Macroeconomics (6th Edition)

Book Preface

We had two main goals in writing this book:

■ To make close contact with current macroeconomic events. What makes macroeconomics exciting is the light it sheds on what is happening around the world, from the major economic crisis which has engulfed the world since 2008, to the budget deficits of the United States, to the problems of the Euro area, to high growth in China. These events—and many more—are described in the book, not in footnotes, but in the text or in detailed boxes. Each box shows how you can use what you have learned to get an understanding of these events. Our belief is that these boxes not only convey the “life” of macroeconomics, but also reinforce the lessons from the models, making them more concrete and easier to grasp.

â–  To provide an integrated view of macroeconomics. The book is built on one underlying model, a model that draws the implications of equilibrium conditions in three sets of markets: the goods market, the financial markets, and the labor market. Depending on the issue at hand, the parts of the model relevant to the issue are developed in more detail while the other parts are simplified or lurk in the background. But the underlying model is always the same. This way, you will see macroeconomics as a coherent whole, not a collection of models. And you will be able to make sense not only of past macroeconomic events, but also of those that unfold in the future.

New to this Edition

â–  Chapter 1 starts with a history of the crisis, giving a sense of the landscape, and setting up the issues to be dealt with throughout the book.

â–  A new Chapter 9, which comes after the short- and medium-run architecture have been put in place, focuses specifically on the crisis. It shows how one can
use and extend the short-run and medium run analysis to understand the various aspects of the crisis, from the role of the financial system to the constraints on macroeconomic policy.

â–  Material on depressions and slumps has been relocated from later chapters to Chapter 9, and the material on very high inflation has been reduced and included in Chapter 23.

â–  A rewritten Chapter 23, on fiscal policy, focuses on the current debt problems of the United States.

â–  Chapters 23, 24, and 25 draw the implications of the crisis for the conduct of fiscal and monetary policy in particular, and for macroeconomics in general.

■ Many new Focus boxes have been introduced and look at various aspects of the crisis, among them the following: “The Lehman Bankruptcy, Fears of Another Great Depression, and Shifts in the Consumption Function” in Chapter 3; “Bank Runs, Deposit Insurance, and Wholesale Funding” in Chapter 4; “The Liquidity Trap, Quantitative Easing, and the Role of Expectations” in Chapter 17; “The G20 and the 2009 Fiscal Stimulus” in Chapter 19; “How Countries Decreased Their Debt Ratios after World War II” in Chapter 23; and “LTV Ratios and Housing Price Increases from 2000 to 2007 in Chapter 24.

â–  Figures and tables have been updated using the latest data available.