Chapter 2

Looking at Key Questions and Concepts


Understanding the vital questions that interest macroeconomists

Watching as economists model the world around them

Introducing the important macroeconomic ideas

Macroeconomists are a pretty audacious bunch. They try to explain and predict the behavior of the economy as a whole. As a result, macroeconomics attempts to answer some of the biggest questions around: Why do countries grow a lot or a little over time? Why do we experience recessions? What causes inflation? How can nations reduce unemployment?

As you can imagine, sorting out these and other questions is no easy task. Unsurprisingly macroeconomists disagree about many of these issues. Nevertheless, a common body of knowledge has developed on which most macroeconomists agree.

In this chapter, we present the central questions that fascinate macroeconomists. You also see how economists look at the world and how this helps them to answer difficult questions. Finally, we introduce some concepts in economics that frequently confuse newcomers. By nipping them in the bud now, you’ll be well on your way to understanding the economy.

Asking the Big Questions of Macroeconomics

If you want to understand something, the obvious starting point is to ask pertinent questions: Why does the phone ring as soon as you step into the shower? Why can’t you find a matching pair of socks? And who put the bomp in bomp bah bomp bah bomp or the ram in the rama lama ding dong?

This ...

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