Macroeconomics is the study of the aggregate performance of the economy. The unemployment rate, which measures the ratio of the number of people unsuccessfully looking for work to the total labor force, is one important indicator. Another key macroeconomic indicator is the the rate of inflation, which you will recall is the average rate of change of the prices for all goods and services.

The theory of economic growth, which we covered as our first major topic in this course, explains the growth of potential output, assuming that the economy's resources are fully utilized. However, economies have spent long periods of time operating below potential, giving rise to the issues of macroeconomics.

Although the Great Depression of the 1930's was not the first business cycle downturn, it was dramatic in terms of its severity, particularly in contrast with the prosperity of the previous decade. In the middle of this crisis, British economist John Maynard Keynes created a new theoretical framework that became the basis for what we teach as macroeconomics. Prior to Keynes, what theories there were about unemployment offered little guidance for how to cure it. Keynes showed how the government can use budget policy and monetary policy to prevent the sort of long, severe slump that occurred in the 1930's.

Macroeconomics is filled with controversy. There are intelligent, well-trained economists whose beliefs about macro are diametrically opposed to those of other intelligent, well-trained economists. This poses a dilemma for a teacher. Do I try to give equal time to all points of view, or do I focus on what I believe? In these lecture notes, I adopt the latter approach. When you take macroeconomics in college, you can gain more exposure to the various doctrinal disputes that arose in the past and that still persist.