CHAPTER 4

The Twin Evils of Macroeconomics

Chapter Preview: This chapter, the second of the largely definitional chapters, focuses on the twin evils of macroeconomics, namely unemployment and inflation. A working knowledge of these concepts is essential when we study policy formulation in subsequent chapters because they are of primary importance for policy makers when they seek to construct short-run stabilization measures. We learn about the causes and effects of unemployment, the limitations of the main measure that is reported, and consider the idea that the economy has a “natural rate” of unemployment. We then turn our attention to the causes and consequences of inflation, a consideration of hyperinflation and deflation, and round things ...

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