Inthischapter we take acloser lookatthe aggregate supply curve,and noticethat we can use
ittoexamine the link between inflation and unemployment. Weconsider the effectof
Thischapter takes acloser lookatthe way that changes inthe goods market affectaggregate
demand byexamining the link between income and spending i.e.,we use the fundamental
national income identity (Y =C+I+G+NX )toa
THEANATOMYOF INFLATION AND
Inthischapter we examine the costsofboth inflation and unemployment, and consider some
ofthe policy questions that are raised bythe tradeoffbetween them.
Wealsolookvery carefully atthe anato
Inthischapter we begin tostudy how output varies over the short and long run, when
potential output isfixed.
Wedevelop the aggregate supply / dem and model, inthe short and long run, toshow how the
Inthischapter we study how potential output the output that would beproduced ifall
factors were fullyemployed grows over time.
Tobetter accomplish this,we learn growth accounting and the fundamentals ofneoclas
Under the heading national income accounting, we consider the different ways inwhich the
national economic piecan besliced into itscomponent parts.
Thisismore than justsimple accounting. Whilewe dissect GDP
Webegin our study ofmacroeconomics with an introduction tothe three models around
which itisorganized and the time horizons towhich they apply. Wealsotake apreliminary
lookateconomic growth, inflation, unemployment, and
Thischapter presents an overview offour recent ideas and models that have revolutionized
modern macroeconomics rational expectations modeling, the random walk theory ofGDP,
realbusiness cycletheory, and New Keynesian
Thischapter extends the open economy analysis ofChapter 12byallowing the domestic price
leveltochange. Methods and strategies offoreign exchange intervention are explored in
D EPRESSION ,H YPERINFLATION ,AND
Inthischapter we revisit the time period which gave birth tomodern macroeconomics:the
Great Depression. Weexamine the rolethat both monetary and fiscalpoliciespla
Financial markets are the vehiclethrough which macroeconomic affectthe livesofeveryday
people;fluctuations inthe stockmarket directly affectpeoplesincome and wealth; changes in
interest rates affecto
Thischapter highlights three factors that hinder policymakers: lags,expectations, and
uncertainty. Italsoconsiders the choiceoftargets and implementation strategies forparticular
Thischapter develops the concept offractional reserve banking, and explores the process by
which the Federal Reserve controls the money supply.
Money StockDetermination theMoney Multiplier
Weallhold money either incurrency, inour pockets,orasdeposits inabank. Instudying
the demand formoney, we try todiscover why people hold money, and what determines the
amount ofmoney they hold.
Our main goalisto
Consumption isthe largest component ofaggregate demand.
Theamount that we consume today depends not only on our current income, but alsoonour
wealth and our expectations offuture income.
Because people try to
Thischapter uses the ISLMmodel tolook atthe ways that fiscaland monetary policycanbe
used tostabilize the economy. Wefind that the effectiveness ofmonetary and fiscalpolicy
depend on the slopes ofthe ISand L
Thischapter provides asimple overview ofpolicymaking atthe central banks based on
Tounderstand the fivebasicelements ofpolicymaking, we need tofind out