Author Profile

David Donaldson is an econometrician and empirical microeconomist with broad disciplinary interests. He received his Ph.D. in Economics from MIT in 1999. Upon graduating, he joined the faculty at the Harvard Kennedy School, where he was promoted to full professor in 2005. He returned to MIT in 2016, where he is a Professor of Economics. His research areas include econometrics, causal inference, and program evaluation. His methodological research focuses on econometric methods to estimate causal effects, particularly the effects of public policies, such as labor market, education, and health policy interventions. He has served as Editor of the Review of Economics and Statistics and Associate Editor of AER: Insights, Econometrica, and the Journal of Business and Economic Statistics. He is a Fellow of the Econometric Society and a Member of the American Academy of Arts and Sciences.

About The Book

Macroeconomics as a separate field of research and study is generally recognized to start in 1936, when John Maynard Keynes published his The General Theory of Employment, Interest and Money, but intellectual predecessors are much older. Swedish economist Knut Wicksell wrote the book Interest and Prices (1898), translated into English in 1936, is considered to be the pioneer of macroeconomics, while Keynes who introduced national income accounting and various related concepts can be said to be the founding father of macroeconomics as a formal discipline. Since World War II, various macroeconomic schools of thought like Keynesians, monetarists, new classical and new Keynesian economists have made contributions to the development of the mainstream research. Macroeconomics studies the behavior of the whole (aggregate) economy or economic systems rather than individual economic markets (which is the domain of Microeconomics). It is concerned primarily with the forecasting of national income, through the analysis of major economic factors that show predictable patterns and trends, and of their influence on one another. These factors include level of employment/unemployment, gross national product (GNP), balance of payments position, and prices (deflation or inflation). Macroeconomics also covers role of fiscal and monetary policies, economic growth, and determination of consumption and investment levels. However, we can also define macroeconomics as the field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth of gross domestic product, inflation and price levels. Alternatively, macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. The book includes explicit coverage of the major heterodox schools of thought, and the book includes the mainstream economics models that form the core of the discipline.

Table of Contents

Preface
1.
TEN PRINCIPLES OF ECONOMICS.........................................................1
1.1 How People Make Decisions
1.2 How People Interact
1.3 How The Economy As A Whole Works
2.
THINKING LIKE AN ECONOMIST.........................................................17
2.1 The Economist As Scientist
2.2 Why Economists Disagree
3.
THE MARKET FORCES OF
SUPPLY AND DEMAND............................................................................36
3.1 Markets And Competition
3.2 Shifts In The Demand Curve
3.3 Market Supply Versus Individual Supply
3.4 Summary
4.
ECONOMIC GROWTH:
THEORY AND POLICY ............................................................................62
4.1 The Three Pillars Of Productivity Growth
4.2 Levels, Growth Rates, And The Convergence Hypothesis
4.3 Growth Policy: Encouraging Capital Formation
4.4 Growth Policy: Improving Education And Training
4.5 Growth Policy: Spurring Technological Change
4.6 Recent Productivity Performance In The United States
4.7 Growth In The Developing Countries
4.8 From The Long Run To The Short Run
4.9 Summary
5.
DEMAND-SIDE EQUILIBRIUM:
UNEMPLOYMENT OR INFLATION........................................................88
5.1 The Meaning Of Equilibrium Gdp
5.2 The Mechanics Of Income Determination
5.3 The Aggregate Demand Curve
5.4 Demand-Side Equilibrium And Full Employment
5.5 The Coordination Of Saving And Investment
5.6 Changes On The Demand Side: Multiplier Analysis
5.7 The Multiplier Is A General Concept
5.8 The Multiplier And The Aggregate Demand Curve
5.9 Summary
6.
MANAGING AGGREGATE DEMAND:
FISCAL POLICY.......................................................................................114
6.1 Income Taxes And The Consumption Schedule
6.2 The Multiplier Revisited
6.3 Planning Expansionary Fiscal Policy
6.4 Planning Contractionary Fiscal Policy
6.5 The Choice Between Spending Policy And Tax Policy
6.6 Some Harsh Realities
6.7 The Idea Behind Supply-Side Tax Cuts
6.8 Summary
7.
MONEY AND THE BANKING SYSTEM................................................132
7.1 The Nature Of Money
7.2 How The Quantity Of Money Is Measured
7.3 The Banking System
7.4 Systemic Risk And The “Too Big To Fail” Doctrine
7.5 The Origins Of The Money Supply
7.6 Banks And Deposit Creation
7.7 Why The Deposit-Creation Formula Is Oversimplified
7.8 The Need For Monetary Policy
7.9 Summary
8.
MONETARY POLICY:
CONVENTIONAL AND UNCONVENTIONAL..................................163
8.1 Money And Income: The Important Difference
8.2 America’s Central Bank: The Federal Reserve System
8.3 Implementing Monetary Policy In Normal Times: Open-Market Operations
8.4 Other Instruments Of Monetary Policy
8.5 How Monetary Policy Works In Normal Times
8.6 Money And The Price Level
8.7 Application: Why The Aggregate Demand Curve Slopes Downward
8.8 Unconventional Monetary Policies
8.9 From Financial Distress To Recession
8.10 From Models To Policy Debates
8.11 Summary
9.
THE FINANCIAL CRISIS AND THE
GREAT RECESSION.................................................................................189
9.1 Roots Of The Crisis
9.2 Leverage, Profits, And Risk
9.3 The Housing Price Bubble And The Subprime Mortgage Crisis
9.4 From The Housing Bubble To The Financial Crisis
9.5 From The Financial Crisis To The Great Recession
9.6 Hitting Bottom And Recovering
9.7 Lessons From The Financial Crisis
9.8 Summary
10.
THE DEBATE OVER MONETARY AND
FISCAL POLICY ......................................................................................208
10.1 Velocity And The Quantity Theory Of Money
10.2 Debate: Should The Fed Use Unconventional Monetary Policies?
10.3 Debate: Should Policymakers Fight Asset Price Bubbles?
10.4 Debate: Should We Rely On Fiscal Or Monetary Policy?
10.5 Debate: The Shape Of The Aggregate Supply Curve
10.6 Debate: Should The Government Intervene At All?
10. 7 Dimensions Of The Rules-Versus-Discretion Debate
10.8 Summary
11.
BUDGET DEFICITS IN THE
SHORT AND LONG RUN ......................................................................232
11.1 Should The Budget Always Be Balanced? The Short Run
11.2 The Importance Of The Policy Mix
11.3 Deficits And Debt: Terminology And Facts
11.4 Interpreting The Budget Deficit Or Surplus
11.5 Why Is The National Debt Considered A Burden?
11.6 Budget Deficits And Inflation
11.7 Debt, Interest Rates, And Crowding Out
11.8 The Main Burden Of The National Debt: Slower Growth
11.9 The Economics And Politics Of The U.S. Budget Deficit
11.10 Summary
12.
INTERNATIONAL TRADE AND COMPARATIVE ADVANTAGE.....260
12.1 Why Trade?
12.2 International Versus Intranational Trade
12.3 The Principle Of Comparative Advantage
12.4 The Arithmetic Of Comparative Advantage
12.5 Tariffs, Quotas, And Other Interferences With Trade
12.6 Why Inhibit Trade?
12.7 Can Cheap Imports Hurt A Country?
12.8 Summary
Bibliography...............................................................................................282
Index...........................................................................................................307