Macro Policy Workshop

aje on February 24, 2020

Lecture handout: Macro policy*
Group activity: “Macro Policy Workshop“, March 2018 and complete the Macro Policy Workshop Form.

There is a Harvard simulation called Econland that I haven’t used yet, but would be relevant for this session:

Prerequisites: See my video on Macro Policy and take this follow up quiz.

The key finding of monetary economics is that the root cause of inflation is excessive money creation. We looked at some specific examples of hyperinflation, and to learn more you can watch “Zimbabwe and Hyperinflation: Who Wants to Be a Trillionaire?” (Marginal Revolution University).

  • Steve Hanke runs the Troubled Currencies project which gathers black market data to construct up to date estimates of high inflation environments. You can see more here.

In the lecture I briefly mention the relevance of a specific Reinhart-Rogoff paper for the austerity debate. For more on that see here:

Consider the following quote from Chari, Anusha, Peter Blair Henry, and Hector Reyes. 2021. “The Baker Hypothesis: Stabilization, Structural Reforms, and Economic Growth.” Journal of Economic Perspectives, 35 (3): 83–108:

Macroeconomic stability and economic efficiency are not sufficient conditions for a flourishing society, but they are absolutely necessary for sustainable and inclusive growth that allows an increasing fraction of a country’s population to have choices and opportunity. The hard-won economic successes of the past three decades underscore the benefits of policymakers finding the will and the ways to meaningfully and constructively address the prospect of continued catch-up growth by emerging and developing economies.

The concepts discussed in this section should help students to understand the rationale for Georgia’s “Law on Economic Freedom”, which limited the government to the following (see Lawson and Powell, 2019, p. 114):

  • Annual budget deficit of no more than 3% of GDP
  • National debt of no more than 60% of GDP
  • Annual government spending of no more than 60% of GDP
  • No new tax without voter approval

Recommended reading:

Recommended audio:

Recommended app:

If you think you could have done a better job than Mervyn King at leading the Bank of England through the global financial crisis, see my role-playing app

fincrisis

Instructor Resource:

  • “Macro Policy Workshop: Solutions”, March 2018
  • Macro Policy Practice Exam
Learning Objectives: Test understanding and utilisation of important macro concepts.

Focus on diversity: Janet Yellen served as the chair of the Federal Reserve from 2014-2018 and as U.S. Treasury secretary from 2021-2025. She has therefore occupied the twin positions of being in charge of monetary and fiscal policy and was the first female to do either. You can learn more about her here.