Chapter 1

Discovering Why Macroeconomics Is a Big Deal

IN THIS CHAPTER

Understanding what macroeconomics is all about

Confronting key macroeconomic variables

Seeing why macroeconomists love modeling

Introducing macroeconomic problems and policies

Macroeconomics is what macroeconomists do. Okay, that’s a bit circular. Still, it helps make the point that macroeconomics is different from microeconomics … which is what microeconomists do. Whereas microeconomists study the behavior of individuals — for example, a consumer’s choice of what goods to buy or how much to save — and firms —such as a company’s decision about what price to set — macroeconomists study the economy as a whole. The comedian PJ O’Rourke captured this difference humorously when he noted that “Microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally!”

Even macroeconomists (at least most of them) recognize both the humor and the insight in O’Rourke’s comment. From the Great Depression of the 1930s to the Great Recession of recent years, the economy has often taken turns that economists have failed to predict. As we will see, this inability to call every macroeconomic turn is not so surprising … even if it is disappointing. The macroeconomy is a huge and complex system, and macroeconomists don’t and may well never be able to forecast its movements with anything like perfection. Still, macroeconomists do know a lot. Even ...

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