The main aim of our new book, as reflected in its title, is to consider the origins, development and current state of modern macroeconomics in a manner appropriate for intermediate undergraduates taking courses in macroeconomics. As such we have assumed that such students will already have a firm grasp of basic economic principles and be familiar with introductory macroeconomic theories and models as developed, for example, in textbooks such as those by Abel and Bernanke (2001), Blanchard (2003), or Mankiw (2003). This book should, however, also prove useful to students taking other undergraduate economics courses, most notably in the history of economic thought, as well as economic history. For | Modern Macroeconomics In loving memory of Brian’s parents, Joseph and Margaret Snowdon, and Howard’s father, Philip M. Vane Modern Macroeconomics Its Origins, Development and Current State Brian Snowdon Principal Lecturer in Economics in the Newcastle Business School, Northumbria University, Newcastle upon Tyne, UK Howard R. Vane Professor of Economics in the School of Accounting, Finance and Economics, Liverpool John Moores University, Liverpool, UK Edward Elgar Cheltenham, UK ¥ Northampton, MA, USA © Brian Snowdon, Howard R. Vane 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library ISBN 1 84376 394 X (cased) 1 84542 208 2 (paperback) Typeset by Manton Typesetters, Louth, Lincolnshire, UK. Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall. Contents List of figures x List of tables xiii Preface xiv Acknowledgements xvii 1 Understanding modern macroeconomics 1 Macroeconomic issues and ideas 1 The role of economic theory and controversy 3 Objectives, instruments and the role of government 7 The Great Depression 9 Keynes and the birth of macroeconomics 13 The rise and fall of the Keynesian consensus 15 Theoretical schizophrenia and the neoclassical synthesis 21 Schools of thought in macroeconomics after Keynes 24 The new political macroeconomics 29 The renaissance of economic growth research 32 2Keynes v. the ‘old’ classical model 36 Introduction 36 Classical macroeconomics 37 Employment and output determination 38 Say’s Law 45
