PART Ⅰ INTRODUCTION 3
1.Macroeconomic Questions 3
A.Macroeconomic Questions 3
B.Macroeconomic Policy Issues 6
C.Leading ‘Schools of Thought’ 8
Summary 10
Review Questions 11
2.Britain’s Macroeconomic History since 1900 13
A.Evolution of the Macroeconomic Variables 14
B.Decade Summaries 24
Summary 28
Appendix：Britain’s Macroeconomic Variables 1900-1980 30
Review Questions 33
PART Ⅱ MEASURING MACROECONOMIC ACTIVITY 36
3.Aggregate Income Accounting 36
A.Flows and Stocks 37
B.Some Frequently Used Terms 38
C.Aggregate Income，Output（Product），and Expenditure 40
D.Measuring Aggregate Income 50
E.Measuring Aggregate Income in Constant Pounds（Real） 51
F.Reading National Income and Expenditure Accounts 52
Summary 54
Review Questions 56
4.Aggregate Balance Sheet Accounting 58
A.Asset，Liability，and Balance Sheet 59
B.Definition and the Nature of Money 61
C.Main Balance Sheet Items 61
D.Measuring Aggregate Balance Sheets 68
Summary 70
Review Questions 71
5.Measuring Inflation and Unemployment 73
A.Definition of Inflation 73
B.Price Index and Percentage Rate of Change 75
C.Measuring Inflation in the United Kingdom 75
D.Definition of Unemployment 79
E.Measuring Unemployment in the United Kingdom 79
Summary 81
Review Questions 82
6.Economic Transactions with the Rest of the World 83
A.Balance of Payments 84
B.Measuring the United Kingdom’s Balance of Payments Accounts 87
C.Exchange Rate Definitions 88
D.Measuring Exchange Rates 90
Summary 92
Review Questions 94
7.The Business Cycle 95
A.Definition of the Business Cycle 97
B.Autocorrelation 99
C.Co-Movement 104
D.Properties of the Business Cycle 106
E.The United Kingdom’s Business Cycle 107
Summary 116
Review Questions 117
PART Ⅲ THE BASIC THEORY OF INCOME，EMPLOYMENT，AND THE PRICE LEVEL 120
8.Introduction to the Basic Model 120
A.Why Study the Basic Model？ 120
B.Weaknesses of the Basic Model 121
Summary 122
Review Questions 122
9.Aggregate Supply and the Labour Market 123
A.Short-Run Aggregate Production Function 123
B.Competitive Aggregate Labour Market 126
C.Aggregate Supply Curve 131
Summary 133
Note on Elasticity 134
Review Questions 135
10.Aggregate Demand and the Money Market 136
A.Aggregate Demand 136
B.The Monetary Theory of Aggregate Demand 137
Summary 145
Review Questions 146
11.Equilibrium in the Basic Model 147
Summary 151
Review Questions 151
12.Unemployment 152
A.Minimum Wage Laws and Unemployment 153
B.Trade Unions and Unemployment 155
C.Unemployment Benefits and Unemployment 159
D.Taxes and Unemployment 162
Summary 167
Review Questions 168
13.Inflation 170
A.Once-for-All Price Level Rises and Inflation 170
B.Labour Market Shocks and the Price Level 171
C.Money Supply Growth and Inflation 173
Summary 181
Appendix：The Algebra of Inflation 181
Review Questions 183
14.Inflation，the Balance of Payments and the Exchange Rate 184
A.Money Supply and Foreign Exchange Reserves 185
B.‘The Law of One Price’ 189
C.Determination of Inflation and the Balance of Payments under Fixed Exchange Rates 191
D.Determination of Inflation and the Exchange Rate under a Flexible Exchange Rate Regime 196
E.Determination of the Balance of Payments and the Exchange Rate in a Managed Floating Regime 201
Summary 202
Review Questions 204
15.Post-War United Kingdom Macroeconomic History：How Well is it Explained by the Basic Model？ 205
A.Review of Facts 206
B.Predictions of the Basic Model 206
C.Labour Market Shocks 208
D.Money Supply and World Inflation 215
E.What the Basic Model Fails to Explain 218
Summary 220
Note on the Tax Wedge 221
Review Questions 222
PART Ⅳ THE KEYNESIAN THEORY OF INCOME，EMPLOYMENT，AND THE PRICE LEVEL 226
16.Introduction to the Keynesian Model 226
A.Why Study the Keynesian Model？ 226
B.Strengths and Weaknesses of the Keynesian Model 228
Summary 228
Review Questions 229
17.The Keynesian Theory of Aggregate Supply 230
A.Keynes’s Modification to the Basic Model 230
B.The Keynesian Aggregate Supply Curve 232
C.How to Derive the Keynesian Aggregate Supply Curve 233
D.The Approximate Keynesian Aggregate Supply Curve-The Inverse ‘L’ 236
Summary 238
Review Questions 239
18.Aggregate Demand in the Keynesian Model：Consumption and the 45° Cross Model 240
A.Components of Aggregate Demand 241
B.Theories of the Consumption Function Proposed by Keynes，Friedman and Modigliani 244
C.Connection Between Wealth and Income and Why Current Income is a Major Determinant of Consumption 245
D.Consumption and Savings Functions in Simple Equations and Diagrams 248
E.The 45° Cross Model 251
Summary 255
Review Questions 257
19.Investment Demand 258
A.Distinction Between Investment and the Capital Stock 258
B.The Demand for Capital 259
C.Rental Rate of Capital 260
D.Investment and the Demand for Capital 263
E.Investment Demand Function 264
Summary 266
Review Questions 267
20.The IS Curve 268
A.Definition of the IS Curve 269
B.Derivation of the IS Curve 269
C.Determination of the IS Curve Slope 274
D.Shifts in the IS Curve 277
Summary 282
Appendix：The Algebra of the IS Curve 283
Review Questions 284
21.The Demand for Money，the Supply of Money and the LM Curve 285
A.Definition of the LM Curve 286
B.Derivation of the LM Curve 286
C.Determination of the LM Curve Slope 290
D.Shifts in the LM Curve 292
Summary 294
Review Questions 295
22.Equilibrium in the Keynesian Model 296
A.Equilibrium at IS-LM Intersection 296
B.Properties of the IS-LM Equilibrium 297
C.Changes in Government Expenditure and Taxes 302
D.Change in the Money Supply 306
E.The Keynesian Model as a General Theory of Aggregate Demand 308
Summary 311
Appendix：The Algebra of the Keynesian Model 313
Review Questions 316
23.The Keynesian Model of the Open Economy 317
A.Derivation of the IS Curve for an Open Economy 318
B.Definition of the BP Curve 321
C.Derivation of the BP Curve 321
D.Shifts in the IS，LM，and BP Curves 324
E.Determination of Output，Interest Rate，and the Balance of Payments in a Fixed Exchange Rate Regime 326
F.Determination of Output，Interest Rate，and the Exchange Rate in a Flexible Exchange Rate Regime 331
Summary 336
Review Questions 338
24.The Neoclassical Synthesis 339
A.Definition of the ‘Neoclassical Synthesis’ 340
B.Keynesian Theory at Full Employment 340
C.The Neoclassical Theory of Price Adjustment 346
D.Price Level Expectations and the ‘Natural Rate’ Hypothesis 348
E.The Neoclassical Explanation of the Business Cycle 351
F.Policy Implications of the Neoclassical Synthesis 355
Summary 355
Review Questions 357
25.The United Kingdom’s Recent Economic History：How Well is it Explained by the Neoclassical Synthesis？ 358
A.Main Predictions of the Neoclassical Model 359
B.The Facts Explained by the Neoclassical Model 367
C.The Facts Not Explained by the Neoclassical Model 370
D.Strengths and Shortcomings of the Neoclassical Model 371
Summary 372
Review Questions 373
PART Ⅴ RATIONAL EXPECTATIONS THEORY OF INCOME，EMPLOYMENT，AND THE PRICE LEVEL 376
26.Introduction to the Rational Expectations Theories of Income，Employment，and the Price Level 376
Summary 380
27.Information，Expectations，and the New Classical Theory of Aggregate Supply 381
A.Incomplete Information and the Labour Market 382
B.Wrong Expectations and the Labour Market 383
C.Definition of the Expectations-Augmented Aggregate Supply Curve 388
D.Derivation of the Expectations-Augmented Aggregate Supply Curve 388
Summary 391
Review Questions 392
28.The New Keynesian Theory of Aggregate Supply 393
A.Assumptions of the New Keynesian Analysis 394
B.Determination of Money Wages 395
C.The New Keynesian Expectations-Augmented Aggregate Supply Curve 396
D.Overlapping Wage Contracts 398
Summary 400
Review Questions 401
29.Equilibrium Income，Employment，and the Price Level with Fixed Expectations 402
A.Full-Employment Equilibrium 403
B.Simple Diagrams to Characterise Full-Employment Equilibrium 404
C.Effects of a Change in Aggregate Demand with a Fixed Expected Price Level 406
Summary 412
Review Questions 412
30.Price Level Expectations 414
A.Subjective Expectation and Conditional Mathematical Expectation 415
B.Rational Expectation 417
C.Rational Expectation of the Price Level 418
D.How to Work Out the Rational Expectation of the Price Level 420
Summary 424
Review Questions 425
31.Equilibrium Income，Employment，and the Price Level with Rational Expectations 426
A.Anticipated and Unanticipated Changes in Aggregate Demand 427
B.Effects of an Anticipated Change in Aggregate Demand 429
C.Effects of an Unanticipated Change in Aggregate Demand 432
Summary 434
Appendix：The Algebra of Rational Expectations Equilibrium 435
Review Questions 437
32.Rational Expectations Theory of the Open Economy：A Selective Sketch 438
A.Need for a Rational Expectations Theory of the Open Economy 439
B.Aggregate Demand when Capital is Perfectly Mobile 440
C.Determination of Output and the Price Level with a Fixed Exchange Rate 446
D.Determination of Output，the Price Level，and the Exchange Rate under Flexible Exchange Rates 448
Summary 461
Review Questions 463
33.Explaining the Facts 464
A.Procyclical Co-Movements in Prices 466
B.Independent Movements of Output and Prices 468
C.Autocorrelation of Output and Employment 470
D.Interest Rate Behaviour 471
E.The Business Cycle 473
F.The Hypothesis Testing Problem Posed by the Rational Expectations Theories 474
Summary 476
Appendix：A Methodological Postscript 478
Review Questions 481
PART Ⅵ MACROECONOMIC POLICY 484
34.Introduction to Macroeconomic Policy Problems 484
A.What Macroeconomic Policies Seek to Achieve 484
B.Highlights in the Evolution of the Policy Debate 485
C.Policy——A Process，Not an Event 486
Summary 488
Review Questions 488
35.The Constraints on Macroeconomic Policy 489
A.Government Budget Constraint 490
B.Government Budget Constraint and the Conduct of Monetary and Fiscal Policy 493
C.Balance of Payments Constraint 498
D.Government Budget and Balance of Payments Constraints and Rational Expectations 501
Summary 502
Review Questions 504
36.Control of the Money Supply 505
A.Links Between the Monetary Base and the Money Supply 506
B.How the Bank of England Operates to Achieve its Target Growth Path for the Money Supply 509
Summary 513
Review Questions 514
37.Monetary Policy Ⅰ：Aggregate Demand Shocks 515
A.Monetarist and Keynesian Monetary Policy Advice 516
B.Aggregate Demand Shocks and the Aggregate Demand Curve 517
C.Consequences of Monetarist Policy 519
D.Consequences of Keynesian Policy 520
E.Why Monetarists and Keynesians Offer Conflicting Advice 521
Summary 526
Review Questions 527
38.Monetary Policy Ⅱ：Aggregate Supply Shocks 528
A.Effects of Supply Shocks 529
B.Expectations-Augmented Aggregate Supply Curve and the Expectation of the Aggregate Supply Curve 533
C.Consequences of Monetarist Policy 534
D.Consequences of Keynesian Policy 535
E.Consequences of Keynesian Policy with an Information Lag 537
F.The Monetarist-Keynesian Dispute：A Presumption in Favour of Monetarism 538
Summary 539
Review Questions 540
39.Fiscal Policy 542
A.Keynesian and Monetarist Fiscal Policy Advice 542
B.Anticipated and Unanticipated Fiscal Policy 544
C.Effects of Anticipated Change in Government Expenditures 545
D.Effects of Unanticipated Change in Government Expenditures 547
Summary 551
Review Questions 552
40.Prices and Incomes Policies 553
A.Content of a Prices and Incomes Policy 554
B.Posted Price and Actual Price 555
C.Wage and Price Controls and the Expected Price Level 556
D.Wage and Price Controls and the Actual Price Level 559
E.Wage and Price Controls Make Matters Worse 560
Summary 564
Review Questions 565
41.United Kingdom Macroeconomic Policy 566
A.Fiscal Policy 567
B.Monetary Policy 569
C.Policy Patterns and Effects 571
D.Is the Thatcher Government Pursuing Monetarist Policies？ 577
Summary 578
Appendix 580
Review Questions 586
Index 587