Understanding
Modern Macroeconomics
Economic knowledge is historically determined … what we know
today about the economic system is not something we discovered this morning but
is the sum of all our insights, discoveries and false starts in the past. Without
Pigou there would be no Keynes; without Keynes no Friedman; without Friedman no
Lucas; without Lucas no … (Blaug, 1991a, pp. x–xi)
1.1 Macroeconomics Issues and Ideas
Macroeconomics is concerned with the structure, performance and
behaviour of the economy as a whole. The prime concern of macroeconomists is to
analyse and attempt to understand the underlying determinants of the main aggregate
trends in the economy with respect to the total output of goods and services
(GDP), unemployment, inflation and international transactions. In particular,
macroeconomic analysis seeks to explain the cause and impact of short-run
fluctuations in GDP (the business cycle), and the major determinants of the
long-run path of GDP (economic growth).
