- Preface

- I Key variables and institutions

- 1. Gross domestic product and related variables
- 1.1 Introduction
- 1.2 Gross Domestic Product
- 1.3 Consumption, investment, government purchases
- 1.4 Italian GDP using the three approaches
- 1.5 National income identities
- 1.6 Is GDP really that important?
- 1.6.1. GDP per capita
- 1.6.2. Self-production and the underground economy
- 1.6.3. GDP, Human Development Index and Gross Domestic Happiness
- 1.7 Per capita income and inequality
- 1.8 Summary
- 2. Four ‘rates’
- 2.1 Introduction
- 2.2 The unemployment rate
- 2.2.1. Definitions
- 2.2.2. Consequences of unemployment
- 2.3 Price level and inflation rate
- 2.3.1. Inflation, deflation and hyperinflation
- 2.3.2. The consumer price index
- 2.4 The GDP growth rate
- 2.4.1. Nominal GDP and real GDP
- 2.4.2. Per capita real GDP growth
- 2.5 The interest rate
- 2.5.1. The nominal interest rate
- 2.5.2. The real interest rate
- 2.5.3. Short- and long-term interest rates
- 2.6 Summary
- Appendix.
*Properties and uses of logarithms* - 3. Balance of payments and exchange rate
- 3.1 Introduction
- 3.2 The Balance of Payments
- 3.3 What is an open economy?
- 3.4 The balance of payments and national income accounts
- 3.5 The exchange rate
- 3.5.1. The nominal exchange rate
- 3.5.2. The real exchange rate
- 3.6 GDP and the purchasing power parity
- 3.7 The uncovered interest rate parity
- 3.8 Summary
- 4. Money and the government budget
- 4.1 Introduction
- 4.2 The nature and functions of money
- 4.3 Money supply and the role of banks
- 4.3.1. Monetary aggregates
- 4.3.2. The role of ordinary banks
- 4.4 The quantity equation
- 4.5 The government budget
- 4.6 Government debt
- 4.6.1. Deficit and debt
- 4.6.2. The arithmetic of three rates and the monetary union
- 4.7 Summary
- 5 Fluctuations and growth
- 5.1 Introduction
- 5.2 The stylised facts of economic growth
- 5.3 Fluctuations, trends and potential GDP
- 5.3.1. Fluctuations and growth
- 5.3.2. De-trending the data
- 5.3.3. Potential GDP and output gap
- 5.4 The business cycle
- 5.5 Importance of growth and cycle
- 5.6 Periods in Macroeconomics
- 5.6.1. The very long run
- 5.6.2. The long run
- 5.6.3. The short run
- 5.6.4. The medium run
- 5.7 Summary

- II The long run

- 6 Aggregate demand and supply in the long run
- 6.1 Introduction
- 6.2 Aggregate demand (AD)
- 6.3 The price determined real wage
- 6.4 Trade unions and the bargained real wage
- 6.5 Competing claims equilibrium
- 6.6 Money neutrality
- 6.7 Policies to increase employment and GDP in the long run
- 6.7.1. More powerful antitrust authorities
- 6.7.2. Lower entry costs and deregulation
- 6.7.3. Reducing the tax wedge
- 6.8 Labour and goods markets: interactions*
- 6.9 Summary
- Appendix.
*Cournot’s oligopoly* - 7 Saving and investment
- 7.1 Introduction
- 7.2 From national accounting to economic theory
- 7.3 Saving
- 7.4 Investment
- 7.5 Coordination of saving and investment
- 7.6 Summary
- Appendix.
*Choice between present and future consumption* - 8 Inflation and its costs
- 8.1 Introduction
- 8.2 Inflation and the quantity theory equation
- 8.3 Costs of inflation
- 8.3.1. Transaction costs and distributional e↵ects
- 8.3.2. Fiscal drag, seigniorage and inflation tax
- 8.4 Supply of and demand for inflation
- 8.4.1. Public deficit and demand for inflation
- 8.4.2. The supply of inflation and central bank independence
- 8.5 Sector inflation and average inflation
- 8.6 Summary
- 9 The open economy in the long run
- 9.1 Introduction
- 9.2 Net foreign investment and net exports
- 9.3 Equilibrium in the open economy
- 9.4 Exogenous shocks and changes in equilibrium
- 9.5 Equilibrium with the two parities
- 9.6 Inflation, exchange rates and international competitiveness
- 9.7 Summary

- III The short run

- 10 Income, expenditure and fiscal policies
- 10.1 Introduction
- 10.2 Constant wages and prices: a horizontal AS
- 10.3 Consumption function and the multiplier
- 10.3.1. The multiplier principle
- 10.3.2. A paradox of thrift
- IN DEEP A crucial hypothesis
- 10.4 Fiscal policy
- 10.4.1. The government budget and the multiplier
- 10.4.2. Budget deficit, public spending and other ‘automatic stabilisers’*
- 10.4.3. The balanced budget theorem
- 10.5 The Covid pandemic and the multiplier
- 10.6 Summary
- Appendix.
*Market power, income distribution and multipliers* - 10.A.1 The baseline model
- 10.A.2 Introducing the government
- 11 The role of money and the interest rate
- 11.1 Introduction
- 11.2 The IS and the goods market
- 11.3 Monetary and fiscal policy: the IS-IT model
- 11.4 The money market
- 11.4.1. Interest rate steering
- 11.5 Summary
- Appendix 1.
*The derivation of the money demand function* - Appendix 2.
*The IS LM model* - 12 The open economy in the short run
- 12.1 Introduction
- 12.2 The balanced balance of payments (BoP) curve
- 12.3 The IS curve in an open economy
- 12.4 Monetary and fiscal policies under flexible exchange rates
- 12.5 Monetary and fiscal policies under fixed exchange rates
- 12.6 Spillover e↵ects in a monetary union*
- 12.7 Summary
- Appendix.
*Marshall-Lerner conditions* - 13 Financial and economic crisis
- 13.1 Introduction
- 13.2 The Great Recession
- 13.3 Real estate bubbles and ‘subprime’ mortgages
- 13.4 The appeal of debt
- 13.4.1. Moral hazard
- 13.4.2. The power of leverage
- 13.5 Explanatory models
- 13.5.1. Households spending and mortgage pattern
- 13.5.2. Financial hierarchy and bank leverage*
- 13.6 The sovereign debt crisis in the eurozone
- 13.6.1. Chronicle of a collapse foretold
- 13.6.2. A Europe not up to scratch
- 13.6.3. Self-defeating fiscal consolidation?
- 13.7 Summary

- IV The medium run

- 14 The Phillips curve and the medium run AS
- 14.1 Introduction
- 14.2 Wage adjustment and the Phillips curve
- 14.3 The NAIRU and the inflationary process
- 14.4 A non-inflationary wage dynamics
- 14.5 From the Phillips curve to the medium run AS
- 14.6 Hysteresis and persistence in the unemployment rate*
- 14.7 Summary
- 15 Fluctuations, inflation and monetary policy rule
- 15.1 Introduction
- 15.2 IS and IT in the medium run
- 15.2.1. IS and the output gap
- 15.2.2. Inflation targeting
- 15.2.3. Taylor’s rule
- 15.3 The AD curve
- 15.4 Monetary policy and expectations
- 15.4.1. An inflation shock
- 15.4.2. A temporary negative demand shock
- 15.4.3. A permanent inflationary shock
- 15.5 The economy at the
*zero lower bound* - 15.5.1. Introduction
- 15.5.2. The kinked AD curve
- 15.5.3. Towards unconventional policies
- 15.5.4. Structural reforms at the zero lower bound
- 15.6 Post-Covid inflation and the Ukraine invasion
- 15.7 Summary

- V Economic growth

- 16 Endogenous economic growth
- 16.1 Introduction
- 16.2 An endogenous explanation for growth
- 16.3 The continuous time model
- 16.4 Production of technology and economic growth
- 16.5 Growth and the environment*
- 16.6 Growth accounting
- 16.7 Summary
- 17 Economic growth and convergence*
- 17.1 Introduction
- 17.2 The Solow model
- 17.2.1. The production function and income shares
- 17.2.2. The model solution
- 17.3 Technical progress and growth
- IN DEEP Growth and unemployment
- 17.4 Convergence and conditional convergence
- 17.5 Endogenous growth and decreasing marginal product
- 17.6 Summary
- Appendix.
*The Solow residual* - Index