Macroeconomics 1e

Graeme Chamberlin, Office of National Statistics
Linda Yueh, Oxford University
ISBN-13: 9781844800421
ISBN: 1844800423

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Macroeconomics is suitable for several different levels of teaching. The first is a mode that requires review of some concepts normally covered in principles courses, such as the determinants of national income. This is to enable students with a less comprehensive background to access the required material in one text. The second is a standard intermediate treatment of macroeconomics, starting with a detailed derivation of the Keynesian Cross and components of aggregate demand, which leads to the general equilibrium models of IS-LM and AS-AD and the external sector. Finally, the textbook is suitable for more advanced teaching of macroeconomics: the standard models are followed by rigorous treatment of international policy coordination, financial crises, long-run economic growth and even development and transition economics. Macroeconomics is a general textbook in macroeconomics and provides examples from a wide international context. It therefore by necessity covers both standard introductory macroeconomic topics and also the latest concepts arising from study of this international context. Examples in the book that require mature economies relate to Europe and the U.S., upon which much of standard macroeconomic theory is based. Amongst others, issues spanning the U.S. 'twin deficits,' the euro and European economic and monetary union are treated. Macroeconomics also covers the changing international economic order, including the WTO, the growth model of Latin America in contrast to East Asia, the transition of China and other recently marketised economies. It also examines the financial crises of the past two decades that have fundamentally overhauled theories surrounding liquidity crises, exchange rates and structural reforms related to liberalisation.

Chapter Abstracts

• Ch. 1 Macroeconomics and the Circular Flow of Income  [Purchase this echapter]
  Chapter One covers what macroeconomics is about; how to represent the macroeconomy by the circular flow of income; how to use the circular flow of income to measure national income/output and how to understand the usefulness of macroeconomic models in analysing the economy and forming economic policy
• Ch. 2 Consumption  [Purchase this echapter]
  Chapter Two covers how the definition of consumption, consumer expenditure and saving; how to understand the link between consumption and income as described by the Keynesian consumption function; how to use the optimal consumption model to describe how consumption decisions are related to rational utility maximizing behaviour; shows how the permanent income hypothesis and life cycle hypothesis base consumption decisions on future as well as current income and explains how changes in expectations, interest rates, wealth, credit constraints and uncertainty can account for recent changes in consumption and saving
• Ch. 3 Investment  [Purchase this echapter]
  Chapter Three covers the definition of fine investment and its three main components; uses the optimal capital stock model to explain changes in business investment; constructs Tobin's q as a forward-looking model of business investment; identifies the factors that are responsible for inventory investment; how to understand the main determinants of residential investment and explains how the supply of investment finance can determine aggregate investment
• Ch. 4 Government Spending, Taxation, and Debt  [Purchase this echapter]
  Chapter Four covers how to understand the nature of government spending and taxation; hor to differentiate between government deficits and national debt; how to appreciate the implications of fiscal policy; how to use the Keynesian cross model and how to work through the theory of Ricardian equivalence
• Ch. 5 The Money Market  [Purchase this echapter]
  Chapter Five covers the role of money in the economy, the determinants of the interest rate, the term structure of interest rates or yield curves and the impact of different forms of monetary policy
• Ch. 6 Financial Markets  [Purchase this echapter]
  Chapter Six covers the nature of financial markets and why they are an important determinant of consumption and investment, the expected dividends model and the process of arbitrage, the capital asset pricing model (CAPM), a consumption-based model which implies that assets with higher returns offer less opportunity to hedge against income risks, the Tobin model of portfolio selection, which describes how investors choose the optimal combination of risk and return in their portfolios, the efficient markets hypothesis (EMH) that financial asset prices should reflect all available information and that asset prices follow a random walk process, the empirical tests which tend to reject the EMH because the volatility of asset prices is greater than the volatility of news regarding fundamentals, bubbles in financial markets, such as the dotcom bubble in the late 1990s and crashes, which refer to a large and sudden drop in market values, and the role of traders
• Ch. 7 The IS-LM Model  [Purchase this echapter]
  Chapter Seven covers the importance of macroeconomic models for analysing the economy, the IS curve as the equilibrium in the goods market, the LM curve as the equilibrium in the money market, the IS-LM model as a general equilibrium model of the economy, the IS-LM model to analyse the effects of monetary and fiscal policies on the economy and the IS-LM model to explain changes in prices
• Ch. 8 The AD-AS Model  [Purchase this echapter]
  Chapter Eight covers the relationship between prices and aggregate demand, the non-accelerating inflation rate of unemployment (NAIRU) and the long-run aggregate supply for an economy, the factors that lead to shifts in the long-run aggregate supply curve, how in the short run output can deviate from its long-run equilibrium level by moving along a short-run aggregate supply curve, the difference between adaptive and rational expectations formation and the AD-AS model and use it in comparative statics exercises
• Ch. 9 Business Cycles and Stabilisation Policy  [Purchase this echapter]
  Chapter Nine covers the existence of business cycles, the two main theories of business cycles: real business cycles and new Keynesian economics, new Keynesian theories of short-run fluctuations in output, sources of wage and price rigidities in the Keynesian frameworks, the welfare effects of short-run fluctuations and stabilization policies
• Ch. 10 Unemployment, Inflation and Monetary Policy  [Purchase this echapter]
  Chapter Ten covers the theory of the Phillips curve, which shows that there is a trade-off between unemployment and inflation, that the trade-off is different in the short run and the long run, and the transition between short and long run is governed by the way expectations are formed and the degree of flexibility in wages and prices Analyse the policy choices while considering the costs of unemployment and inflation, how monetary policy can be used to control the rate of inflation, and how the Phillips curve framework is used to formulate monetary policy, how the importance of monetary policy has grown as policy makers place an increasing emphasis on the control of inflation, the reasons behind the recent trend for making central banks independent and analyse the time inconsistency problem and the concepts of seignorage and hyper-inflation
• Ch. 11 The Balance of Payments and Exchange Rates  [Purchase this echapter]
  Chapter Eleven covers the important features of the open economy, the balance of payments, exchange rates, the two main theories of exchange rate determination: purchasing power parity (PPP) and uncovered interest parity (UIP), Dornbusch model of exchange rate overshooting and important interactions between the exchange rate and the balance of payments
• Ch. 12 IS-LM-BP Model  [Purchase this echapter]
  Chapter Twelve covers the traditional IS-LM model to incorporate open economy considerations, the open economy version of this model, the IS-LM-BP model. The BP schedule reflects equilibrium in the balance of payments, the various applications of this model, a particular version of the IS-LM-BP model, known as the Mundell-Fleming model and the impact of different exchange rate regimes on the IS-LM-BP mode
• Ch. 13 AD-AS in the Open Economy  [Purchase this echapter]
  Chapter Thirteen covers how to construct and use the AD-CCE-BT or Salter-Swan model to analyse an open economy, how prices and the NAIRU are determined in an open economy and the sustainable level of output for an economy
• Ch. 14 Exchange Rate Regimes and International Policy Coordination  [Purchase this echapter]
  Chapter Fourteen covers the advantages and disadvantages of different exchange rate regimes; namely, fixed and floating, the subject of international policy coordination, for in an open economy, policies or shocks specific to one country can be transmitted to others and the concept of optimal currency areas (OCA) and recent examples such as the European Monetary Union (EMU), and the establishment of a single currency in Europe (the euro)
• Ch. 15 International Financial Markets and Currency Crises  [Purchase this echapter]
  Chapter Fifteen covers the internationalization of financial markets, the causes of currency crises around the world and policy options to combat currency crises
• Ch. 16 Neoclassical Model of Growth  [Purchase this echapter]
  Chapter Sixteen covers the drivers of long-term growth, the neoclassical model of growth to assess changes in growth rates, human capital into growth models, the contribution of endogenous growth theories and perspective into why countries grow at different rates