, April, 2000
  • Calvo, G. and C. Vegh. “Credibility and the Dynamics of Stabilization Policy: A Basic Framework.” IMF, Staff Papers, November 1990.
  • * Dornbusch, R. “Credibility and Stabilization”, Quarterly Journal of Economics, August 1991, pp. 837-850. Also in R.Dornbusch Stabilization, Debt, and Reform, Prentice Hall 1993.
  • * “The New Classical Macroeconomics and Stabilization Policy.”American Economic Review, May 1990. Also in R. Dornbusch Stabilization, Debt, and Reform, Prentice Hall 1993.
  • Dornbusch, R., and S. Edwards, S (eds)The Macroeconomics of Populism in Latin America. University of Chicago Press, 1991.
  • Dornbusch, R. and Fischer, S. “Stopping Moderate Inflations.” World Bank Review, 1992.
  • Dornbusch, R., Goldfajn, I. and Valdes, R. “Currency Crisis and Collapses”, Brookings Papers, 2, 1995.
  • Drazen, A. and Helpman, E. “Stabilization With Exchange Rate Management” Quarterly Journal of Economics, 1987.
  • Fernandez, R. and D. Rodrik. “Resistance to Reform. Status Quo Bias in the Presence of Individual Specific Uncertainty” American Economic Review, December 1991.
  • Goldfajn I. and R. O. Valdes“The Aftermath of Appreciations”. NBER WP#5650, July 1996.
  • ** Vegh, C. “Stopping High Inflation: An Analytical Overview,” International Monetary Fund, Staff Papers, September 1992.
  • * Williamson, J. “The Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia and Israel”, Institute of International Economics,1996.

Feldstein-Horioka and Long Term Capital Mobility.

  • Cardoso, E. and R. Dornbusch. “Foreign Private Capital Flows” Handbook of Development Economics, Vol II, North Holland, 1989.
  • **Dooley, M., J. Frankel and D. Mathieson “International Capital Mobility: What do Saving-Investment Correlations Tell US?” International Monetary Fund, Staff Papers, September 1987.
  • ** Feldstein, M. and Horioka, C. “Domestic Savings and International Capital Flows”. Economic Journal, June 1980, pages 314-329.
  • Frankel, J. “Measuring International Capital Mobility: A Review.”American Economic Review. Papers and Proceedings. May 1992.
  • Harberger, A.“Vignettes on the World Capital Market”, American Economic Review, May 1980.
  • ** Ventura, J. & A. Kraay, “Current Accounts in Debtor and Creditor Countries”, March 1999. ECONOMETRICS SEMINAR (Joint Harvard/MIT) 

Balance of Payments Crises.

  • Calvo, G. “Balance of Payments Crises in a Cash in Advance Economy”, Journal of Money, Credit and Banking,1987.
  • Dornbusch, R. “Collapsing Exchange Rate Regime”, Journal of Development Economics, Vol 27, No 1-2, Pgs 7l-83, October 1987.
  • Flood, R. and P.Garber, 1984, “Collapsing Exchange Rate Regimes: Some Linear Examples.” Journal of International Economics,1/2, 1-13.
  • Froot K and M. Obstfeld, “Exchange Rate Dynamics Under Stochastic Regime Shifts: A  Unified Approach”, NBER WPNo. 2835, February 1989.
  • ** Garber, P. and L. Svensson “The Operation and Collapse of Fixed Exchange Rate Regimes” chapter 36, section 3, in Grossman G. and K. Rogoff (eds.) Handbook of International Economics,Vol. III., North Holland, 1995.
  • ** Krugman, P. “A Model of Balance of Payments Crises.”Journal of Money, Credit and Banking, 3, 1979 ,311-325.
  • ** Salant,S. and D. Henderson, 1978,”Market Anticipations of Government Policies and the Price of Gold” Journal of Political Economy, 4, 627-648.

Crises and Contagion

  • Caballero, R. and Krishnamurthy, “Emerging Markets Crises: An Asset Market Perspective”, MIT mimeo, 1998.
  • Calvo, Guillermo A.”Capital FLows and Capital-Market Crises: The Simple Economics of Sudden Stops”, unpublished manuscript, U. of Maryland, 1998 (http://www.bsos.umd.edu/econ/ciecalvo.htm)
  • Calvo, Guillermo A. “Understanding the Russian Virus”, unpublished manuscript, U. of Maryland, 1998 (http://www.bsos.umd.edu/econ/calvo.htm)
  • Chang and Velasco, “Financial Crises in Emerging Markets: A Canonical Model” NBER WP No. 6469, 1997.
  • Diaz Alejandro, C. “Good-bye Financial Repression, Hello Financial Crisis” Journal of Development Economics, 19, 1985.
  • Dornbusch,R. “Asian Themes”, (http://web.mit.eud/rudi/www)  Feb. 1998.
  • Dornbusch,R. “Brazil’s Incomplete Stabilization and Reform”, Brookings Papers on Economic Activity 1:1997, pp.367-404 (http://web.mit.eud/rudi/www.)
  • Eichengreen B., A. Rose, C. Wyplosz. “Contagious Currency Crises”. Scandinavian Journal of Economics,December 1996.
  • Goldfajn, I. and Valdes, “Capital Flows and the Twin Crisis: The Role of Liquidity” IMF WP 97/87.
  • IMF, World Economic Outlook, Fall 1998 (http://www.imf.org)
  • IMF, International Capital Markets, Fall 1998 (http://www.imf.org)
  • *Kaminsky G. and C.Reinhart, “On Crises, Contagion and Confusion.” Unpublished manuscript, George Washington University and U. of Maryland, 1998.
  • Kaminsky, G. “Leading Indicators of Currency Crises” Board of Governors of the Federal Reserve, mimeo.  Board of Governors of the Federal Reserve, December, 1997.
  • Krugman P. “The Myth of Asia’s Miracle”. Foreign Affairs, November/December 1994.
  • Krugman P. “What happened to Asia?” January 1998 (http://web.mit.edu/krugman/www)
  • Obstfeld, M., “The Logic of Currency Crises”, Cahiers Economique and Monetaires, 43, 1995.
  • ** Tobin, J.  “A Proposal for International Monetary Reform” in his Essays in Economics, MIT Press, 1982, chapt. 20.

EMU and New International Financial Architecture

  • Dornbusch,R., C.Favero and F. Giavazzi “Challenges for the European Central Bank” Economic Policy, April 1998, pp. 15-64, CEPR (http://web.mit.edu/rudi/www).
  • Eichengreen, B. “Toward a New International Financial Architecture: A Practical Post-Asia Agende”, IIE Press, 1999.
  • Eichengreen, B.”European Monetary Unification: Theory, Practice, Analysis”, MIT Press, 1997.
  • Fischer, S. “Reforming the International Monetary System” David Finch lecture, November, 1998 (http://www.imf.org/external/np/speeches/1998/110998.HTM).
  • Fischer, S. “On the Need for an International Lender of Last Resort” New York, January 3, 1999.
  • McCaughley, “The Euro and the Dollar”, Princeton Essays in International Finance, 1997

Source: August 17, 2000 webpage capture by Internet Archive Wayback Machine.

Image Source: Rudiger Dornbusch from the website of the MIT Museum.

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Courses Curator's Favorites Exam Questions Lecture Notes M.I.T. Problem Sets Suggested Reading Syllabus Uncategorized Undergraduate

M.I.T. Principles of Macroeconomics. Slides, problems sets, exams. Krugman, 1998

 

One might think that putting together robust links to economics course materials found in the internet archive, Wayback Machine, would be relatively straightforward, and sometimes it is. But most of us are inconsistent with the use of folders and sometimes pages get updated by other people so that traditional archival persistence is generally required to find missing pieces to the historical puzzle. In any event, today’s post manages to pack links to course content for a principles of macroeconomics course taught at M.I.T. exactly two decades ago by Paul Krugman.

I remember that semester well, because immediately after Paul Krugman finished his teaching obligations at M.I.T. for that fall term, he came to Berlin to receive an honorary doctorate from Freie Universität Berlin. The audio recording to his lecture “The return of demand-side economics” can still be heard (beginning around minute 2:00) at a webpage maintained by the John-F.-Kennedy Institute for North American Studies of Freie Universität.

_________________

14.02 Principles of Macroeconomics
Fall 1998
Professor Paul Krugman

Course Syllabus

Text: Olivier Blanchard, Macroeconomics.

Schedule (with links to lecture slides and exams)

Note: the lecture slides may differ slightly from those presented in class.

September 14 — Chapter 2: Preliminary Concepts

Slides: Tracking the Macroeconomy: Five Key Aggregates

September 16 — Chapter 3 & 4: The Goods Market (lecture by Roberto Rigobón)

September 21 — Chapter 5: Financial Markets

Slides: Review. Multiplier Analysis

Handout by Adam B. Ashcroft on bond yields about here

September 23 — Chapter 5: More on Financial Markets

Slides: The Federal Reserve and the Money Supply

September 28 — Chapter 6: IS-LM

Slides: The IS-LM Model

September 30 — Chapter 7: Expectations

Slides: Expectations and Macroeconomics

October 5 — Chapter 8: Expectations, Consumption, and Investment

Slides: Consumer Behavior–Not that simple

October 7 — Banks and the Banking System

Slides: Banking and the Financial System

October 8
Exam 1

Exam #1 Questions
Solutions

October 13 — Chapter 9: Expectations and Financial Markets

Slides: (missing)

October 14 — Chapter 10: Expectations and Policy

Slides: Expectations and Macroeconomic Policy 

October 19 — Chapter 11: Introduction to the Open Economy

Slides: The Open Economy

October 21 — Chapter 12: The Open Economy Goods Market

Slides: Macroeconomics in the Open Economy

October 26 — Chapter 13: Interest Rates and Exchange Rates

Slides: What Determines Exchange Rates

Handout on exchange rates about here.

October 28 — Chapter 13: Exchange Rate Regimes

Slides: Fixed Exchange Rates

November 2 — Chapter 14: Expectations, Crises, and General Mayheim

Slides: (missing)

November 4 — Chapter 15: The Labor Market

Slides: Why Study the Labor Market?

November 5
Exam 2

Exam #2 review
Exam #2 questions
Solutions

November 9 — Chapter 16: General Equilibrium

Slides: Putting It All Together–AS-AD

November 16 — Chapter 17: The Phillips Curve

Slides: From Aggregate Supply to the Phillips Curve

November 18 — Chapter 18: Disinflation

Slides: Long-run Unemployment-Inflation Dynamics [note: “?” for the greek letter pi, i.e. rate of inflation]

November 23 — Chapter 19 & 21: Seigniorage and Devaluation

Slides: Inflation, Interest Rates, and Hyperinflation

November 25 — Chapter 22 & 23: Long-run Growth

Slides: Economic Growth

November 30 — Chapter 24: Technical Progress

Slides: Savings, Investment, and Growth

Handout on growth about here.

December 2 — Chapter 20: Great Depression and European Unemployment

Slides: High Unemployment and Growth Slowdowns 

December 7 — Zuckerman & Krugman Foreign Affairs articles (lecture by Roberto Rigobón)

[Paul Krugman, Debate: America the Boastful, and Mortimer B. Zuckerman, Debate: A Second American Century,  Foreign Affairs (May/June 1998)]

December 9 — Course Review

Slide: Overview Graphic [Note: graphic cut-off on right hand side]

Final Examination (December, 2018)

Final Exam Review
Pablo Garcia’s Review
Final Exam Questions 

 

Problem Sets

Set Number Assigned Due Returned
1 9-11 9-18 9-21
2 9-18 9-25 9-28
3 9-25 10-2 10-5
4 10-9 10-16 10-19
5 10-16 10-23 10-26
6 10-23 10-30 11-2
7 11-6 11-13 11-16
8 11-13 11-20 11-23
9 11-20 12-4 12-7

 

Problem Set 1
Solutions

Problem Set 2
Solutions

Problem Set 3
Solutions (missing)

Optional Problem Set 1
Solutions

Problem Set 4
Solutions

Problem Set 5
Solutions

Problem Set 6
Solutions

Problem Set 7
Solutions

Optional Set 2
Solutions

Problem Set 8
Solutions

Problem Set 9
Solutions

Optional Set 3
Solutions

 

Image: Photograph taken in December 1998 at Cecilienhof, Potsdam (Germany). Irwin Collier and Paul Krugman.

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M.I.T. Suggested Reading Syllabus

M.I.T. Undergraduate intermediate macroeconomics. Blanchard, 1984

 

Since relatively few people can be expected to stumble upon an M.I.T. course syllabus of Olivier Blanchard in Evsey Domar’s papers, I figure it is part of the value-added of Economics in the Rear-view Mirror to provide a transcription of such hidden treasure. Earlier Blanchard’s graduate M.I.T. course syllabus for 1997 was posted.

__________________

Intermediate Macro Theory
14.06
O.J. Blanchard
Fall 1984

This course is a continuation and extension of 14.02. It is divided in two parts of approximately equal length The first builds on the aggregate demand and aggregate supply apparatus developed in 14.02. The second examines three topics of current interest.

There will be a midterm exam, covering the first part of the course, and counting for half of the course grade. Students will then have the option of taking a final exam or writing a course paper on one of the three topics covered in the second part of the course.

 

Background Readings

Dornbusch and Fischer, Macroeconomics, 3rded. (D.F.)

Economic Report of the President, February 1984.

R.J. Gordon, “Postwar Macroeconomics: The Evolution of Events and Ideas”, Chap. 2, in the American Economy in Transition, Feldstein, ed.

As the course starts, you may want to review Chapters 1 to 5 in D.F.

 

Part I. Aggregate demand and aggregate supply

  1. The ISLM in the closed economy

D.F. Chapters 6 to 9

F. Modigliani, “Monetary Policy and Consumption”, (in xerox packet at Graphic Arts). pp. 12-46.

L. Summers, “Taxation and Corporate Investment: A q-theory approach”, Brookings Papers (BPEA), 1981, 68-119.

J. Tobin, “Monetary Policies and the Economy: The Transmission Mechanism”, Southern Economic Journal, January 1978.

  1. The ISLM in the open economy

D.F. Chapters 18, 19-1.

Economic Report of the President, 1984, chapter 2.

R. Dornbusch and S. Fischer, “The Open Economy, Implications for Monetary and Fiscal Policies”, mimeo, MIT 1984.

R. Dornbusch, Open Economy Macroeconomics, chap. 3 (optional)

  1. Aggregate demand aggregate supply

D.F. Chapters 11, 12, 13, 14, 19-2.

R. Lucas, “Understanding Business Cycles”, in “Studies in the Business Cycle Theory”, 215-239.

J. Tobin, “How Dead is Keynes?”, Economic Inquiry, Oct. 1977.

J. Tobin, “The Wage-Price Mechanism”, in The Econometrics of Price Determination”, Eckstein ed., 1972, 5-15.

 

Part 2. Three topics

  1. Real wages and unemployment in Europe

E. Malinvaud, “The Theory of Unemployment Reconsidered”, Wiley 1977.

R. Dornbusch et al., “Macroeconomic Prospects and Policies for the European Community”, CEPS Paper 1, 1983.

J. Sachs, “Wages, Profits and Macroeconomic Adjustment: A Comparative Study”, BPEA 1979-2, 269-332.

J. Sachs, “Real Wages and Unemployment in the OECD Countries”, BPEA 1983-1, 255-289.

  1. The Volcker disinflation

W. Poole, “The Theory of Monetary Policy under Uncertainty”, in Readings, W.L Smith and R. L. Teigen, 1974, 360-369.

O. Eckstein, “Disinflation”, DRI Economic Studies 114, October 1983.

W. Buiter and M. Miller, “Changing the Rules: Economic Consequences of the Thatcher Regime; BPEA 1983, 305-365 (optional).

T. Sargent, “the Ends of Four Big Inflations”, on Reserve (optional).

B. Friedman, “Lessons from the 1979-82 Monetary Policy Experiment”, American Economic Review P&P, May 1984, 382-87.

M. Friedman, “Lessons from the 1979-82 Monetary Policy Experiment”, American Economic Review P&P, May 1984, 397-400 (Authors not related).

R. Gordon, “The Conduct of Domestic Monetary Policy”, on Reserve, pp. 1-33 only (optional)

  1. U. S. fiscal deficits and the world economy

D.F. Chapter 15

“Setting National Priorities: The 1984 Budget”, J. Pechman ed., Chapters 2, 8.

M. Feldstein, “Budget Deficits, Economic Activity and Net Capital Formation”, Testimony to Congress, 1983.

R. Dornbusch, “The Overvalued Dollar”, mimeo, MIT 1984.

O. Blanchard and R. Dornbusch, “U.S. Deficits, Europe and the Dollar”, mimeo MIT 1983 (optional).

O. Blanchard and L. Summers, “High Real Interest Rates”, on Reserve (optional).

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Evsey D. Domar Papers, Box 15, Folder “Macroeconomics. Lecture Notes, Exams, Paper: ‘Stability Without Planning? The American Experience’”.

Image Source:Olivier Blanchard’s MIT homepage, captured June 2, 2001 by   Wayback Machine.

Categories
Exam Questions M.I.T. Problem Sets Syllabus Undergraduate

M.I.T. Principles of Microeconomics, course materials. 1994-2005

 

Today’s post takes Economics in the Rear-view Mirror on a short journey to the very recent past.  Instead of transcribing archival material and publications from the period 1870-1970, I thought I would see what trawling the 341 billion web pages in the internet archive, Wayback Machine, might yield us.

On Christmas eve of 1996 Wayback Machine first captured webpages for the principles of microeconomics course taught to undergraduates at M.I.T. (14.01). Below you will find links to the archived lecture plans, problem sets and questions/answers for midterm and final examinations that I have been able to find. Spoiler alert: there are gaps in this archival record, but still one finds plenty of useful items, now more conveniently ordered. 

But first I share a few paragraphs from my paper “Syllabi and Examinations” that suggest the method in my madness. 

 

_________________

On the virtual informational frontier in the history of economics

…historians of recent economics are facing information-engineering challenges of learning to harness the power from the enormous current of weblog postings, tweets, working papers, media transcripts and exploding data bases to study the processes of scientific innovation and diffusion.  The pedagogy of walk-talk-and-chalk has almost become relegated to the stuff of legend, and successive waves of duplication technologies have been forced to yield to the “pdf-ing” of lecture notes, syllabi, spreadsheets, and problem sets. Video and audio recordings of lectures, panel discussions, and interviews also contribute to a genuine curse of dimensionality confronting historians of contemporary economics.

Now we can imagine a virtual divide in our informational past that marks a frontier between the methodological problems associated with the relative scarcity of written artifacts relevant for the study of the earlier evolution of the education and training of economists and the current problems of judiciously sampling from an ever expanding big data universe.  But whether as historians we are working one side of this frontier or the other, it makes great sense to embed our specific empirical concerns within a common framework, assuming a great arc of continuity (nobody said smooth!) that connects 1918 with, say, 2018 with respect to the scope and methods of economics. Without a common framework, our respective narratives would resemble tunnel building from opposite sides of a mountain with the most likely result being two noncommunicating parallel tunnels in the end. Does anyone really think there is a parallel Harvard, Chicago, Columbia, Wisconsin, Michigan universe? Of course not, we really did get here from there.

 

Source:  Irwin L. Collier. Syllabi and Examinations in History of Political Economy, Vol. 50, No. 3 (September 2018), pp. 587-595.

_________________

MIT 14.01
PRINCIPLES OF MICROCONOMICS

Spring 1994
Professor Jeffrey Harris

Final Exam and Alternate Final Exam (questions)

Fall 1994
Professor Franklin Fisher

Midterm Exam 1 (questions and answers)

Final Exam & Alternate Final Exam (questions)

Spring 1995
Professor Jeffrey Harris

Problem Sets with Solutions

Midterm Exam 1 (questions and answers)

Midterm Exam 2 (questions and answers)

Final and Conflict Final Exams (questions)

Fall 1995
Professor Franklin Fisher

Problem Sets with Solutions

Midterm Exam 1 (questions and answers)

Final and Alternate Final Exams (questions)

Spring 1996
Professor Jeffrey Harris

Problem Sets with Solutions

Midterm Exam 1 (questions and answers)

Midterm Exam 2 (questions and answers)

Final and Conflict Exam (questions)

Fall 1996
Professor Jeffrey Harris

Textbook:  Earl L. Grinols, Microeconomics (Boston: Houghton-Mifflin, 1994). “The textbook differs from that assigned in recent past semesters.”

Course home page

Syllabus

Additional Course Information

Schedule

Problem sets and Solutions

Midterm 1 (with answers)

Midterm 2 (questions and answers)

Midterm 2, alternate (questions and answers)

Final and Conflict Exams (questions)

Spring 1997

No Wayback Machine captures found…yet!

Fall 1997
Professor Jeffrey Harris

Probable Textbook: Earl L. Grinols, Microeconomics (Boston: Houghton-Mifflin, 1994).

Course home page

[For some reason all the links go back to Fall 1996]

Spring 1998

No Wayback Machine captures found…yet!

Fall 1998
Professor Jeffrey Harris

Textbook: Earl L. Grinols, Microeconomics (Boston: Houghton-Mifflin, 1994).

Course home page

Syllabus

Schedule

Spring 1999
Professor Jonathan Gruber

Textbook: Jeffrey M. Perloff, Microeconomics (Addison Wesley Longman, 1999).

Course home page

Syllabus

Fall 1999
Professor Jeffrey Harris

Textbook: Jeffrey M. Perloff, Microeconomics (Addison Wesley Longman, 1999).

Syllabus

Spring 2000
Professor Jonathan Gruber

Textbook: Jeffrey M. Perloff, Microeconomics (Addison Wesley Longman, 1999).

Syllabus

Schedule

Fall 2000
Professor Jonathan Gruber

Textbook: Perloff, Jeffrey M. Microeconomics. 1st Edition. Addison-Wesley.

Course home page

Syllabus

Schedule

Spring 2001
Professor Christopher Snyder

Textbook: Pindyck and Rubinfeld, Microeconomics, 5th ed.

Course home page

Syllabus

Schedule

Fall 2001
Professor Jeffrey Harris

Textbook: Pindyck & Rubinfeld, Microeconomics, 5th Edition (Prentice Hall, 2001).

Course home page

Syllabus

Schedule

Midterm 1 with answers

Spring 2002
Professor Paul Joskow

Textbook: Pindyck & Rubinfeld, Microeconomics, 5th Edition (Prentice Hall, 2001).

Course home page

Syllabus

Schedule

Fall 2002
Professor Jonathan Gruber

Textbook: Jeff Perloff, Microeconomics, 2nd Edition (Addison Wesley Longman, 2001).

Course home page

Syllabus

Schedule

Midterm 1 with answers

Spring 2003
Professor Paul Joskow

Textbook: Pindyck and Rubinfeld, Microeconomics, 5th Edition.

Course home page

Syllabus

Schedule

Fall 2003
Professor Jonathan Gruber

Textbook: Jeffrey M. Perloff, Microeconomics, 3rd Edition.

Course home page

Syllabus

Schedule

Midterm 1 (Solutions)

Midterm 2 (Solutions)

Spring 2004
Professor Paul Joskow

Textbook: Pindyck and Rubinfeld, Microeconomics, 5th Edition.

Course home page

Syllabus

Schedule

Fall 2004
Professor Jonathan Gruber

Textbook: Jeffrey M. Perloff , Microeconomics, 3rd Edition.

Course home page

Syllabus

Midterm 1 (questions)

Spring 2005
Professor Jeffrey Harris

Textbook: Microeconomics, Robert S. Pindyck, Daniel L. Rubinfield, Prentice Hall, June 30, 2004 (6th edition).

Course home page and syllabus

Schedule

 

Image:  Mr. Peabody (dog) and Sherman (boy) activating the original WABAC Machine.

Categories
Economics Programs M.I.T.

M.I.T. Announcement of new graduate program in economic development, 1955

 

 

It pays to advertise and long ago in a paper world, departments would send out fliers to be posted on other departmental bulletin boards to capture the procrastinating eyes of undergraduates in the hope of stocking a qualified applicant pool for their incoming classes. Below is one such announcement for a newborn program in economic development jointly offered by the MIT Department of Economics and the Center for International Studies.

The last line of the announcement is somewhat ambiguous: “The Fellowship will carry a stipend of $2,000 exclusive of M.I.T. tuition.” Academic tuition that year ran $900 for two terms. On-campus housing for undergraduates ran to $380/year at the high end and two academic terms of board was about $500. Thus it looks like the fellowship would have broken down roughly 50:50 between tuition/fees and room/board/books.

________________

ANNOUNCING A NEW PROGRAM OF
GRADUATE TRAINING
IN ECONOMIC DEVELOPMENT

offered by

The Department of Economics and Social Science and
The Center for International Studies, M.I.T.

Beginning with the Fall Term of 1955, the Department of Economics at M.I.T. will offer a new program of graduate study leading to the Ph.D. in Economics that will provide students with special opportunities for studying the process of economic growth.

Members of the staff of the Center for International Studies will participate in courses and seminars in a way that will make available to students the current experience of the Center’s long-range research program in the field of economic development. Opportunities will be available for writing dissertations on problems being studied in a number of foreign countries.

The Center for International Studies was established by M.I.T. in 1951 to undertake research on political and economic problems that are of importance both for public policy and for the advancement of academic knowledge. Although the Center’s research is not limited to economic development, its extensive work in this field makes it appropriate to expand the economics curriculum at this time in recognition of the widespread interest in the problem of economic development.

Senior staff members of the Center who will participate in this new program of graduate instruction include Max F. Millikan, Director of the Center; Everett E. Hagen; Benjamin H. Higgins; Wilfred Malenbaum; Paul N. Rosenstein-Rodan; and Walt W. Rostow. Professors Rodan, Malenbaum, and Higgins are directing research projects on economic development in Italy, India, and Indonesia, respectively.

In order to augment the Fellowship funds available to students in the Department of Economics and Social Science, the Center for International Studies will offer one Fellowship in Economic Development for the 1955-1956 academic year. The Fellowship will carry a stipend of $2,000 exclusive of M.I.T. tuition.

 

Source:  M.I.T. Archives. School of Humanities and Social Sciences, Office of the Dean, Records, 1934-1964. Box 3, Folder “Economics Department, General. March 1951-1956”.

Categories
Exam Questions M.I.T.

M.I.T. Midterm and Final exams. Income and Employment Theory. Domar, 1968-69

 

Previously posted are the outlines, readings, and exams for Domar’s national income and employment courses taught at the University of Chicago in 1948 and at M.I.T. in 1965. Also of interest here are the MIT student evaluations for this and other core theory courses in the late 1960s.

There is little doubt in my mind that MIT economics graduate students during the first term of the 1968-69 academic year responded to Evsey Domar’s attempts to get them interested in the details of national income and product accounting and productivity indexes with an enthusiasm to rival the high-school kids’ reaction to the Hawley-Smoot lesson attempted by a high-school teacher in the cult-film Ferris Bueller’s Day Off.

Fun-fact: the boring teacher in the movie was played by Ben Stein, son of economist, Herbert Stein. One more piece of fun: watch an older Ben Stein talk about getting that role.

In Domar’s defense, national accounting and index numbers have never been the stuff of a great TED talk. Anyone? … Anyone?

__________________

THE THEORY OF INCOME AND EMPLOYMENT
14.451
E. D. Domar

MIDTERM EXAMINATION
November 27, 1968

Seventy-five minutes

Please answer all questions. Note their weights. Use a separate book for each question.

  1. [30%] “One of the basic defects of the American economic system lies in the presence of a large number of persons who receive legal incomes and yet perform no useful services. The inclusion of their incomes in the national income total (according to accepted methods) undoubtedly exaggerates this total.”
    Discuss this statement carefully. Distinguish different kinds of income and different sources. In each case indicate how national income (or product) will be affected if these persons were employed productively. (What does “productively” mean in this context?)
  2. [30%] In national income comparisons between the Soviet Union and the U.S. (or other pairs of less developed and advanced countries) it is usually thought that existing methods of social accounting understate the ratio of Russian to American income, particularly if official rates of exchange are used for conversion.
    1. Evaluate this statement critically and indicate whether or not you agree with it and why.
    2. Suppose the comparison was made first in Russian prices (for both countries) and then in American prices (again for both countries). Which one should give the Russians a more favorable ratio and why? (Hint: consider comparisons over time in the same country.)Note: Disregard the complexities of the Russian price system: remember that the Russian ruble is not freely convertible into other currencies.
  3. [25%] a. What role or roles does the so-called “Money Illusion” play in the Classical and Keynesian systems?

b. If a country is suffering from inflation, will an increase in output brought about by the reduction in unemployment (assuming that it existed) intensify or reduce the inflation? Why? (Hint: this is not an easy question; consider carefully the nature of output to be produced.)

  1. [15%] If you wanted to measure labor or other factor productivity would you or would you not use the Federal Reserve Index of Industrial Production? Why or why not?

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Evsey D. Domar Papers. Box 17, Folder “Macroeconomics Examinations (1 of 3)”.

__________________

THE THEORY OF INCOME AND EMPLOYMENT
14.451
E. D. Domar

FINAL EXAMINATION
Jan. 28, 1969

Three hours

Please answer Question 1 and any FOUR out of the five remaining questions. Use a separate book for each question.

  1. [24%] An overheard argument among students in 14.451 about measures required to increase investment:

Student A: Increase the quantity of money in order to reduce the rate of interest.

Student B: No, an increase in the quantity of money will merely raise prices.

Student C: A fall in the rate of interest will not have any appreciable effect on investment in any case.

Student D: A fall in the rate of interest will reduce savings, and thus reduce rather than increase investment.

Student E: To increase investment we should increase savings by increasing income inequality.

Student F: On the contrary, greater income equality will increase savings.

Student G: You are both (That is, E and F) wrong: the fraction of income saved is independent of income distribution and of the size of a person’s income.

Student H: To increase investment we should increase demand by increasing consumption and thus reducing saving.

Student I: Nothing will help unless you reduce the prices of machinery and construction.

Student J: You (that is, Student I) are wrong: your suggestion will merely reduce the amount of investment.

Please set this poor, confused group straight (if you can). In so doing, explain clearly the assumptions and conditions implied in each statement and evaluate it critically. Try to identify the opera (and its author) from which each aria is taken. How would you go about increasing investment?

  1. [19%] “Thus the rate of interest is what it is because it is expected to become other than it is; if it is not expected to become other than it is, there is nothing left to tell us what it is…”
    1. Can you identify the author of this famous statement?
    2. Can you recognize whose interest theory he referred to?
    3. Explain and evaluate that theory critically.
    4. Present your own (original or otherwise) theory of interest.
  2. [19%] a. Assume that all expenditures on education and training, both private and public, are to be treated as investment. Explain the modifications that you would make in existing methods of national income, (and product) and wealth accounting and the reasons for these changes.

b. In computing national product, each commodity (or service) is multiplied by its price in order to compute the total. What is the rationale for this method? What assumptions is it based on? Are these assumptions realistic?

  1. [19%] Suppose Project I has a higher internal rate of return, while Project II has a larger discounted value. Assume that the projects are mutually exclusive, and that both are being considered by a private firm.
    1. Explain the rationale of each method and the assumptions it is based on.
    2. Which method (that is, the internal rate vs. present value) would you use under what conditions and why?
    3. How will your calculations be changed if the projects are undertaken by a government of some underdeveloped country?
  2. [19%] a. “A high ratio of depreciation to investment is a sign of old age.”

b. “If the measured distribution of income remained the same in the U.S. over the last fifty years, the distribution of permanent income has become less equal.”
Comment. Explain your conclusion thoroughly.
c. “If the Balanced-Budget Theorem is correct, is Say’s Law also correct?”
Comment. Explain what is meant by each part of this statement.

  1. [19%] a. “What is the proper definition of money required in the Price-Flexibility (Patinkin-like) problems? Why and how does it differ from the usual definition?
    Explain what elements of American money supply and of other relevant assets you would include or exclude in the proper (for this purpose) definition of money.

b. Explain how Patinkin’s conclusions regarding the effects of an increase (say, of doubling) in the quantity of money “by magic” on the price level and on the rate of interest are modified by the existence of the money illusion in the labor market.
c. Assume the absence of money illusion and explain why the effects of creating money by open market operations differ from those when money is created “by magic.”

 

Source:Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archives. Evsey D. Domar Papers. Box 17, Folder “Macroeconomics Examinations (2 of 3)”.

Image Source: Evsey D. Domar at the MIT Museum.

Categories
Funny Business M.I.T.

M.I.T. “The Greatest Faculty Skit Ever Written”, ca. 1974

 

The following faculty skit comes from the M.I.T. department of economics when memories of the Senate Watergate Hearings (summer of 1973) were still very fresh in everyone’s memories.  This skit was likely presented at the 1973-74 annual skit party.  Frederick Mishkin received his B.S. in 1973 from M.I.T. and his first year as a graduate student at M.I.T. was in 1973-74. Other graduate students named were either second year or thesis-writers.

I presume “E. Hausman Hunt” was a blend of the names of the MIT econometrician Jerry Hausman and the Watergate conspirator E. Howard Hunt.

“Bob Dean” was likely a blend of the names of Robert Hall (who taught the course 14.123) and Nixon’s special counsel John Dean (wife’s name Maureen).

“Paul Colson” might have been a blend of the names of Paul Joskow and Charles Colson, Nixon’s man for “dirty tricks” and who claimed he would have walked over his own grandmother to get Nixon reelected.

“F.” would appear with the remark about not understanding “goyim” to have been Frank Fisher.

Roger Backhouse graciously made his copy of this skit available for transcription. I have corrected many typos in the original text. If I ever identify the author, I shall update this post. 

__________________

The Greatest Faculty Skit Ever Written
(in 1 hour, 15 minutes)

F. This here meeting will now come to order. Let the minutes show that this is the 732nd meeting of the Special Subcommittee of the Econometrics [sic] Society investigating the notorious Westgate affair.

M1: Mr. Chairman, a point of personal privilege—

F. Yes, Mr. Solow.

M2: I’ve been out of town testifying for IBM in Tulsa for the last 7 months. Could you fill me in on what’s been happening?

F. On the night of June 20, 1972 several graduate students were apprehended breaking into Gary Becker’s office. It appeared that these students were after Prof. Becker’s manuscript on a theory of marriage. Several pieces of evidence point [to] the fact that these students were after Prof. Becker’s manuscript on a theory of marriage. Several pieces of evidence point [to] the fact that a well known Eastern economist (with initials PAS) may have funded this break-in for as yet unknown reasons. This committee has been called to investigate this matter.

M1Thank you Mr. Chairman.

F. Will the first witness step forward to testify?
Please state your name.

EHH   E. Hausman Hunt.

F. What have you been doing for [the] last 3 months?

EHH.  I’ve spent the last 3 months in Charles St. Jail polishing up my lecturing technique. If I could only speak a little faster during my lecture, just think how much more material I could cover.

F. Is it true that you were in charge of organizing the burglary of Becker’s office?

EHH. Yes; I used several graduate students from MIT: my first choices were Rick Kasten and Roger Gordon but we had to reject them since we were afraid they were too talkative. However I finally settled on Rick Mishkin and Glenn Loury; Mishkin because he was so calm and organized; and Louryto comply with equal opportunities satisfy HEW.

F. Is it true that you write econometrics papers under a pseudonym?

EHH. Yes, I’ve just produced my 43rdpaper on the identification problem using the pseudonym “Franklin M. Fisher”

F. Well, I may be an old country bullfrog, but…
Next witness, please

(BH steps forward; Maureen sits in his lap; F. gives the eyebrows to the audience)

F. State your name, rank.

BD. I’m Bob Dean, special assistant professor.

F. And whom do you assist?

BD. Prof. Paul Anthony Samuelson, BA, PhD, L.H.D, L.L.D, Litt.D. (hon), LSD.

F. Can you describe briefly your part in the Westgate affair?

BD. Prof Samuelson was working on a theory of marriage at the same time as Prof. Becker. He had just succeeded in developing the formal first order conditions for the optimal marriage (using the LeChatelier principle) when he discovered Prof Becker’s work. He asked me to arrange for him to get a look at Prof. Becker’s manuscript.

F. Isn’t it true that you got married on or about this same period?

BD. Yes, that was also part of Prof Samuelson’s theory of marriage. He had also arranged for an empirical part of this work; after deriving the first order conditions, he hired a computer programmer to search for the optimal marriage in the department. Maureen and I were chosen. Pressured by Samuelson we agreed to get married.

F. How did you afford your honeymoon on an assistant prof’s salary?

BD. I borrowed some money from a departmental slush fund.

F. What is the source of this slush fund?

BD. It was accumulated for the sale of lecture notes from 14.123; why else do you think we sell those notes?

F. (eyebrows) I see. When did you again meet with Prof Samuelson?

BD. March 21, 1973;

F. What happened at that meeting?

BD. We received instructions from Prof. Samuelson on how to behave on our honeymoon. We asked Prof. Samuelson if it would be OK if our marginal utilities were not equalized; he said that “it would be wrong.”

F. Why was Prof Samuelson taking such an interest in your honeymoon?

BD. He wanted to be sure that his theory involved only “empirically refutable propositions”. He was also worried that we might behave too formally.

F. I don’t think I’ll ever understand you goyim.

F. Next witness. Please state your name.

PC. Paul Colson.

F. For what purpose were you hired by Prof Samuelson?

PC. I was supposed to ghost write the empirical part of the paper.

F. It says here (looking at notes) that you are one of the most dedicated of the applied econometricians?

PC. Yes, I’d run over my own grandmother to get a t-statistic greater than 2.

F. What were Prof. Samuelson’s instructions?

PC. As you know, Prof Samuelson was worried that Bob and Maureen Dean might be too formal on their honeymoon; I was sent along to collect data on their performance.

F. What happened? (eyebrows)

PC. As I peered into their motel room, I saw Bob come out of the bathroom dressed in pajamas and say to Maureen: I offer my honor. Maureen came out in her nightgown and replied I honor your offer.

F. (eyebrows) What happened next?

PC. From then on it was just honor and offer all night.

F. What went wrong?

PC. We forgot to check the second-order conditions and it was only a saddle point.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow. Box 83.

Image Source: Photo from U.S. Senate Watergate hearings. From left to right: minority counsel Fred Thompson, ranking member Howard Baker, and chair Sam Ervin of the Senate Watergate Committee.

Categories
Computing M.I.T.

M.I.T. Request for funds so Samuelson can multiply, 1941

 

 

I fondly remember the experience of having a desktop Wang calculator that could calculate logarithms when I was an intern at the Council of Economic Advisers in 1972. Hard to imagine that only three decades earlier, Paul Samuelson had to hustle to find funds to pay for access to an IBM punch card calculating machine that would multiply, multiply I say! A casual search of the internet turned up the Wikipedia article on the first IBM calculating machine that could multiply, the IBM 601. I am guessing that must be the machine in question since the IBM 602 (that could do division) was only introduced in 1946. 

Source: IBM 601 multiplying punch. By Sandstein – Own work, CC BY-SA 3.0.

________________

Massachusetts Institute of Technology
Department of
Economics and Social Science

Cambridge, Mass

February 20, 1941

Mr. J. R. Killian
Room 3-208
M.I.T.

Dear Mr. Killian:

As I mentioned in our conversation of yesterday, the Department is badly in need of about $150.00 to defray expenses involved in the use of punch card computing services. The Institute’s Hollerith machine can be used for part of the work, but since this machine does not multiply we need to supplement it from the equipment available at the International Business Machine Co. The money will be required to cover the rental of machines, cost of cards and to hire a trained operator. The work arises out of research problems in business cycles in which Professor Samuelson is engaged.

Since the Department funds are at a very low ebb, I should be extremely grateful if you could charge this expense to any fund that may be available and appropriate.

Yours sincerely,
[signed]
Ralph E. Freeman

REF:d

 

Source:  MIT Archives. MIT. Office of The President, 1930-1958. Box 93, Folder “1940-1944. Freeman, R.E.”.

Image Source: Paul A. Samuelson, fellowship awarded 1948 .  John Simon Guggenheim Memorial Foundation.

Categories
Exam Questions M.I.T.

M.I.T. General exams in money and banking, 1952 and 1956

 

 

In this post we find transcriptions of three exams from the M.I.T. economics department for 1952 and 1956. The date of the second of the three is somewhat uncertain, with only a handwritten note “Spring 1956 (?)” at the top indicating the likely date. Since the question involving changes in bank balance sheets is identical with that in the September 1956 exam, it seems plausible that the dates of the second and third exams were close.

_____________________

GENERAL EXAMINATION IN MONEY AND BANKING

Monday, May 12, 1952
9:00-12:00 m.

  1. “We have arrived at a fairly deflation proof monetary framework.” What does this statement mean?
  2. Explain the gold standard as it functioned prior to World War I and discuss this standard as a practical policy for our times.
  3. Explain briefly the credit control instruments available to the federal reserve authorities and indicate how their control may be modified by political and other institutional conditions.
  4. “There must be some quantity of cash assets which would just suit each household and business firm in the economic system.” What determines this quantity? What happens when the actual cost [sic, should read “cash”] held does not match this quantity?
  5. Explain the proposal for 100 per cent money. What is the purpose of the plan and its shortcomings?
  6. Write a short exposition of what you consider to be the proper goal of monetary policy.

_____________________

General Examination in Money
[handwritten note:  “Spring 1956(?)”]

Total Time:  3 hours.

I

60 minutes

Compare the essential features, similarities and differences in so far as they relate to the setting of Central Banking policy of

(1) The Bank of England, as set up under the Bank Act of 1844;
(2) the National Banking system prior to the Federal Reserve Act;
(3) the Federal Reserve system as initially enacted, and
(4) The Federal Reserve system as amended in its present form.

Show how the essential changes in the structure of the Central Bank reflected the development of and changes in the underlying theories of Central Bank policy and of the role of money in the economy.

II

30 minutes. Answer both questions.

  1. Define what is meant by the “expansion coefficient” of the banking system. Using your definition, estimate this coefficient for the U.S. banking system. Note: In defining your coefficient, you will also have to define what you mean by “banking system”.
  2. Suppose that over a given period, the following changes are noted:
Increase in Federal Reserve Credit 1000
Decrease in Float 50
Increase in Money in Circulation 200
Increase in Commercial Bank Capital 150
Decrease in Treasury Currency outstanding 100
Increase in Currency holdings of Commercial Banks 80

What is the resulting change in member bank reserves? Assuming commercial banks to be loaned up, with a reserve ratio of 20%, what is the resulting change in money supply held by the public? Show how each of the itemized changes enters into the picture.

III

30 minutes. Write briefly on two out of the following three questions.

  1. Consider the main issues involved in U.S. experience with legislation against concentration in the field of commercial banking.
  2. Consider the main issues involved in bank examinations.
  3. What are the main fields of Federal credit policy now conducted outside the Federal Reserve system? Should they be placed under the Federal Reserve? Why or why not?

IV

30 minutes. Write on one of the following two questions.

  1. Forgetting about the politics of debt management, consider some of the essential problems of a theory of debt management, conceived as part of a broader framework of liquidity and monetary theory.
  2. Much has been said and written in recent years about the “rebirth” of monetary policy. Discuss and appraise the factors behind this development, allowing for both theoretical and policy aspects.

V

30 minutes. Write on one of the following two questions.

  1. “Looking back over the development of monetary theory, the three outstanding landmarks are Wicksell’s concept of the natural rate, Fisher’s treatment of velocity and Keynes’ concept of liquidity preference. All three are necessary parts of a complete system of monetary theory and need be considered if one wishes to understand the role of money in the economy.” Explain and discuss. Do you agree with the statement?
  2. Discuss the issues involved in the controversy between the “liquidity preference” and the “loanable funds” approach to interest theory. Do you think that the two can be reconciled? If so, how?

_____________________

GENERAL EXAMINATION IN MONEY AND BANKING

September 12, 1956

Answer any five questions.

  1. Describe and contrast the “Cambridge cash balance” approach to the “quantity theory of money” with that of Fisher. What have been the historical trends of economists’ views toward the quantity theory? Interpret and evaluate the cause behind these trends, giving the present status of that theory.
  2. Evaluate the current weapons of American monetary policy in terms of their importance and effectiveness. Illustrate by concrete experiences.
  3. “Debt management is part of fiscal policy and also of monetary policy. It involves the interrelations of asset theory with income flow theory, and can only be understood in terms of various theories of liquidity and loanable bonds.” Comment on this theme.
  4. What have been the important evolutionary changes in the American banking system and related financial institutions? Contrast with the U.K. or other countries.
  5. Synthesize the “pure-theory” aspects of capital and interest with the “monetary, effective demand, uncertainty” aspects of the problems. Resolve controversies where you can.
  6. Suppose that over a given period, the following changes are noted:
Increase in Federal Reserve Credit 1000
Decrease in Float 50
Increase in Money in Circulation 200
Increase in Commercial Bank Capital 150
Decrease in Treasury Currency outstanding 100
Increase in Currency holdings of Commercial Banks 80

What is the resulting change in member bank reserves? Assuming commercial banks to be loaned up, with a reserve ratio of 20%, what is the resulting change in money supply held by the public? Show how each of the itemized changes enters into the picture.

  1. Write a half hour essay on the interrelations of fiscal and monetary policies.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Paul Samuelson Papers, Box 33, Folder “Teaching Exams 1952, 1956”.

Image Source: M.I.T. Technology Review, March 1914.

Categories
Funny Business M.I.T.

M.I.T. Economics Christmas skit with basketball theme, 1961

Boston, MA - 1/1/1960: From left, Boston Celtics players Tom Heinsohn, Bill Russell, Capt. Bob Cousy, Bill Sharman and Frank Ramsey pose together at the Boston Garden in Boston circa 1960. (Boston Globe Archive/) --- BGPA Reference: 170504_BS_001

 

Spoiler alert: you are about to encounter one of the least funny economics skits in the history of the genre, so this artifact is regrettably low on entertainment value.  Still the six acts have a certain seven-acts-of-man structure: Act I (the department recruits), Act II ( advising the first-year student), Act III (graduate student complaints), Act IV (choosing guest speakers), Act V (general examinations), Act VI (job market). 

After reading the skit, you might need a palate cleansing or better: for that purpose here are a few links to the key word “Funny Business” at Economics in the Rear-view Mirror that take you to some of the greatest hits of economics skits.

____________________

ANOTHER TWO POINTS FOR THE FACULTY,
ANOTHER FOUL ON THE STUDENTS

A Christmas Drama (with suggestions for a cast), December 15, 1961

ACT I

(The curtain rises on a scene of [Edgar Cary] Brown, [Franklin Marvin] Fisher, [Charles Poor] Kindleberger and [Abraham J.] Siegel seated around a table reading applications.

SIEGEL: Here’s a guy who may be OK…No…the place is no good. A cow college. They average only 50 points a game.

BROWN:  Here’s a good one.

FISHER: What’s his record?

BROWN: Pretty darn good. Worth at least tuition plus $500. Maybe $750.

FISHER: What’s his record?

BROWN: Pretty darn good. He’s from Podunk. And they’re pretty good. He was the best they had.

FISHER: How did he score, for crying out loud?

BROWN: He’s six-feet-five, weighs 195 pounds, and fast; he averaged 23.7 points a game. He has a great set shot, never misses from the foul line, and superb off the backboard. He’s just what we need in Graduate Economics at M.I.T.

 

ACT II

(An office: Siegel is advising a student.)

SIEGEL: For the first year I would take pretty standard fare: theory, history, statistics, finance, and international, plus of course the workshop. There’s no use trying to take too much. Pace yourself.

STUDENT (perhaps [Stephen Herbert] Hymer?): I don’t have much math. Why do I need to take statistics?

SIEGEL: Ando is very good. He doesn’t always make things completely clear, but you have to take statistics if you want to be able to handle averages, to work out the point per game and point per shot records; and you need probability to help compute odds on all the league games. Statistics is a must.

STUDENT: Why the history, finance and international?

SIEGEL: International is important. You ought to know how to schedule the Harlem Globetrotters, and who has the best chance in the Olympics. One of our best graduates played on the Oxford team against Poland and Czechoslovakia. That was Chuck Cooper, and it got him a job as Walter Heller’s assistant at the Council. Finance is important. When the gamblers start bribing players you need to know how to invest the funds. And history is vital. On the general exams they always ask who was James Naismith, the man who invented basketball. That’s for every student. The good students they ask when it was invented…of course 1891. And the very best students they ask where…past, Springfield, Mass. Remember, it’s not Springfield, Illinois. That’s Abe Lincoln.

STUDENT: OK. But tell me about the last one.

SIEGEL: Theory isn’t much. [Paul Anthony] Samuelson teaches about how to make inputs for two points, and when to dribble.

STUDENT: Samuelson teaches drivel?

 

ACT III

(A group of students, griping.)

STUDENT 1 (Francis Michel Bator?): This place is no good. It’s theory, theory, theory all the way. Anyone knows that the way to win at basketball is to practice. Practice makes perfect. Theory makes perfect fools. All you do is study and take exams. “Who was James Naismith? Who was Adam Yea-Smith? When do you chop down the tree?” Bah! I say we ought to study policy. With a two-point lead and three minutes to go, should you freeze the ball or plop in an input for an output of two points?

STUDENT 2 ([Paul Narcyz] Rosenstein-Rodan?): They tell me [Robert Merton] Solow has been converted from theory to policy. He is no longer interested in questions like whether the best set shot is an inverted rectangular parabola, but real issues, like the queuing problem: how many substitutes does a team need to field five men for an hour, with one personal foul every six minutes and four personal fouls per man disqualifying. If you have too many players on the bench you get unemployment. The team needs growth. Maybe you ought to add a man and play six.

STUDENT 3 ([Robert] Evans?): What’s bad is to have to play far away from the Sloan building. Those workshops on top on Walker and over in the Armory are OK, but they are too far away. We need the Ford Foundation to give us a workshop right here.

STUDENT 1: Haven’t you heard? The talk is that the new building to go up in the back lot is a library. But as I see its dimensions unfold- 90 feet by 50 – and transparent backboards and netting and grandstands, I can’t believe it’s a library. It must be a basketball court.

 

ACT IV

(A meeting of the G.E.A.)

RALPH BULL (played by [Robert Lyle] Bishop?): Do any of you fellows have suggestions for speakers besides Cousy, Russell, Jungle Jim Lusketoff, and that 6.8 outstanding economist, [John Kenneth] Galbraith, who can stand with his head coming up through the basket?

STUDENT B: What about Milton Friedman? He is under the five feet which some say is the minimum allowable in a monetary theorist, but he sure is good at the far-fetched shot.

STUDENT B: Why not get Clifford Odets?

RALPH BULL: Clifford Odets? Why him?

STUDENT B: Don’t you remember the famous line in “Awake and Sing”? “My brother Sam joined the Navy. He don’t know from nothin’, that dumb basketball player.” I want to know whether the emphasis is “that dumb basketball player” or “the [sic] dumb basketball player”. Are there any smart basketball players?

 

ACT V

KINDLEBERGER: As chairman of this exam, let me tell you that you have the right to pick the order of your exam. Do you want to start with Theory, or Statistics?

STUDENT (Samuelson?): I think I’ll start by jumping against Fisher, your professorship, sir. Ando’s the smaller, so I’ll take him last when I’m tired.

KINDLEBERGER: All right. (Student and Fisher face each other. Kindleberger blows whistle and throws imaginary ball. Cheers of amazement from faculty.)

FISHER: Very well. I have decided to let you combine Theory and Economic History.

STUDENT: Hey, Ref, your Ph.D.ship, sir, I’m not responsible for History. Isn’t that a foul?

KINDLEBERGER: I didn’t see nuthin’.

FISHER: Consider the population explosion of the last 150 years. Discuss the relative roles of (a) men and (b) women in this affair.

ANDO [Albert Keinosuke] : Good shot. That’s two points for our side.

STUDENT: I don’t know that, your cap-and-gownship, sir, but I know the roles are neither reflexive, symmetric, or transitive.

KINDLEBERGER: (blows whistle) Foul. You used big words in a generals. That’s only permitted the faculty.

FISHER: I’ll give Albert my free throw.

ANDO: (taking the foul shot) Please discuss the role of the nearly decomposable take-off in the application of a priori oligopoly theory to the A&P case.

STUDENT: Hey! You guys are ganging up on me.

ANDO: Well, you outnumber us in class.

STUDENT: (driving hard for basket) It can be set up as a nine-dimensional matrix problem and the latent roots dispensed with. I think the take-off is fine if done along the turnpike, watching out for model changes in passing cars.

ANDO: Fantastic! (Faculty huddle.)

KINDLEBERGER: That was a good answer. We’ve decided to give you an Excellent minus for being a good scorer, but to ask you to leave the Institute for fouling out on personals.

KINDLEBERGER, ANDO, FISHER: Rah, team!

 

ACT VI

DOMAR [Evsey David]: Well, you have the degree wrapped up, and now want a job. Not bad. You got a good grade on the orals, and would have gotten a top grade if you hadn’t thought that Stilt Chamberlain played for the Celtics and failed to distinguish Slippery Sam Jones from Casey Jones. Your thesis was entirely satisfactory, on a good topic: How to Get to the Boston Garden from Madison Square Garden: An Application of the Turnpike Theorem. And you even did languages: basketball communication in the Ivy League, or basketball with a broad A. Now the job. What do you think? Big Ten? Ivy League? Small liberal arts? Girls’ rules like Wellesley or Vassar? Or maybe the real big time: Kentucky, Long Island University, St. Joseph’s in Brooklyn, Notre Dame. L.I.U. is to economics like M.I.T. was to economics.

STUDENT (perhaps [Max Franklin] Millikan?): I don’t now if I’m ready for the Big Time.

DOMAR: What about applying some of your basketballmetrics for the government? They need our graduates. Or for an oil company. Maybe you would like to take a ball and a whistle and go abroad, demonstrating technical assistance to underdeveloped countries. There are jobs like that.

STUDENT: No. I guess I’m fussy. What I’d like is just what all the gang would like, to stay here at Cambridge with Harvard and the Celtics, and to referee like you and [Robert Lyle] Bishop and Samuelson, always blowing off your whistle and shouting foul, going first class to conferences, and shouting foul, foul, foul at the students.

 

Source:  M.I.T. Archives. MIT Department of Economics records, Box 2, Folder “GEA 1961-67”.

Image Source:  Boston Celtics players Tom Heinsohn, Bill Russell, Bob Cousy, Bill Sharman and Frank Ramsey in 1960. “Twelve of the greatest Celtics players of all time”  from Boston.com website (March 18, 2018)