Issues in Macroeconomics

1. Macroeconomics versus Microeconomics

Macroeconomics is the study of the economy at large. How does the U.S. economy, the British
economy, the European economy, the Japanese economy, or even the world economy work as a
whole? Macroeconomists asks questions such as, Why has the Japanese economy grown so swiftly
since 1945 and during that same period the U.S. economy has grown relatively slowly? They ask why
many Americans lost their jobs in 2000 and had a hard time finding new ones.

Macroeconomics is the study of a nation's economy in relation to itself and other nations.

In microeconomics, by contrast, you'll recall, the focus is on individual buyers and sellers and on
individual markets, from the local hot-dog stand to the market for Manhattan real estate. A single
market is small relative to all the markets that make up the economy. Methodologically speaking, our
argumentative style will necessarily change. For example, in microeconomics, our good friend the
ceteris paribus assumption saved us from thinking about how the rest of the whole might affect that
small, single market, such as the restaurant owned by Maria's mother. Not so in macroeconomics,
where all markets are in flux.

2. Six Macroeconomic Goals of the Promised Land

Most macroeconomists are interested in six major goals:

1.Low unemployment
2.Low and stable inflation
3.Minimal domestic economic fluctuations
4.Minimal international economic fluctuations
5.High rates of economic growth, combined with broad-based development
6.Wise economic policy, which consists of governmental and non-governmental efforts to influence
the other five goals.

Wise economic policy, the sixth goal on the list, intends to take the other five goals to the promised
land-and keep them there. The macroeconomic promised land is a place where macro variables sit
together in optimal equilibrium.

Economists differ in their vision of the promised land; some, such as McCloskey and Milton Friedman,
think they've found it when the role of government in the economy is small, inflation is low, and
output high. Others, such as Klamer and Ziliak, envision a promised land in which the unemployment
rates of all people, regardless of skin color, origin of birth, or any other demographic characteristic is
low, while earnings at the bottom of the income distribution are at the same time high enough to
overcome the burdens of undignified poverty; in Klamer's and Ziliak's promised land, the poorest
members of society have-in a phrase invented by Nobel Laureate Amartya Sen-sufficient income,
health, and education to be "free to achieve." Still other economists, such Herman Daly and his
colleagues who study "ecological macroeconomics," would like to replace the goal of "economic
growth and development" (goal #5) with an environmentally-based notion of "sustainable
development." Klamer and Ziliak, to name two more economists, sympathize with the ecological goal.

Economic visions differ. That much is true. But essentially every economist agrees that the
macroeconomic promised land has the following characteristics: a low unemployment rate, a low and
stable rate of inflation, a high rate of economic growth per capita, broad-based social development
(including mass education, nutrition, and universal suffrage), and international cooperation and
stability in financial and product markets. Getting to the promised land, and staying in it, with do re mi
for everyone and maybe even some free time for a game of chess, is the deepest challenge of
macroeconomic policy-making.