Fall 2002 Final Exam Review Guide
Econ 604 (Section on Coordination Issues)

Latest Course Offering: Fall 2002
Last Updated: 7 December 2002

Course Instructor:
Professor Leigh Tesfatsion

Econ 604 Web Site Home Page Address:
http://www.econ.iastate.edu/classes/econ604/tesfatsion/

Basic Final Exam Information:

The final exam for Econ 604 (Section on Coordination Issues) will be held in the regular class meeting room, Heady Hall 162, on Monday, December 16, 9:45-11:45.

The final exam will be closed-book and comprehensive. It will cover: (1) all class lectures, discussions, and in-class exercises (both regular TTR and F meetings); and (2) all required readings, i.e., all materials marked with a ** on the Econ 604 (Coordination Issues) syllabus.

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

Absence from the final exam for this section of Econ 604 will result in a grade of zero for this exam unless the instructor agrees there are verified extenuating circumstances such as a major medical emergency. In the latter case, one of two options will be followed: your course grade for Econ 604 will be determined on the basis of the work you completed during the first section of Econ 604; or you will be asked to take the final exam for this section of Econ 604 the next time this section is offered (Fall 2003). No make-up exams for this section of Econ 604 will be scheduled.

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

Types of Questions That Might Appear on the Final Exam:

The syllabus for Econ 604 (Coordination Issues) provides a list of "Key Questions" for each covered course topic, and the final exam questions 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). You might either be presented with these models or asked to provide them yourself.

The two-hour test will consist of a mix of long and short-answer questions. Long questions 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). Short-answer questions will pose one or more stand-alone questions that are designed to be answerable in about 10 or 15 minutes.

Required Readings for the Final Exam

Recall that a double asterisk ** on a syllabus reading means that the reading contains basic required material for answering exam questions. These ** readings are listed below.

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. INTRODUCTION

Key Questions for In-Class Discussion:

Required Readings:

II. WALRASIAN EQUILIBRIUM: A BENCHMARK OF COORDINATION SUCCESS?

Key Questions for In-Class Discussion:

  • What is 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 Readings:

III. EXPECTATIONS AND TIME INCONSISTENCY ISSUES

Key Questions for In-Class Discussion:

  • What's the big deal about rational versus 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:

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"?
  • What is meant by "involuntary unemployment"? Can economies become stuck in situations with persistently positive involuntary unemployment?
  • 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?
  • How might coordination failure arise in the presence of behavioral uncertainty?
  • What constitutes "rational" planning in the presence of behavioral uncertainty?
  • Are "institutions" essential coordination devices for macroeconomies? If so, which ones, and why?

Required Readings:

  • ** David Colander, "Overview," Chapter 1 (pp. 1-17) in David Colander (ed.), Beyond Microfoundations: Post Walrasian Macroeconomics, op. cit.. HAND-OUT (BOOK ON CLOSED RESERVE)

  • ** Leigh Tesfatsion, "Non-Walrasian Equilibrium: Illustrative Examples" (pdf,144K) HAND-OUT (31pp)

  • ** 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.. HAND-OUT (BOOK ON CLOSED RESERVE)

  • ** George A. Akerloff, "Behavioral Macroeconomics and Macroeconomic Behavior," The American Economic Review, Volume 92, No. 3, June 2002, pages 411-433. HAND-OUT (ARTICLE ALSO ON CLOSED RESERVE)
    This is a revised version of the Nobel Lecture Akerloff delivered in Sweden on December 8, 2001.

V. TOWARDS A CONSTRUCTIVE THEORY OF MACRO 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?
  • Should economics strive to be a constructive "culture-dish" science, in the sense that persistently observed regularities in real-world economies can reliably be reproduced in artificially constructed economies by growing these economies "from the bottom up," starting from specified initial conditions?
  • What role does structure (e.g., institutions, protocols, laws) play in supporting "intelligent" market outcomes?
  • If you had to construct a workable decentralized market economy from scratch, how would you do it?
  • Are there any "universally applicable" structural features that you believe you would have to incorporate in your constructed economy in order for it to function properly?
  • Under what circumstances might learning and network effects prevent the structural features of a macroeconomy from being a reliable predictor of macroeconomic outcomes?
  • What potential roles do increasing returns, path-dependence, and lock-in play in economic processes? Are these effects important for macroeconomic outcomes, or are they "washed out" in the aggregate and over time?

Required Readings:

  • ** Leigh Tesfatsion, "Macro Coordination: More General Considerations" (pdf,22K) HAND-OUT (2pp)

  • ** Leigh Tesfatsion, "Agent-Based Computational Economics: Modelling Economies as Complex Adaptive Systems," Information Sciences, to appear. A preprint (pdf,184K) is available. HAND-OUT (7pp)

  • ** Jonathan Rauch, "Seeing Around Corners", The Atlantic Monthly, April 2002, pp. 35-48. HAND-OUT (ARTICLE ALSO ON CLOSED RESERVE)
    Rauch surveys early and ongoing research on the computational modeling of artificial societies. He discusses early seminal work by Thomas Schelling (University of Maryland) in the 1970s on the evolution of spatial segregation in cities. He also discusses work on artificial societies (e.g., Sugarscape) carried out at the Brookings Institution (Washington, D.C.) by Joshua Epstein, Robert Axtell, and Ross Hammond (now at the University of Michigan). A third pursuit surveyed by Rauch is the effort by Joshua Epstein, in collaboration with two University of Arizona archaeologists (George Gumerman and Jeffrey Dean), to build an artificial society exhibiting the known characteristics of the actual Long House Valley Anasazi culture that existed in the southwest from approximately A.D. 800 to A.D. 1350. Interested readers can also view animations in QuickTime format of some of the artificial societies discussed in Rauch's article.

Copyright © 2002 Leigh Tesfatsion. All Rights Reserved.