Chapter 30: Macroeconomic Models

Christopher J. Niggle

Macroeconomic models The term macroeconomics refers to study of the behavior of an economy as a whole or as a system; the phenomena explained are (1) the short-run level of economic activity—the levels of national output, income, and employment; (2) the causes of short-run fluctuation in economic activity (business cycles); and (3) the long-run growth rate of an economy. This chapter focuses on the first two aspects of macroeconomics. The models are presented in an approximate chronological order; the chapter's organizing theme is that modern macro-economic models can be seen as based on one of two competing “visions” of the economy: (1) The economy is seen as stable, with strong market forces pushing it toward an equilibrium level consistent with full employment of labor and capital (as in the classical and new classical models), or (2) it is seen as an unstable system that grows through time in a Macroeconomics ...

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