Macroeconomics

The purpose of this chapter is to try to explain the growth in GDP. The models in this chapter are very different from the rest of the models in this book as they use only the production function and factors of production to explain growth.

The neo-classical synthesis is a synthesis of the classical model and the Keynesian model. In short, it states that the Keynesian model is correct in the short run while the classical analysis is correct in the long run. Let us consider a concrete example. According to the Keynesian model, an increase in G will increase Y and reduce unemployment.

We have now reached the second part of this book. The first interest rate was a description of the macroeconomic variables and institutions. In the second part, we will analyze how these variables fit together and present models that explain the main macroeconomic variables.

In describing these trends, we have been asked several times what the nature of the market failure is. The answer seems fairly clear. There is no major market failure in the way economists normally use the term.

In the postcrisis environment, issues of sustainability in the trajectory of the U.S. economy have come to the fore. Among the problems pointed to are a large current account deficit, the paucity of household savings, overleveraging in the financial and household sectors, and stagnation of middleclass incomes.