Macroeconomics

I truly hope that I can convey my passion for economics through this book. Because this book is the sum of many efforts, for which I am grateful and sincerely appreciative, I would like to thank Anna Isabel Farren and Oscar Perello for efficient research assistance. I would also like to thank the staff of the MIT Press, in particular Emily Tabor for her editorial help and suggestions in the preparation of this work. 1. What is Macroeconomics? Macroeconomics studies the economy of a country or region from a broad perspective, without considering too many details about a specific sector or business. Macroeconomists study changes in the aggregate, collecting data on the level of production, unemployment, inflation, consumption, investment, trade and the current account, and other aspects of national and international economic life. Policymakers depend on macroeconomists' knowledge of the main elements and basic forces that govern each country's economy and the global economy when making decisions about taxes, industry regulations, trade policies, and more. These analyses affect decisions made by individuals and businesses, especially in a globalized world. This branch of economics attempts to answer fundamental questions, such as the following. Why does a country become richer or poorer in a certain period? For example, what explains the sustained high growth rates of the Asian Tigers – Hong Kong, Singapore, South Korea, and Taiwan – between the early 1960s and the 1990s, and China's high growth rates after 1978? Why was South Korea poorer than the Latin American countries in the early 1960s, yet today has three times the average Latin American income? Why has the Democratic Republic of Congo, one of the poorest countries in the world, had an average annual drop of more than 3 percent in its per capita income over the last 30 years? What causes unemployment? Why is there such a great difference among countries' unemployment rates? There is evidence for widely ranging unemployment rates even within the Eurozone – 4.3 percent in Germany and 19.4 percent in Spain in 2016. Furthermore, what causes the unemployment rate to fluctuate greatly within a single country during a short period of time? In Brazil, for example, the rate was 12 percent in 2004. It fell to 7 percent in 2011 and returned to a double-digit rate of 11 percent in 2016. What causes inflation? Why are there such colossal differences in the rate of inflation among countries and through time? Moreover, several European countries experienced near-zero or even negative inflation rates after the 2008 financial crisis. But Venezuela's inflation rate is higher than 1 million percent, even though its neighbors in Latin America today have historically low inflation. How can one country's economy affect the rest of the world? How did the U.S. subprime loan crisis manage to affect economic growth in East Asia? What determines the value of one currency for converting it to another? Why did the dollar lose value against the euro beginning in 2002 and particularly in 2009, then begin recovering from 2013 to today? Why does economic activity fluctuate in the short term? Why did Argentina's economic activity fall by almost 11 percent in 2002, grow by an average of 8.5 percent between 2003 and 2008, and then barely exceed an annual growth rate of 1 percent between 2009 and 2016? How do we explain the great moderation of fluctuations in the United States in the last half of the 20th century? Why did so many countries in the world experience a recession between 2008 and 2009? And why has the recovery...