Basic Course Module Exam Information:

The exam for Econ 606 (Coordination Issues Module) will be held in Heady Hall 368A on Monday, February 16, 10:30-12.

This course module exam will be closed-book and comprehensive. It will cover: (1) all class lectures, class discussions, and assigned exercises; and (2) all assigned required readings as listed below.

Test booklets will be provided at the exam, so students do not need to bring paper or blue books to the exam. Also, calculators will not be needed.

Absence from this course module exam will result in a grade of zero for the exam unless the instructor agrees there are verified extenuating circumstances such as a major medical emergency. In the latter case, your overall course grade for Econ 606 will be determined on the basis of the percentage portion of work you completed for this course module with the remaining percentage portion of your grade determined by your performance during the final ten weeks of Econ 606. No make-up exams for this course module will be scheduled.

Cheating will not be tolerated and will result in a grade of F for the course module exam at a minimum; other sanctions may also be applied in accordance with ISU policy.

Types of Questions That Might Appear on the Course Module Exam:

The syllabus for Econ 606 (Coordination Issues Module) provides a list of "Key Questions" for each covered course topic, and the questions appearing on the course module exam will be based on these key questions. Where appropriate, you might be asked to define concepts and terms appearing in these key discussion questions. You might also be asked specific questions about graphical and/or analytical models related to these key questions (based on the required readings listed below). You might either be presented with these models or asked to provide them yourself.

The test will consist of some mix of long and short-answer questions. A long question will consist of several closely related parts (e.g., Parts A, B, C) and will generally be designed to be answerable in about an hour (or perhaps in somewhat less time, such as 40 minutes). A short-answer question will pose one or more stand-alone questions that are each designed to be answerable in about 10 or 15 minutes.

Required Readings for the Course Module Exam

Recall that a double asterisk ** on a reading means that the reading contains basic required material for answering exam questions. The ** readings to be covered on the course module exam are listed below. Important Note: From among the ** required readings listed below, those specifically discussed in class lectures will be stressed on the exam.

A single asterisk * on a syllabus reading means that the reading contains recommended material of a more general contextual nature that might be of some use for answering exam questions. These * readings are NOT listed below.

I. MACROECONOMIC COORDINATION: INTRODUCTION

Key Questions for In-Class Discussion:

• How should macroeconomics be defined?
• To what extent should macroeconomic analysis be based on explicit microfoundations?
• To what extent should macroeconomic analysis attempt to incorporate institutional constraints -- in particular, realistic renderings of market processes?
• To what extent should macroeconomic analysis be concerned with coordination issues?
• What does the "coordination" of a macroeconomy mean? Is it synonomous in some sense with "equilibrium"? with "optimization"? with "stability"?

Required Readings:

• ** Kevin D. Hoover, "The Varieties of Macroeconomics", Chapter 1 (pages 3-19) in Kevin D. Hoover, The New Classical Macroeconomics, op. cit.. BOOK ON CLOSED RESERVE

• ** Samuel Bowles, "Prologue" (pdf,19pp), Microeconomics: Behavior, Institutions, and Evolution, Princeton University Press, Princeton, N.J., 2003. ON-LINE

• ** Peter Howitt, "Introduction: Prices and Coordination in Keynesian Economics", Chapter 1 (pp. 1-23, focus on 1-19) in Peter Howitt, The Keynesian Recovery and Other Essays, op. cit.. BOOK ON CLOSED RESERVE

• ** Peter Howitt, "The Keynesian Recovery", Chapter 5 (pp. 70-85) in Peter Howitt, The Keynesian Recovery and Other Essays, op. cit.. BOOK ON CLOSED RESERVE

• ** Robert King, "New Classical Macroeconomics" (html,8pp), entry in the Concise Encyclopedia of Economics, 1993. ON-LINE/CLOSED RESERVE

• ** N. Gregory Mankiw, "New Keynesian Economics" (html,7pp), entry in the Concise Encyclopedia of Economics, 1993. ON-LINE/CLOSED RESERVE
  Note: New Keynesian economics is an early strand of the "Post-Walrasian" macroeconomic literature, which will be more carefully defined below in Section IV.

II. WALRASIAN EQUILIBRIUM: A BENCHMARK OF COORDINATION SUCCESS?

Key Questions for In-Class Discussion:

• What is a "Walrasian equilibrium"?
• How should an individual person's welfare be measured?
• How should social welfare be measured for an economy?
• In what sense are individual and social welfare optimized in a Walrasian equilibrium?
• Is Walrasian equilibrium an appropriate benchmark of coordination success for macroeconomics? (Or does Walrasian equilibrium instead represent "the celestial mechanics of a non-existent world," as suggested by Kenneth Boulding?)
• How robust is the concept of Walrasian equilibrium to various plausible weakenings of its assumptions?

Required Reading:

• ** L. Tesfatsion, "Walrasian Equilibrium: A Critique" (pdf,122K). ON-LINE/HAND-OUT/CLASS PRESENTATION

III. EXPECTATIONS AND TIME INCONSISTENCY ISSUES

Key Questions for In-Class Discussion:

• What distinguishes rational from adaptive expectations?
• In what sense is "rational expectations" a coordination device?
• How does the possible existence of multiple rational expectations solutions pose logical difficulties for the application of rational expectations as a coordination device?
• Why does the existence of strategic (behavioral) uncertainty pose problems for the very definition of rational expectations?
• How do credible commitment and time inconsistency problems cause intertemporal coordination problems for government policy makers?

Required Readings:

• ** L. Tesfatsion, "Adaptive vs. Rational Expectations". HAND-OUT/CLASS PRESENTATION

• ** L. Tesfatsion, "Introduction to Rational Expectations" (pdf,130K). HAND-OUT/CLASS PRESENTATION

• ** L. Tesfatsion, "Notes on the Lucas Critique, Time Inconsistency, and Related Issues" (pdf,114K). HAND-OUT/CLASS PRESENTATION

IV. POST-WALRASIAN MACROECONOMICS

Key Questions for In-Class Discussion:

• Must markets clear in the traditional Walrasian sense in order for an economy to be in "equilibrium"? How should "equilibrium" be defined for macroeconomies?
• What does "coordination failure" mean for a macroeconomy? How is it distinct from disequilibrium?
• What is meant by "involuntary unemployment"? Can economies become stuck in situations with persistent involuntary unemployment?
• Can involuntary unemployment arise in macroeconomies for reasons other than sticky prices?
• Why might credible signalling of purchasing intentions be important in circular flow economies?
• What was Clower's distinction between notional and effective demands and supplies, and how does this relate to the issue of credible signalling?
• How can self-fulfilling expectations lead to the existence of "multiple equilibria" for an economy in a given structural state?
• What constitutes "rational" expectations and "rational" planning in the presence of behavioral uncertainty?
• How might coordination failure arise in the presence of behavioral uncertainty?
• What kinds of institutions (private or public) might help to induce coordination on socially desirable outcomes?

Required Readings:

• ** David Colander, "Overview", Chapter 1 (pp. 1-17, stress on pages 1-10) in David Colander (ed.), Beyond Microfoundations: Post Walrasian Macroeconomics, Cambridge University Press, Cambridge, UK, 1996. BOOK ON CLOSED RESERVE

• ** L. Tesfatsion, "NonWalrasian Equilibrium: Illustrative Examples" (pdf,187K). ON-LINE/HAND-OUT/CLASS PRESENTATION

• ** Robert Clower and Peter Howitt, "Taking Markets Seriously: Groundwork for a Post Walrasian Macroeconomics", Chapter 2 (pp. 21-37) in David Colander (ed.), Beyond Microfoundations: Post Walrasian Macroeconomics, op. cit.. BOOK ON CLOSED RESERVE

V. A CONSTRUCTIVE APPROACH TO MACROECONOMIC COORDINATION

Key Questions for In-Class Discussion:

• Does the real understanding of a system (sandpile, washing machine, cockroach, city, economy,...) require knowing how to construct it? And what does "constructing it" mean?
• What is the basic agent-based computational economics (ACE) approach?
• Key coordination issues that are being experimentally studied using ACE frameworks:
  • Learning effects (under what conditions will expectations come to be coordinated?)
  • Interaction effects (under what conditions will buyers and sellers efficiently match? efficiently trade?)
  • Effects of institutional constraints (hindrance or help for achieving macroeconomic coordination?)
• Illustrative Example: An ACE labor market with preferential job search and evolution of work-site behaviors
• If you had to construct a workable decentralized market economy from scratch, how would you do it?
• Are there any "universally applicable" features that you believe you would have to incorporate in your constructed economy in order for it to function properly?

Required Readings:

• ** L. Tesfatsion, "Macro Coordination: More General Considerations" (pdf,25K). ON-LINE/HAND-OUT/CLASS PRESENTATION

• ** Leigh Tesfatsion, "Agent-Based Computational Economics: Modeling Economies as Complex Adaptive Systems" (pdf preprint,72K), Information Sciences, Volume 149, 2003, 263-269. ON-LINE/HAND-OUT

Copyright © 2004 Leigh Tesfatsion. All Rights Reserved.