Economics, 11th Edition

CHAPTER 9Macroeconomic Viewpoints and Models

CHAPTER OBJECTIVES

• Understand that various macroeconomic models have different assumptions and relationships, and an historical dimension.
• Describe the classical school of thought, and the classical aggregate demand–aggregate supply model and its conclusions.
• Understand the basic relationships in the Keynesian model and the policy implications of the model.
• Explain the new classical model and its policy implications.
• Define the basic relationships in the new Keynesian, monetarist, and supply-side models.
• Define the relevance of macroeconomic theories for solving macroeconomic problems.

In Chapter 5, we discussed macroeconomic fluctuations: The macroeconomy is always expanding or contracting, or in some phase of a business cycle. Production increases and unemployment falls during a recovery, and production decreases and unemployment rises during a recession. The causes of these fluctuations have been pondered for centuries, as have the causes of another major macroeconomic problem: inflation.

The relationship between the amount of total spending in an economy and the economy's levels of production and employment was laid out in Chapter 5. Businesses respond to spending changes by households, other businesses, government, and foreign buyers by increasing or decreasing their levels of production.

The foundation built in Chapter 5 can be used to understand various viewpoints about the macroeconomy and different models that have ...