The Evolution of Macroeconomic Theory and Policy

Preface

If anyone had a doubt regarding the importance of macroeconomics, the financial
and economic crisis of 2007–2009 should have relieved him/her of it. Furthermore,
at times the unfolding drama and its historical background was an education in
macroeconomics in itself. It seemed everyone was anxious to learn about the causes
of the crisis, its turns and twists, and the possible remedies and their effectiveness.
This is befitting since macroeconomics as we know it now was the product
of another economic crisis.
On Thursday, October 24, 1929 (known as Black Thursday), the stock market
crashed. Within a year, the number of jobless workers climbed to more than four
million and hungry protesters took to the streets of New York. Thus began the Great
Depression, which in the course of the decades to come changed the economies
of industrial countries, fundamentally transformed our vision of the economy and
economic policy, and brought into prominence a branch of economics that in 1933
Ragnar Frisch christened macroeconomics.
Over the next 80 years the interaction of economic events, economic theory, and
economic policy resulted in a body of knowledge that is an integral part of political
and economic discourse and indeed of everyday life in the United States and around
the world. Economists, business leaders, policy makers, and all concerned citizens
need to be familiar with macroeconomics.
Macroeconomics is best understood in a historical context. The book offers
an introduction to macroeconomic theory and policy as they relate to events and
developments of the past 80 years. The United States economy and its fiscal and
monetary policies are the main concerns, but because the United States economy
and world economies are intertwined, the stories of their interactions will also be
recounted.
Let me emphasize that the book is neither an economic history of the United
States nor a history of economic thought. The purpose of this book is to teach
macroeconomics in the context of actual events and with emphasis on the relationships
between macroeconomic theory and policy.