Macroeconomic Issues: Output, Employment, Inflation, Stability

Abstract

As this is being written, commentators of all stripes are saying that we are in the middle of the greatest economic downturn since the Great Depression. Production, incomes and employment are down. Prices are down and bankruptcies are up. There is a heated debate over which policies are needed to fix what has gone wrong, but there is little disagreement that much has gone wrong, perhaps disastrously. It is tempting to jump into the middle of this discussion, but this chapter represents a large pause: first, it says, we should be very clear on what problems we are trying to solve. What are the goals of macroeconomic policy? Which ones have the highest priority? How can we measure how successful we are at meeting them? As we will see, the common assumptions about what macroeconomic objectives to pursue are largely correct, but not completely. Economic growth, ample employment, stable prices and financial health are all good things, but not without qualifications and tradeoffs.