A Simple Treatment of the Liquidity Trap for Intermediate Macroeconomics Courses

Several leading undergraduate intermediate macroeconomics textbooks now include a simple reduced-form New Keynesian model of short-run dynamics (alongside the IS-LM model). Unfortunately, there is no accompanying description of how the zero lower bound on nominal interest rates affects the model. In this article, the authors show how the aforementioned model can easily be modified to teach undergraduate students about the significance of the zero lower bound for economic performance and policy. This acquires additional significance because economies such as the United States and Japan have been close to the zero lower bound since 2008 and 1995, respectively. The authors show that when the zero lower bound is introduced, an additional long-run equilibrium exists. This equilibrium is unstable and can lead to a deflationary spiral

Engines of Liberation Redux When Home Appliances Prices are Endogenous

We propose a model of the household where the transmission mechanism between home appliances and women’s labor supply is identical to the one in Greenwood et al. (2005b) with one important exception.We explicitly model firms’ pricing and output choices in the appliances sector and thus, the price of home appliances is determined endogenously by the laws of supply and demand rather than being taken exogenously from outside the model.We use this new framework to characterize the general equilibrium effects of rising household wages on the price of home appliances, and thus ultimately women’s labor supply. The ratio between the price of home appliances and household wages declines following a rise in the wage level, which leads to widespread adoption of home appliances and increased labor force participation of married women.A numerical example shows that rising wages account for half of the increase in participation of married women between 1960 and 1970

Teaching Secular Stagnation

We modify the Dynamic Aggregate Demand – Aggregate Supply model in Mankiw’s widely-used Intermediate Macroeconomics textbook to discuss monetary policy when the natural real interest rate is falling. Our results highlight a new role for the central bank’s inflation target as a tool of macroeconomic stabilization. We show that even when the zero lower bound is not binding, a prudent central bank will need to match every decrease in the natural real interest rate with an equal increase in the target rate of inflation in order to stabilize the risk of the economy falling into a deflationary spiral – an acute case of simultaneously falling output and inflation in which the economy’s self-correcting forces are inactive

An Accounting Exercise for the Shift in Life-Cycle Employment Profiles of Married Women Born Between 1940 and 1960

Life-cycle employment profiles of married women born between 1940 and 1960 shifted upwards and became flatter. We calibrate a dynamic life-cycle model of employment decisions of married women to assess the quantitative importance of three competing explanations of the change in employment profiles: the decrease and delay in fertility, the increase in relative wages of women to men, and the decline in child-care costs. We find that the decrease and delay in fertility and the decline in child-care cost affect employment very early in life, while increases in relative wages affect employment increasingly with age. Changes in relative wages, in particular returns to experience, account for the bulk (67 percent) of changes in life-cycle employment of married women

Design and Use of Rubrics in Undergraduate Economics Courses

The purpose of this paper is threefold; first we explain how rubrics can be used in undergraduate economics courses not only as an assessment tool, but also as an effective teaching and learning tool. Next, we show how to design a rubric, using a simple production possibilities frontier (PPF) example with a four-step method that can be applied to any short- answer assignment or exam question. Finally, we provide three additional examples of short- answer questions with accompanying answers and rubrics that instructors can study and use, in order to develop and improve their own rubric-writing skills

The Friedman Rule and the Zero Lower Bound

We explain why central banks rarely implement the Friedman rule by studying the properties of a simple New Keynesian dynamic macroeconomic model that is generalized to incorporate the zero lower bound on nominal interest rates. We show that two long-run equilibria exist, one stable and the other unstable, and we characterize the conditions under which the economy plunges into a deflation-induced depression following a contractionary demand shock. As long as the sum of the inflation rate and the natural real interest rate stays positive, the economy converges back to the long-run stable equilibrium, even when the zero lower bound is initially binding. On the other hand, a deflationary spiral starts when the sum of the inflation rate and the natural rate of interest becomes negative. The Friedman rule, which calls for a small dose of anticipated deflation, takes the sum of the inflation rate and the natural real interest rate uncomfortably close to zero and thereby raises the probability of the economy plunging into a depression. Our theoretical results also shed light onto the different correlation values between inflation and economic growth in the data

Toward a Quantitative Theory of Food Consumption Choices and Body Weight

We propose a calibrated dynamic model of food consumption choices and body weight to study changes in daily caloric intake, weight, and the away-from-home share of calories consumed by adult men and women in the U.S. during the period between 1971 and 2006. Calibration reveals substantial preference heterogeneity between men and women. For example, utility losses stemming from weight gains are ten times greater for women compared to men. Counterfactual experiments show that changes in food prices and household income account for half of the increase in weight of adult men, but only a small fraction of women’s weight. We argue that quantitative models of food consumption choices and body weight have a unique role to play in future research in the economics of obesity

Macroeconomic Stabilization When The Natural Real Interest Rate Is Falling

The authors modify the Dynamic Aggregate Demand–Dynamic Aggregate Supply model in Mankiw’s widely-used intermediate macroeconomics textbook to discuss monetary policy when the natural real interest rate is falling over time. Their results highlight a new role for the central bank’s inflation target as a tool of macroeconomic stabilization. They show that even when the zero lower bound is not binding, a prudent central bank will need to match every decrease in the natural real interest rate with an equal increase in the target rate of inflation in order to stabilize the risk of the economy falling into a deflationary spiral, which is an acute case of simultaneously falling output and inflation in which the economy’s self-correcting forces are inactive

“I Can Math, Too!”: Reducing Math Anxiety in STEM-Related Courses Using a Combined Mindfulness and Growth Mindset Approach (MAGMA) in the Classroom

Math anxiety has become an alarming social justice concern, as it results in negative academic consequences, contributes to disinterest and lack of persistence in STEM programs for underrepresented students, and limits their opportunities in STEM careers. According to research, this fear of math occurs long before students begin working on math problems. When high-math anxious students encounter math situations, anticipation anxiety consumes working memory capacity, inhibits learning, and causes them to severely underperform on mathematical tasks. However, very few studies have been conducted to embed psychological interventions in the classroom in an effort to mitigate both anticipation and execution anxiety. Findings from preliminary research suggest that a combined mindfulness and growth mindset intervention, designed to address both anticipation and execution anxiety, was effective in reducing math anxiety in students in a semester-long statistics course. The current research, a replication of the successful pilot study, investigated the generalizability of the mindfulness and growth mindset approach (MAGMA) in decreasing math anxiety in students in various STEM-related courses, and with different instructors. Results indicate that overall, students’ self-perceived math anxiety decreased significantly compared to their control counterparts. Furthermore, considerable anxiety reduction was found for female students. However, no differences were found for final exam scores between the intervention and control group. Nevertheless, the MAGMA intervention appears to be an effective, inexpensive approach in alleviating math anxiety, and increasing mathematical resilience in community college students as they take STEM-related courses