Macroeconomics

This book offers a new approach to the subject of macroeconomics. Drawing upon his vast experience of teaching, researching and advising the U.S. government on Economy policy has enabled the author to write an intermediate macroeconomics book that will set the standard in this area for years to come. For example, DeLong focuses on the interest rate rather than the AS/AD diagram and he includes expanded coverage of the crucial topic of long-run growth. His lively text is modern, provides extensive insight into economic policy, and offers a broad historical and international perspective. New Co-Author: A co-author has joined the bookĹźMartha Olney (University of California-Berkeley)Ĺźwith excellent teaching credentials and a good eye for detail. Dr. Olney has received numerous teaching awards from the University of California, Berkeley, University of Massachusetts, Amherst, and the Economic History Association. Her natural talent for teaching shines through in the Second Edition of this text. |Five Key Chapters Heavily Revised: Five critical chapters in the book [4, 5, 7, 11, and 12] were extensively revised to make the book more accessible. o Chapter 4 [The Theory of Economic Growth] has been heavily revised. The material covered is the same, but with fewer equations, more graphs, and more intuition. The ordering of the material now builds from the simplest world with just saving and depreciation, to a world with growth in efficiency. o Chapter 5 [The Reality of Economic Growth: History and Prospect] has been updated to include a discussion of the post-1995 productivity growth speedup.o Chapter 7 [Equilibrium in the Flexible Price Model] has been heavily revised. The chapter now begins with a discussion of the equivalence of the flow-of-funds approach with the more traditional Y=C+I+G+NX approach. The determination of equilibrium using the flow-of-funds approach is followed by a discussion of forces that change the equilibrium real interest rate. The approach is more graphical than algebraic.o Chapter 11 [Extending the Sticky-Price Model: More Analytical Tools] has been made optional. This chapter considers the LM curve. Great care has been taken to be sure that the flow of the material in Part IV of the text is not interrupted by the choice to cover or not cover this chapter.o Chapter 12 links up the short-run sticky-price unemployment model of demand, inflation, and unemployment with the long-run flexible-price full-employment model. In the process it gives students the tools to understand expectations, inflation, and fluctuations in unemployment. Chapter 12 now has Monetary Policy Reaction Function, the Taylor rule, MPRF, and the Phillips curve.|Accuracy Ensured: Any issues of accuracy that arise with a first edition do not apply to this edition. Accuracy checkers looked very carefully at the manuscript and at two stages of page proof.|Modern and Brief: DeLong/Olney streamlines the presentation of older topics, such as the relative slopes of the IS and LM curves, in order to dedicate more space to the more current and relevant topics being researched and discussed today. The bookĹźs relatively brief length allows for a better student focus on these important concepts. It also simplifies and minimizes the amount of mathematics.|Policy Emphasis: DeLong/Olney provides extensive insight into the major policy issues of the day. It does this by the extensive use of policy examples and by drawing on real-world, policy-making experience. This policy focus makes macroeconomics come alive for students by allowing them to make connections between concepts in the course and the impact of policy decisions on the ĹźrealĹź economy.|Historical Perspective: DeLong/Olney, by calling upon personal interest in and extensive research into economic history, offers a broad historical perspective not available in other intermediate macroeconomic texts. It discusses not only the current structure of the macroeconomy, but how it has evolved and what is likely to happen in both the short and the long run.|Improved Coverage of the Facts and Theory of Long-Run Growth: DeLong/Olney provides a more easily grasped presentation of the fairly complex ĹźSolow modelĹź by avoiding the Ĺźdumbed downĹź methodology used by many books. Instead it carefully builds, step-by-step, the basic theoretical concepts that often confuse undergraduates (e.g., the idea of a balanced growth equilibrium path). The theory chapter is followed by one offering a broad cross-country, historical perspective of industrialization, the East Asian Miracle, and the American Century.|Integrated International Focus: DeLong/Olney integrates material on the international economy into the standard macro frameworkĹźfrom the beginning and throughout the text. It accomplishes this (1) by repeatedly comparing and contrasting the U.S. economy with the rest of the world and (2) by incorporating international capital flows and trade deficits into the basic full-employment model from the very beginning of the long-run business cycle coverage. Students will readily see that U.S. economic policy issues have important international dimensions. |Deals with interest rates, not money stocks: DeLong/Olney believes that, because central banks today set interest rates and not money stocks, the LM curve's underlying assumption that the money stock is fixed is artificial. And conducting much of the discussion of the determination of real GDP in a framework in which the money stock is fixed gives students the wrong intuition. The LM curve cannot be eliminated, but it can be downplayed in order to focus on the key factors of the position of the IS curve and the real interest rate, which is determined by the term structure and central bank policy. This brings the presentation in the textbook much closer to what the students will find when they open up their Wall Street Journals. |Focuses on the Inflation RateĹźnot on the AS-AD diagram. DeLong/Olney believes that the variable on the vertical axis of the Aggregate Supply-Aggregate Demand graphĹźthe price levelĹźis not the best variable to use in analyzing economic policy. The best price variable is the one on the vertical axis of the Phillips curve, the inflation rate. A very close integration of the AS-AD framework with the Phillips curve helps students follow the thread of the argument better and saves an enormous amount of repetition. And because the Phillips curve ĹźisĹź the AS curve, with a couple of changes of variables, no point is served by considering them separately, in different chapters. Combining the Phillips curve with a representation of the Monetary Policy Reaction Function, based on John TaylorĹźs ĹźruleĹź that the central bank sets the real interest rate in reaction to inflation, provides a cohesive, comprehensive model that brings together demand side and supply side forces in determining the unemployment and inflation rates.