This book provides a very didactical and easy-to-read introduction to contemporary macroeconomics. The text covers the basic concepts and methods used in this field in an integrated manner. Theoretical considerations are consistently supported by real-world examples and various exercises. Special focus is given to various key aspects of the euro area economy. A rich set of multiple choice questions and answers are provided in a separate, accompanying exercises book.

About the author

Dieter Gerdesmeier holds a diploma in business and economics from the University of Basel (CH) and was awarded a doctorate in economics. Having worked for the Deutsche Bundesbank in the past, Dieter Gerdesmeier is now working for the European Central Bank and for the Frankfurt School of Finance and Management. His lectures comprise monetary theory and policy, macroeconomics and the empirics of financial markets.

This book is meant to represent a companion publication to the earlier and more basic book entitled “Fundamentals of monetary policy in the euro area” insofar as it covers topics that are more of a macroeconomic nature. Given the strong empirical focus that macroeconomics has witnessed over the last decades, the book aims at supplementing the basic concepts with a number of real-world examples conducted with adequate econometric tools.

Part I is meant to provide the reader with the basics. The key concepts are defined and some simple analysis is carried out in verbal and graphical form.

Part II takes some selected issues up and makes an attempt to dig deeper into the relevant issues. In particular, the institutional foundations of the European Economic and Monetary Union (EMU) are summarised and the process of European monetary integration is described in more detail. Additional topics are price indices and inflation, measures of real economic activity and unemployment.

1. Introduction and Motivation   
   
2. Part I 
   
3. Understanding Economics   
   
   1. Learning Objectives   
      
   2. Basic Concepts   
      
   3. Microeconomics and Macroeconomics   
      
   4. Ex Ante and Ex Post Analysis   
      
   5. A Short History of Economics   
      
   6. Some Key Macroeconomic Variables   
      
   7. Some Key Macroeconomic Issues   
      
   8. Summary   
      
4. A Look into the Tool Box 
   
   1. Learning Objectives   
      
   2. Models   
      
   3. Types of Analysis   
      
   4. Analysis of Supply and Demand   
      
   5. Complementary and Substitute Goods 
      
   6. Slope and Elasticity   
      
   7. Summary 
      
5. Part II   
   
6. National Income Accounting   
   
   1. Learning Objectives   
      
   2. Accounting Conventions   
      
   3. Nominal and Real GDP   
      
   4. GDP and Welfare   
      
   5. A Circular Flow Analysis 
      
   6. Summary   
      
7. The Market for Goods
   
   1. Learning Objectives   
      
   2. Basic Considerations 
      
   3. The Consumption Function
      
   4. The Investment Function   
      
   5. Equilibrium in the Market for Goods 
      
   6. The Investment Multiplier 
      
   7. The Government Multiplier 
      
   8. The IS Curve   
      
   9. Unravelling the Secrets of the Twin Deficits 
      
   10. Summary 
       
8. The Money Market   
   
   1. Learning Objectives   
      
   2. Basic Considerations   
      
   3. Institutional Background of Euro Area Monetary Policy 
      
   4. Money Supply 
      
   5. Money Demand
      
   6. Equilibrium in the Money Market 
      
   7. Summary   
      
9. The IS-LM-Model   
   
   1. Learning Objectives   
      
   2. Equilibrium in the Markets for Goods and Money   
      
   3. Disequilibria 
      
   4. Some Comparative-Static Analysis   
      
   5. Policy Mix   
      
   6. Summary   
      
10. The Labour Market   
    
    1. Learning Objectives   
       
    2. Basic Considerations 
       
    3. The Labour Market in a Classical View   
       
    4. The Labour Market in a Keynesian View   
       
    5. Summary 
       
11. Aggregate Supply and Demand   
    
    1. Learning Objectives   
       
    2. Aggregate Demand   
       
    3. Aggregate Supply   
       
    4. Equilibrium in the Short Run   
       
    5. Equilibrium in the Long Run   
       
    6. Summary   
       
12. Part III   
    
13. A Closer Look at Consumption   
    
    1. Learning Objectives   
       
    2. Basic Concepts   
       
    3. The Permanent Income Hypothesis   
       
    4. The Life Cycle Hypothesis   
       
    5. Policy Implications 
       
    6. Summary   
       
14. A Closer Look at Investment   
    
    1. Learning Objectives   
       
    2. Basic Concepts   
       
    3. The Accelerator Hypothesis   
       
    4. The Neoclassical Theory of Investment   
       
    5. Tobin’s Q Theory
       
    6. Policy Implications   
       
    7. Summary   
       
15. A Closer Look at Fiscal Policy   
    
    1. Learning Objectives 
       
    2. Automatic Stabilizers   
       
    3. Cyclical and Structural Deficits   
       
    4. The Laffer Curve 
       
    5. Ricardian Equivalence
       
    6. Summary   
       
16. A Closer Look at Money Demand   
    
    1. Learning Objectives   
       
    2. Basic Concepts   
       
    3. The Baumol Tobin Model   
       
    4. The Portfolio Selection Approach   
       
    5. Friedman’s Approach to Money Demand   
       
    6. The Portfolio Balance Approach   
       
    7. Policy Implications   
       
    8. A First Look at the Data   
       
    9. Summary   
       
17. Part IV 
    
18. The European Union and the Euro Area   
    
    1. Learning Objectives   
       
    2. The European Union   
       
    3. The European Central Bank   
       
    4. The Roadmap to EMU   
       
    5. Key Characteristics of the Euro Area Economy   
       
    6. An Optimum Currency Area   
       
    7. Advantages and Disadvantages of a Monetary Union 
       
    8. Some Controversial Views about the Best Road   
       
    9. Convergence Criteria 
       
    10. Exiting the Euro Area   
        
    11. Nominal and Real Convergence 
        
    12. The Future of EMU   
        
    13. Summary   
        
19. Business Cycle Fluctuations   
    
    1. Learning Objectives   
       
    2. Fluctuations in Real GDP   
       
    3. Various Types of Cycles   
       
    4. Business Cycle Indicators   
       
    5. Output Gaps   
       
    6. A First Look at the Data   
       
    7. A Second Look at the Data   
       
    8. Summary   
       
20. Unemployment   
    
    1. Learning Objectives   
       
    2. Basic Considerations   
       
    3. Types of Unemployment 
       
    4. Summary   
       
21. Prices and Inflation   
    
    1. Learning Objectives 
       
    2. Goods and Baskets   
       
    3. Inflation and the Price Level   
       
    4. Effects of Inflation   
       
    5. Inflation Indices   
       
    6. The Harmonised Index of Consumer Prices 
       
    7. Core and Non-Core Inflation 
       
    8. Measurement Problems   
       
    9. Hyperinflation   
       
    10. A First Look at the Data   
        
    11. A Second Look at the Data 
        
    12. A Third Look at the Data   
        
    13. Summary   
        
22. Exchange Rates   
    
    1. Learning Objectives   
       
    2. Basic Concepts    
       
    3. Exchange Rate Regimes   
       
    4. Exchange Rates in the Long Run   
       
    5. Exchange Rates in the Short to Medium Run   
       
    6. ERM II 
       
    7. A First Look at the Data   
       
    8. Summary   
       
23. Part V 
    
24. Monetary Theory 
    
    1. Learning Objectives   
       
    2. The Quantity Theory of Money   
       
    3. The Phillips Curve   
       
    4. The Scandinavian Model of Inflation   
       
    5. The P-Star Approach 
       
    6. The Two-Pillar Phillips Curve   
       
    7. The Role of Expectations 
       
    8. A First Look at the Data   
       
    9. A Second Look at the Data   
       
    10. A Third Look at the Data   
        
    11. Summary   
        
25. Monetary Policy 
    
    1. Learning Objectives   
       
    2. Money: History, Forms and Functions   
       
    3. The Monetary Policy Transmission Process   
       
    4. Time Lags of Monetary Policy   
       
    5. Rules and Discretion in Monetary Policy   
       
    6. The Conduct of Monetary Policy   
       
    7. Monetary Policy Strategies   
       
    8. The Monetary Policy Strategy of the ECB   
       
    9. A First Look at the Data 
       
    10. A Second Look at the Data   
        
    11. Summary   
        
26. Conventional and Unconventional Monetary Policy 
    
    1. Learning Objectives   
       
    2. The Money Multiplier   
       
    3. Taylor Rules   
       
    4. Monetary Policy and the Zero Lower Bound   
       
    5. The ECB’s Monetary Policy in Times of Financial Crisis 
       
    6. A First Look at the Data 
       
    7. A Second Look at the Data 
       
    8. Summary   
       
27. Part VI 
    
28. Open Economy Issues
    
    1. Learning Objectives   
       
    2. The Balance of Payments   
       
    3. Some International Monetary Organisations   
       
    4. Some International Currency Regimes 
       
    5. A First Look at the Data   
       
    6. Summary   
       
29. Growth Theory 
    
    1. Learning Objectives   
       
    2. Some Basic Considerations
       
    3. Growth of Capital per Person 
       
    4. Growth in the Autonomous Factor   
       
    5. A First Look at the Data   
       
    6. Summary   
       
30. Part VII 
    
31. List of Symbols and Abbreviations 
    
32. Glossary 
    
33. Annexes 
    
    1. Stocks and Flows   
       
    2. Some Large Numbers   
       
    3. Levels and Growth Rates   
       
    4. Some Useful Graphical Measures   
       
    5. Some Useful Statistical Measures   
       
    6. The Correlation Coefficient   
       
    7. Linear Regression   
       
34. List of Figures and Boxes 
    
35. References
    
36. Endnotes