TITLE : MACROECONOMICS: THE MEASUREMENT, ANALYSIS AND CONTROL OF AGGREGATE ECONOMIC ACTIVITY. 5TH ED.

Preface

A decade ago, just prior to the escalation of the war in Vietnam, some of our more optimistic colleagues were asking us what we were planning to do now that obsolescence had overtaken us. The new economics had triumphed; the macroeconomic problem had been solved; and technological unemployment was to be the fate of the macroeconomist.

In view of the indisputable fact that in early 1975 the United States was in the worst recession since the great depression of the 1930s, it is not unreasonable to suggest that the singing of such a requiem was a bit premature if not also somewhat nalve. The fact remains that macroeconomics continues to be one of the most important fields of economics as well as its most challenging, bewildering, and fascinating. The 1974-1975 recession was accompanied by a rate of inflation that, until a few years ago, would have been regarded as intolerable even under boom conditions. The new malady of stagflation, or inflationary recession as it is sometimes called, was not even viewed as conceivable ten years ago, yet it has plagued us much of the time during the first half of the 1 970s.

Conditions are vastly different now from what they were in the past, yet in many ways they are much the same, which merely confirms the wisdom of the Frenchman who said that the more things change the more they remain the same. We are, in a sense, back to square one. Aside from the novelty of stagflation and the impact of flexible exchange rates, the main difference between today's economic situation and that of two generations ago is that previously economic misfortune tended to happen automatically, whereas today considerable effort is expended in bringing it about.

Given the conditions of the United States economy in 1975, as well as the chaos that characterizes the economy of the entire planet, it seems self-evident that macroeconomics is an extremely important subject. In this new edition we have attempted to deal with some of the momentous changes that continue to make it so. For example, we have added an entirely new chapter on inflationary recession which takes the view that when unemployment and prices are both going up, something is very likely to be wrong with the mix of policy. Also, we have attempted to call attention to the revolutionary changes that a transition to a flexible exchange rate system has brought about, and we have added an entirely new chapter on international monetary problems.

Beyond a general tidying up and updating of the entire book, other significant changes include elimination of some of the material on national income accounting in Part 1, the restructuring of the chapter on employment and the price level in terms of aggregate demand and aggregate supply functions, and the use of these tools to present a completely revised and updated treatment of inflation .

The basic structure of the book appears, by all accounts, to have been sound and we have therefore not tampered with it. Part 1 introduces the reader to the problems of the measurement of economic activity. Part 2 builds up the basic macrostatic model, beginning in Chapters 4 through 6 to develop the analysis of the market for goods and services, then adding monetary considerations in Chapters 7 through 9, the factor market in Chapter 10, and finally, the foreign sector in Chapter 11. In previous editions this latter chapter contained con- siderable policy analysis. However, such material was, quite correctly we think, viewed as inappropriate at that stage of the discussion by the majority of the persons who were kind enough to suggest improvements, and it has therefore been reserved, in greatly expanded form, for treatment in a subsequent chapter on international economic policy.

Part 3 takes up a number of dynamic problems: stability of equilibrium, growth, cycles, and inflation. The subject of inflation now serves as a bridge between Parts 3 and 4, the last chapter of Part 3 surveying the traditional materials, with the first chapter of Part 4 moving into the perplexing land of inflationary recession. Part 4, as usual, deals with policy problems.

Over the years this book has benefited from valuable comments from countless persons-students, teachers, friendly critics-so that it is no longer possible to give thanks to individual persons. The contributors know who they are, and we thank them most sincerely for their help.

As usual it is appropriate to say that we have only ourselves to blame for errors, omissions, and other deficiencies.

Thomas F. Dernburg Duncan M. McDougall