Macroeconomics is the study of the economy as a whole. If you want to understand key concepts that you come across every day in the news, such as inflation, unemployment, and economic growth, you’ve come to the right place.

This book helps you to tackle some of the biggest questions people ask about macroeconomics, such as these:

• What explains economic growth in the long run, and what economic policies are good for growth?
• What causes short-run business cycles and recessions and what kinds of policies might smooth these cycles out?
• What causes the price of everything to (mostly) rise and (occasionally) fall?
• Why are some people unable to find work? And what can be done to reduce unemployment?
• How is the financial system connected to the economy, and how can it lead to system-wide problems and economic recessions?

We don’t pretend to have answers to all the questions, but we do think that macroeconomics provides some good answers to many questions about how the economy works. More importantly, macroeconomics provides a good way to think about getting the answers.

Economics is one of those topics that people have strong opinions about. Just about everyone has a point of view about tax policy or the trade deficit or the banking system. And politicians and pundits top the list of those making such pronouncements. Unfortunately, a lot of these views are misguided and sometimes flat-out wrong. And that can lead to bad economic policy.

We have to confess that much of the blame for this falls on economists themselves. The profession (that includes us) has not done a great job at communicating the key findings of macroeconomics to the public. When good information is miscommunicated, misinformation can rule the scene.

However, some of the world’s greatest minds have worked on macroeconomics and created a substantial body of work. The point of this book is to introduce you to their analysis and their findings. The double truth is that macroeconomics is a fascinating topic and macroeconomists have learned a lot about how the macroeconomy works. The aim of this book is to share this learning with you.

About This Book

Macroeconomics affects almost every part of your life. Whether you have a job or are unemployed, whether you earn millions or the minimum wage, whether you want to borrow money or earn income from your savings, macroeconomics matters to you.

In this book, you’ll find the core macroeconomic concepts presented in a way that’s easy to digest. We skip as much unnecessary complexity as possible while still taking a rigorous approach to the issues.

You can use this book for reference, flicking straight to any chapter that interests you — reading it from cover to cover isn’t necessary. That said, if you’re taking a macroeconomics course at school or university, you may prefer to read it systematically, in which case taking the chapters in order makes sense.

Like it or not, mathematics is widely used in economics. There’s a reason for that. In a mathematic equation, it’s easy to identify a key variable or parameter and to see what happens when we change it. And once a key parameter is identified, we can turn to the data to try to find out what its value is in the real world. Fortunately, a lot of this work has been done for us. So, we can pretty much translate the math models back into everyday language, and that’s what we do here. We try to keep the math as limited as possible. To be sure, you’ll find a few equations in this book. But we fully explain these in words, too. If you ever feel you’re getting a little lost in some math, just skip that equation and read on. You should be fine.

Foolish Assumptions

We make some assumptions about you and why you want to read this book:

• You’re smart and interested in finding out how the economy works.
• You’re considering taking a school, university, or professional course that involves macroeconomics and you want an easy-to-read resource that explains modern macroeconomics clearly.
• You understand that having a good knowledge of macroeconomics is essential in the modern world so no one can pull the wool over your eyes.
• You may be anxious but you’re not paralyzed by the sight of an equation. You’re ready to work through a simple mathematical relation every now and again so long as it’s clearly explained and allows you to gain a deeper understanding of the material.
• You’ve either read, are reading, or at least thinking about getting the companion book Microeconomics For Dummies in order to master economics fully and cement your identity as a clever, well informed, and witty person.

Icons Used in This Book

For Dummies books use icons, partly because they’re pretty but also because they draw your attention to some important things. Here are the icons we use in this book.

Tips are small morsels of useful information to help you understand something.

This icon draws your attention to something quite important.

We use Warning icons to highlight confusing concepts. Whenever you see one of these, make sure you don’t make the common error related to that topic.

This icon flags material that may stray into true econo-geek territory. Unless you’re super-interested in the details of the topic at hand, you can safely skip this stuff.

Beyond the Book

You’ll have no difficulty applying your new knowledge of macroeconomics beyond this book. Just turn on the TV or read a newspaper and you’ll inevitably find stories about the economy. You can consider whether the claims made or analysis provided makes sense given what you discover about how the economy works. Often you’ll find that they don’t. When that happens (and trust us, it will), you’re reaping the benefits of what you read in this book.

In addition to what you’re reading right now, this product also comes with a free access-anywhere Cheat Sheet that summarizes some key info, such as types of economic policy, looking at stats, and watching the economy over time. To get this Cheat Sheet, simply go to www.dummies.com and search for “Macroeconomics Cheat Sheet” in the Search box.

Where to Go from Here

We recommend that you dive straight into the juicy meat of this book. You don’t need to start at the beginning, although certainly you’re welcome to. Here are a few pointers to get you started:

• If you’re clueless about what a country’s gross domestic product is and how it measures economic activity, turn to Chapter 4.
• If you want to know about financial crises, what causes them, and what lessons we’ve learned, take a look at the chapters in Part 6.
• If you have a burning desire to understand how fiscal and monetary policy can be used to fight recessions, flip to Chapters 14 and 15, respectively.
• If you want to know about the relationship between unemployment and inflation in both the short run and the long run, check out Chapter 16.
• If you’re interested in economic growth and the economy’s long-run path, turn to the chapters in Part 4.

Soon you’ll be leafing through the broadsheets and wanting to apply your macroeconomic knowledge to all sorts of issues. Maybe you’ll even want to become a macroeconomist! But whatever you end up doing with the knowledge you gain here, we hope you find it enlightening and useful.