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• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Boxes
• About the Authors
• About the Book
• Tour of the book
• Preface
• Acknowledgements
• Website Materials
• PART A: INTRODUCTION AND MEASUREMENT
• 1 Introduction
• 1.1 What is Economics? Two Views
• Orthodox, neoclassical approach
• Heterodox approach – Keynesian/Institutionalist/Marxist
• What do economists do?
• Implications for research and policy
• 1.2 Economics and the Public Purpose
• 1.3 What is Macroeconomics?
• The macro model
• The MMT approach to macroeconomics
• Fiscal and monetary policy
• Policy implications of MMT for sovereign nations
• Conclusion
• References
• 2 How to Think and Do Macroeconomics
• 2.1 Introduction
• 2.2 Thinking in a Macroeconomic Way
• 2.3 What Should a Macroeconomic Theory be Able to Explain?
• Real GDP growth
• Unemployment
• Real wages and productivity
• Private sector indebtedness
• Central bank balance sheets
• Japan’s persistent fiscal deficits: the glaring counterfactual case
• 2.4 Why is it so Difficult to Come to an Agreement on Policy? The Minimum Wage Debate
• 2.5 The Structure of Scientific Revolutions
• Conclusion
• References
• Chapter 2 Appendix: The Buckaroos model
• Implications of the Buckaroos model
• 3 A Brief Overview of Economic History and the Rise of Capitalism
• 3.1 Introduction
• 3.2 An Introduction to Monetary Capitalism
• 3.3 Tribal Society
• 3.4 Slavery
• 3.5 Feudalism
• 3.6 Revolts and the Transition to Capitalism
• 3.7 Capitalism
• 3.8 Monetary Capitalism
• 3.9 Global Capitalism
• 3.10 Economic Systems of the Future?
• Conclusion
• References
• 4 The System of National Income and Product Accounts
• 4.1 Measuring National Output
• 4.2 Components of GDP
• Consumption (C)
• Investment (I)
• Government spending (G)
• Exports (X) minus imports (M) or net exports (NX)
• 4.3 Equivalence of Three Measures of GDP
• Expenditure approach
• Production approach
• Income approach
• 4.4 GDP versus GNP
• 4.5 Measuring Gross and Net National Income
• Measuring net national income
• 4.6 GDP Growth and the Price Deflator
• 4.7 Measuring Chain Weighted Real GDP
• 4.8 Measuring CPI Inflation
• The CPI Index
• Rate of growth of the CPI index
• Difficulties in using the CPI to accurately measure inflation
• 4.9 Measuring National Inequality
• Conclusion
• References
• 5 Labour Market Concepts and Measurement
• 5.1 Introduction
• 5.2 Measurement
• Labour force framework
• Impact of the business cycle on the labour force participation rate
• 5.3 Categories of Unemployment
• 5.4 Broader Measures of Labour Underutilisation
• 5.5 Flow Measures of Unemployment
• Labour market stocks and flows
• 5.6 Duration of Unemployment
• 5.7 Hysteresis
• Conclusion
• References
• 6 Sectoral Accounting and the Flow of Funds
• 6.1 Introduction
• 6.2 The Sectoral Balances View of the National Accounts
• Introduction
• How can we use the sectoral balances framework?
• A graphical framework for understanding the sectoral balances
• 6.3 Revisiting Stocks and Flows
• Flows
• Stocks
• Inside wealth versus outside wealth
• Non-financial wealth (real assets)
• 6.4 Integrating NIPA, Stocks, Flows and the Flow of Funds Accounts
• Causal relationships
• Deficits create financial wealth
• 6.5 Balance Sheets
• 6.6 The Flow of Funds Matrix
• Flow of funds accounts and the national accounts
• Conclusion
• References
• 7 Methods, Tools and Techniques
• 7.1 Overview
• 7.2 Basic Rules of Algebra
• Model solutions
• 7.3 A Simple Macroeconomic Model
• 7.4 Graphical Depiction of a Macroeconomic Model
• 7.5 Power Series Algebra and the Expenditure Multiplier
• 7.6 Index Numbers
• 7.7 Annual Average Growth Rates
• 7.8 Textbook Policy Regarding Formalism
• Conclusion
• 8 The Use of Framing and Language in Macroeconomics
• 8.1 Introduction
• 8.2 MMT and Public Discourse
• 8.3 Two Visions of the Economy
• 8.4 Cognitive Frames and Economic Commentary
• 8.5 Dominant Metaphors in Economic Commentary
• 8.6 Face to Face: Mainstream Macro and MMT
• Mainstream Fallacy 1: The government faces the same ‘budget’ constraint as a household
• Mainstream Fallacy 2: Fiscal deficits(surpluses) are bad(good)
• Mainstream Fallacy 3: Fiscal surpluses contribute to national saving
• Mainstream Fallacy 4: The fiscal outcome should be balanced over the economic cycle
• Mainstream Fallacy 5: Fiscal deficits drive up interest rates and crowd out private
• investment because they compete for scarce private saving Mainstream Fallacy 6: Fiscal deficits mean higher taxes in the future
• Mainstream Fallacy 7: The government will run out of fiscal space (or money) if it overspends
• Mainstream Fallacy 8: Government spending is inflationary
• Mainstream Fallacy 9: Fiscal deficits lead to big government
• 8.7 Framing a Macroeconomics Narrative
• Language and metaphor examples
• Fiscal space
• Costs of a public programme
• The MMT alternative framing
• Conclusion
• References
• PART B: CURRENCY, MONEY AND BANKING
• 9 Introduction to Sovereign Currency: The Government and its Money
• 9.1 Introduction
• 9.2 The National Currency (Unit of Account)
• One nation, one currency
• Sovereignty and the currency
• What ‘backs up’ the currency?
• Legal tender laws
• Fiat currency
• Taxes drive the demand for money
• Financial stocks and flows are denominated in the national money of account
• The financial system as an electronic scoreboard
• 9.3 Floating versus Fixed Exchange Rate Regimes
• The gold standard and fixed exchange rates
• Floating exchange rates
• 9.4 IOUs Denominated in National Currency: Government and Non-Government
• Leveraging
• Clearing accounts extinguish IOUs
• Pyramiding currency
• 9.5 Use of the Term ‘Money’: Confusion and Precision
• Conclusion
• References
• 10 Money and Banking
• 10.1 Introduction
• 10.2 Some Definitions
• Monetary aggregates
• 10.3 Financial Assets
• Yield concepts in fixed income investments
• 10.4 What Do Banks Do?
• The neoclassical view: the money multiplier
• MMT representation of the credit creation process
• Loans create deposits
• Banks do not loan out reserves
• Endogenous money
• Summary
• An example of a bank’s credit creation: a balance sheet analysis
• Conclusion
• References
• PART C: NATIONAL INCOME, OUTPUT AND EMPLOYMENT DETERMINATION
• 11 The Classical System
• 11.1 Introduction
• 11.2 The Classical Theory of Employment
• Why is the labour demand function downward sloping?
• Why is the labour supply function upward sloping?
• Equilibrium in the labour market
• 11.3 Unemployment in the Classical Labour Market
• 11.4 What is the Equilibrium Output Level in the Classical Model?
• 11.5 The Loanable Funds Market, Classical Interest Rate Determination
• 11.6 Classical Price Level Determination
• 11.7 Summary of the Classical System
• 11.8 Pre-Keynesian Criticisms of the Classical Denial of Involuntary Unemployment
• Conclusion
• References
• 12 Mr. Keynes and the ‘Classics’
• 12.1 Introduction
• 12.2 The Existence of Mass Unemployment as an Equilibrium Phenomenon
• 12.3 Keynes’ Critique of Classical Employment Theory
• 12.4 Involuntary Unemployment
• 12.5 Keynes’ Rejection of Say’s Law: The Possibility of General Overproduction
• Refresher: the loanable funds market
• Keynes’ critique of the loanable funds doctrine
• Liquidity preference and Keynes’ theory of interest
• Conclusion
• References
• 13 The Theory of Effective Demand
• 13.1 Introduction
• 13.2 The D-Z Approach to Effective Demand
• 13.3 Introducing Two Components of Aggregate Demand: D1 and D2
• 13.4 Advantages of the D-Z Framework
• The macroeconomic demand for labour
• 13.5 The Role of Saving and Liquidity Preference
• 13.6 The Demand Gap Arguments and Policy Implications
• Conclusion
• Reference
• 14 The Macroeconomic Demand for Labour
• 14.1 Introduction
• 14.2 The Macroeconomic Demand for Labour Curve
• The interdependency of aggregate supply and demand
• Money wage changes and shifts in effective demand
• 14.3 The Determination of Employment and the Existence of Involuntary Unemployment
• 14.4 A Classical Resurgence Thwarted
• Conclusion
• References
• 15 The Aggregate Expenditure Model
• 15.1 Introduction
• 15.2 A Simple Aggregate Supply Depiction
• 15.3 Aggregate Demand
• 15.4 Private Consumption Expenditure
• 15.5 Private Investment
• 15.6 Government Spending
• 15.7 Net Exports
• 15.8 Total Aggregate Expenditure
• 15.9 Equilibrium National Income
• 15.10 The Expenditure Multiplier
• An algebraic treatment
• A graphical treatment
• Numerical example of the expenditure multiplier at work
• Changes in the magnitude of the expenditure multiplier
• A final point about the multiplier
• Conclusion
• References
• 16 Aggregate Supply
• 16.1 Introduction
• 16.2 Some Important Concepts
• Schedules and functions
• The employment-output function
• Money wages
• 16.3 Price Determination
• 16.4 The Aggregate Supply Function (AS)
• The theory of production
• Some properties of the aggregate supply function
• 16.5 What Determines the Level of Employment?
• 16.6 Factors Affecting Aggregate Output per Hour
• The choice of production technology
• Procyclical movements in labour productivity
• Conclusion
• Reference
• PART D: UNEMPLOYMENT AND INFLATION: THEORY AND POLICY
• 17 Unemployment and Inflation
• 17.1 Introduction
• 17.2 What is Inflation?
• 17.3 Inflation as a Conflictual Process
• Cost push inflation
• Raw material price increases
• Conflict theory of inflation and inflationary biases
• Demand pull inflation
• Cost push and demand pull inflation: a summary
• 17.4 The Quantity Theory of Money
• 17.5 Incomes Policies
• Conclusion
• References
• 18 The Phillips Curve and Beyond
• 18.1 Introduction
• 18.2 The Phillips Curve
• Phillips curve algebra
• The instability of the Phillips curve
• Econometric misspecification
• 18.3 The Accelerationist Hypothesis and the Expectations Augmented Phillips Curve
• Introduction
• Expectations of inflation
• The algebra of the expectations augmented Phillips curve
• Specification of inflationary expectations
• 18.4 Hysteresis and the Phillips Curve Trade-off
• The algebra of hysteresis
• 18.5 Underemployment and the Phillips Curve
• Conclusion
• References
• 19 Full Employment Policy
• 19.1 Introduction
• 19.2 Full Employment as the Policy Goal
• 19.3 Policies for the Promotion of Employment
• Behaviouralist, structuralist, and Keynesian approaches
• Private sector incentives
• Direct job creation by government
• 19.4 Unemployment Buffer Stocks and Price Stability
• Measuring the costs of unemployment buffer stocks
• 19.5 Employment Buffer Stocks and Price Stability
• The JG wage
• The JG as an automatic stabiliser
• Inflation control and the JG
• Open economy impacts
• Would the NAIBER be higher than the NAIRU?
• Employment buffer stocks and responsible fiscal design
• A plausible adjustment path
• 19.6 Impact on the Phillips Curve
• Conclusion
• References
• PART E: ECONOMIC POLICY IN AN OPEN ECONOMY
• 20 Introduction to Monetary and Fiscal Policy Operations
• 20.1 Introduction
• 20.2 The Central Bank
• The payments system, reserves and the interbank market
• 20.3 The Treasury
• Government and private financial accounting
• Sectoral balances
• 20.4 Coordination of Monetary and Fiscal Operations
• Duties of the central bank
• Duties of the treasury
• A numerical example using balance sheets
• Is there a sufficient demand for treasury debt?
• 20.5 Taxes and Sovereign Spending
• 20.6 Currency Sovereignty and Policy Independence
• Conclusion
• References
• Chapter 20 Appendix: Advanced Material
• Monetary policy in the open economy, causes and consequences of capital flows
• 21 Fiscal Policy in Sovereign Nations
• 21.1 Introduction
• 21.2 Functional Finance versus Sound Finance
• The fiscal constraint and the views of deficit hawks, doves, and owls
• Why is the deficit owl the only perspective that is consistent with MMT?
• 21.3 Fiscal Policy Debates: Crowding Out and (Hyper) Inflation
• Crowding out?
• Voluntary constraints
• Inflation and sovereign fiscal policy
• Hyperinflation
• Real world hyperinflations
• Summing up on hyperinflation
• Conclusion
• References
• 22 Fiscal Space and Fiscal Sustainability
• 22.1 Introduction
• 22.2 The Full Employment Fiscal Deficit Condition
• 22.3 Fiscal Space and Fiscal Sustainability
• Advancement of public purpose
• Understanding the monetary environment
• Understanding what a sovereign government is
• Understanding why governments tax
• Understanding why governments issue debt
• Setting fiscal targets
• Foreign exposure
• Understanding what a cost is
• 22.4 The Debt Sustainability Debate
• Conclusion
• References
• 23 Monetary Policy in Sovereign Nations
• 23.1 Introduction
• 23.2 Modern Banking Operations
• 23.3 Interest Rate Targets versus Monetary Targets
• Lender of last resort and financial stability
• 23.4 Liquidity Management
• Introduction
• Different interest rate setting arrangements
• 23.5 Implementation of Monetary Policy
• Transmission mechanism
• 23.6 Unconventional Forms of Monetary Policy
• Introduction
• Quantitative easing (QE)
• Negative interest rates
• Conclusion
• 23.7 Monetary Policy in Practice
• 23.8 The Advantages and Disadvantages of Monetary Policy
• 23.9 Central Bank Independence
• Introduction
• Rationale for independence
• 23.10 Horizontal and Vertical Operations: An Integration
• Conclusion
• References
• 24 Policy in an Open Economy: Exchange Rates, Balance of Payments and Competitiveness
• 24.1 Introduction
• 24.2 The Balance of Payments
• Balance of payment examples
• The current account
• The capital account and financial account
• 24.3 Essential Concepts
• Nominal exchange rate (e)
• Change in the nominal exchange rate, appreciation and depreciation
• What determines the exchange rate?
• International competitiveness
• The real exchange rate
• 24.4 Aggregate Demand and the External Sector Revisited
• 24.5 Trade in Goods and Services, Product Market Equilibrium and the Trade Balance National income equilibrium with trade
• The net exports function
• The impact on national income and net exports of a change in world income
• An increase in world income leads to a rise in net exports
• 24.6 Capital Controls
• Conclusion
• References
• PART F: ECONOMIC INSTABILITY
• 25 The Role of Investment in Profit Generation
• 25.1 Investment in a Capitalist Monetary Economy
• The volatility of investment
• Gross and net investment
• 25.2 The Accelerator Model of Investment
• The simple accelerator model
• Limitations of the simple accelerator model
• 25.3 The Flexible Accelerator Model
• Rate of adjustment in the flexible accelerator model
• Implications of incomplete adjustment
• 25.4 Expectations and Interest Rate Impacts on Investment Demand
• 25.5 Introduction to Cash Flow Discounting and Present Value
• 25.6 Keynes and the Marginal Efficiency of Investment
• 25.7 Minsky’s Model of the Investment Decision
• The two price system
• Determination of investment
• 25.8 Investment and Profits
• Kalecki’s simplified model
• Kalecki’s generalised model
• 25.9 Business Cycles: Fluctuations in Economic Activity
• Terminology and patterns
• The interaction of the expenditure multiplier and the investment accelerator
• Conclusion
• References
• 26 Stabilising the Unstable Economy
• 26.1 Introduction
• 26.2 Economic Cycles and Crises
• 26.3 Marxist Theory of Crisis
• 26.4 Keynesian and Post-Keynesian Theories of Crisis
• 26.5 Minsky’s Financial Instability Hypothesis
• Conclusion
• References
• PART G: HISTORY OF MACROECONOMIC THOUGHT
• 27 Overview of the History of Economic Thought
• 27.1 Introduction
• 27.2 History of Neoclassical Theory
• 27.3 History of Heterodox Thought
• 27.4 Institutional Economics
• 27.5 Modern Orthodox Schools of Thought
• 27.6 Post-War Economic History and History of Thought
• Conclusion
• References
• 28 The IS-LM Framework
• 28.1 Introduction and the Concept of General Equilibrium
• 28.2 The Money Market: Demand, Supply and Equilibrium
• 28.3 Derivation of the LM Curve
• 28.4 The Product (Goods) Market: Equilibrium Output
• 28.5 Derivation of the IS Curve
• 28.6 Equilibrium and Policy Analysis in the IS-LM Framework
• 28.7 Introducing the Price Level: The Keynes and Pigou Effects
• 28.8 Limitations of the IS-LM Framework
• The endogeneity of the money supply
• Expectations and time
• Conclusion
• References
• Chapter 28 Appendix: The IS-LM Algebra
• Simplified open economy
• Product market equilibrium
• Money market equilibrium
• General equilibrium
• 29 Modern Schools of Economic Thought
• 29.1 Introduction
• 29.2 The Rise of New Classical Economics
• Roots in Friedman’s Monetarism
• New Classical Economics
• 29.3 Real Business Cycle Theory
• Advanced treatment of the RBC model
• 29.4 New Keynesian Economics
• Introduction Examples of price and wage inflexibility
• The role of policy
• Introduction
• Method: the notion of equilibrium and locus of analysis
• Alternative approaches to distribution
• Say’s Law
• Loanable funds versus liquidity preference
• Imperfect competition
• Treatment of money, time and expectations
• Conclusion
• References
• 30 The New Monetary Consensus in Macroeconomics
• 30.1 Introduction
• 30.2 Components of the NMC theory
• 30.3 Weaknesses of the NMC
• Conclusion
• References
• Chapter 30 Appendix:The New Monetary Consensus model
• PART H: CONTEMPORARY DEBATES
• 31 Recent Policy Debates
• 31.1 Introduction
• 31.2 Ageing, Social Security, and the Intergenerational Debate
• Dependency ratios
• Do dependency ratios matter?
• 31.3 The Twin Deficits Hypothesis
• Introduction
• The link between the deficits
• 31.4 Balance of Payments Constraints and Currency Crises
• Currency crises
• Optimal currency areas
• The demise of the gold standard: the Great Depression and the Second World War
• Keynes’ Bancor plan and the end of Bretton Woods
• An alternative (MMT) approach to international money: floating rates and sovereign currency
• The euro and optimal currency areas
• Conclusion
• 31.6 Environmental Sustainability and Economic Growth
• References
• Chapter 31 Appendix 1: Case Study 1 – Economic Growth: Demand or Supply Constrained? The US, 1975 to 2007
• Introduction
• Did the US economy suffer from secular stagnation from 1970 to 1995?
• The ‘New Economy’ and the productivity miracle, 1995 to 2007
• Chapter 31 Appendix 2: Case Study 2 – The Return of Secular Stagnation? US Labour Markets after the Global Financial Crisis
• Conclusion
• Chapter 31 Appendix 3: The US Social Security and Medicare Systems
• 32 Macroeconomics in the Light of the Global Financial Crisis
• 32.1 Introduction
• 32.2 Why Didn’t Mainstream Macroeconomics Foresee the GFC?
• 32.3 Who Did Foresee the GFC and Why?
• Introduction
• Minsky’s financial instability hypothesis
• The rise in inequality
• 32.4 Lessons That Can be Learned About Sovereign Currency From the Eurozone Crisis
• Conclusion
• References
• 33 Macroeconomics for the Future
• 33.1 Introduction
• 33.2 Modelling Framework
• 33.3 Government and the Monetary System
• A sovereign currency
• Fiscal policy
• Persistent fiscal deficits
• 33.4 Monetary Policy
• Reserves and bond sales
• 33.5 Private Banks
• Finance
• Inside wealth versus outside wealth
• Credit creation and the money supply
• 33.6 Trade and Exchange Rates
• Exchange rate regime
• Conclusion
• Further Reading
• Index