One feature of this appendix is that its second half draws a "big picture" of the macroeconomy that can provide a useful perspective to students. The macroeconomy is divided into four sectors the goods and services sector, the labor sector, the monetary sector, and the international sector. Each of these sectors has supply and demand activity that creates forces for change. Macroeconomic analysis consists of exploiting these forces to create explanations for how variables such as unemployment, interest rates, and exchange rates are determined.
This book is very short; attention is focused on the "really important" ideas of macro-economics, with much of the encyclopedic and technical detail of traditional texts ignored. This approach should ensure that these really important ideas are properly learned and remembered. What are these really important ideas?
1.5 Really Important Macroeconomic Ideas
Listing the really important macroeconomic ideas is a challenging task because so many macroeconomic ideas are important that any one person's selection of a few as "really important" is bound to be controversial. The first step in creating such a list is to address the question "Really important for what?" The following list stems from the answer "Really important for understanding media commentary on the macroeconomy." It includes ideas important to those interested in how macroeconomics is relevant, ideas students should be sure to understand and take with them when they complete their course.
The list is included here to provide an overview of what can be expected throughout the rest of the book, though the reader may be unfamiliar with some of the terminology employed; a second reading, after completing the book, is advised. For convenience, one major idea has been drawn from each of the remaining chapters.
Chapter 2: Gross Deceptive Product. Gross domestic product, GDP, the figurehead of our national economic accounts and the measure of our total annual output of goods and services, has many defects as a measure of our economic well-being or as a means of comparing standards of living across countries.
Chapter 3: Discouraged/Encouraged Workers. Unemployed people who become discouraged by their unsuccessful search for work, and therefore stop searching, are suddenly no longer counted as unemployed. When the economy picks up, they can become encouraged and begin looking for work again, thus becoming counted as unemployed. This discouraged/encouraged worker phenomenon helps explain paradoxical movements in the measured rate of unemployment and is an example of the more general problem of difficulties in measuring economic variables.
Chapter 4: The Multiplier. An increase in government spending can ultimately cause a greater increase in national income. This multiplied impact of fiscal policy is one basis for
