The goals of understanding stylized facts and accurately predicting the effects of policy have been around for as long as macroeconomics has existed. It’s the tools that have changed. Large and accessible datasets allow, and may require, macroeconomists to evaluate their theories against the data. Advances in macroeconomic theory, meanwhile, show how critical it is to model microeconomic foundations. In my opinion, a modern intermediate macroeconomics textbook should reflect the tools and data used by practicing economists. “Macroeconomic Theory: Theory and Applications” 1e does exactly that.
Understanding macroeconomic models
Macroeconomics students and instructors have two main goals: the first is to understand stylized facts. Why did the growth rate of global GDP per capita begin to accelerate in the 1800s? What explains the rise in women’s labor force participation rate in the latter half of the 20th century? How does money creation by a central bank affect the inflation rate? Macroeconomists build highly abstract systems, what we call models, that attempt to answer these questions. The second goal is to use these models to analyze economic policy. After modeling the relationship between money creation and the inflation rate, we might, for example, question how a lower growth rate in money supply would have changed the inflation rate in the U.S following the Covid-19 pandemic.
So, how do professional economists, both in academia and policy institutions, approach model building, and how can students understand these approaches? Since the 1970s, macroeconomists have constructed models starting with microeconomic foundations, or microfoundations, where individuals, households, and firms make optimal use of their resources given their preferences and constraints. A Principles of Macroeconomics class might be a student’s only experience with economics. Taking theoretical shortcuts to arrive at a tractable and useful model is justifiable and probably desirable. On the contrary, students taking Intermediate Macroeconomics already have some familiarity with the big questions.
Accessibility for students center focus in first edition text
Accessibility remains a key challenge when incorporating microfoundations into an intermediate-level textbook. The models can quickly get complicated and require sophisticated mathematical techniques. In “Macroeconomics: Theory and Applications” 1e, I introduce students to modern macroeconomic models without sacrificing accessibility, while simultaneously maintaining policy relevance. Any student who has taken a Principles of Economics course should be able to understand the book.
The key to understanding any content, of course, is practice. To that end, this new textbook offers a number of practice exercises with complete solutions in each chapter. Every chapter also includes questions for review and problems where students can evaluate their knowledge. MindTap, the online learning platform, provides additional homework and practice problems, and includes model building videos in each chapter.
FRED applications in the macroeconomics classroom
In addition to focusing on microfoundations, modern macroeconomics is empirical. Effective macroeconomists know that theory isn’t officially ready until it’s evaluated in the data. Fortunately, the Federal Reserve Economic Database (FRED), has made it relatively easy to obtain and work with data from many different sources. Everything from housing prices to industrial production to unemployment data is available through FRED. The FRED is very accessible, easy to learn, and has excellent data visualization tools. Unsurprisingly, FRED data is increasingly being used in the macroeconomics classroom.
Students using MindTap, the online learning platform, get an opportunity to work with the FRED in every chapter of the book. Specifically, an “Apply It” section is included in every chapter, where students are presented with a graph from the FRED and asked to interpret it. Then, students are directed to download data from the FRED and interpret the output. From the very beginning of class, students learn how to evaluate theory with data.
With “Macroeconomic Theory: Theory and Applications” 1e and accompanying MindTap, the online learning platform, macroeconomics majors have an opportunity to learn modern macroeconomic modeling at their level, in a way that’s both easy to understand and relevant to real-world economic practices.
Written by Robert Lester, Associate Professor of Economics and author of “Macroeconomic Theory: Theory and Applications” 1e.