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Principles of macroeconomics
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Why have some countries experienced rapid growth in incomes over the past
century while others stay mired in poverty? Why do some countries have high
rates of inflation while others maintain stable prices? Why do all countries experience
recessions and depressions—recurrent periods of falling incomes and rising
unemployment—and how can government policy reduce the frequency and
severity of these episodes? Macroeconomics, the study of the economy as a
whole, attempts to answer these and many related questions.
To appreciate the importance of macroeconomics, you need only read the
newspaper or listen to the news. Every day you can see headlines such as INCOME
GROWTH SLOWS, FED MOVES TO COMBAT INFLATION, or
STOCKS FALL AMID RECESSION FEARS.Although these macroeconomic
events may seem abstract, they touch all of our lives. Business executives forecasting
the demand for their products must guess how fast consumers’ incomes will
grow. Senior citizens living on fixed incomes wonder how fast prices will rise.
Recent college graduates looking for jobs hope that the economy will boom and
that firms will be hiring.
Because the state of the economy affects everyone,macroeconomic issues play
a central role in political debate.Voters are aware of how the economy is doing,
and they know that government policy can affect the economy in powerful
ways.As a result, the popularity of the incumbent president rises when the economy
is doing well and falls when it is doing poorly.
Macroeconomic issues are also at the center of world politics. In recent years,
Europe has moved toward a common currency, many Asian countries have experienced
financial turmoil and capital flight, and the United States has financed
large trade deficits by borrowing from abroad.When world leaders meet, these
topics are often high on their agendas