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The fundamental goals of this text are to provide an integrated view of macroeconomics and to make close contact with current macroeconomic events. This Intermediate Macroeconomics text is organized around a set of core chapters followed by three optional extensions. The Core covers the Short Run, Medium Run, and Long Run and is then followed by the three Extensions: Openness, Expectations, and Pathologies. The book concludes with a section on policy, although policy issues are also sprinkled throughout most chapters. Already known for its global emphasis and empirical applications of theory, the third edition has attempted to simplify many of the more difficult topics in macroeconomics. Theoretical material is always presented within the context of a real-world application in three ways: words, graphs, and with algebra.

Highlights of the New Edition

  • New Chapters
    • Chapter 21 , Exchange Rate Regimes, focuses on the implications of different exchange rate regimes.
    • Chapter 32, Slumps and Depressions, examines the economic slump in Japan.
  • Real Word Issues Addressed—Blanchard makes sure never to present a theoretical result without relating it to the real world. In addition to discussions of facts in the text itself, there are numerous Focus boxes, which discuss particular macroeconomic events or facts, from both the United States and around the world.
  • Updated Material Throughout—Information on the New Economy, the effects of 9/11 on consumption, the Bush tax cut, an in-depth treatment of the slump in Japan, plus much more, gives students an awareness and understanding of the role current events play inmacroeconomics.
  • One Integrative, Underlying Model Throughout—Concentrates on the implications of equilibrium conditions in three sets of markets: goods, financial, and labor. Depending on the issue at hand, the parts of the model are developed in more detail while others are simplified or left in the background. This enables students to see macroeconomics as a coherent whole, not as a collection of random models.
  • Highlights the Application of Theory—Explains what is happening around the world, from the introduction of a new currency in Western Europe to the reduction of budget deficits in the United States. This conveys to students the fun of macroeconomics and reinforces the lessons from the model, making them more concrete and easier to grasp.
  • FREE Active Graph CD-ROM—Allows students to manipulate and interact with key graphs and learn hands-on about Macroeconomics.
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Product Details

  • ISBN-13: 9780131462250
  • Publisher: Pearson Education
  • Publication date: 11/13/2002
  • Edition description: Third Edition, Package
  • Edition number: 3
  • Pages: 400
  • Product dimensions: 8.20 (w) x 10.22 (h) x 1.11 (d)

Table of Contents


1. A Tour of the World.
2. A Tour of the Book.


The Short Run.

3. The Goods Market.
4. Financial Markets.
5. Goods and Financial Markets: The IS-LM Model.

The Medium Run.

6. The Labor Market.
7. Putting All Markets Together: The AS-AD Model.
8. The Natural Rate of Unemployment and The Phillips Curve.
9. Inflation, Activity, and Money Growth.

The Long Run.

10. The Facts of Growth.
11. Saving, Capital Accumulation, and Output.
12. Technological Progress and Growth.
13. Technological Progress, Wages, and Unemployment.


14. Expectations: The Basic Tools.
15. Financial Markets and Expectations.
16. Expectations, Consumption, and Investment.
17. Expectations, Output, and Policy.

The Open Economy.

18. Openness in Goods and Financial Markets.
19. The Goods Market in an Open Economy.
20. Output, the Interest Rate, and the Exchange Rate.
21. Exchange Rate Regimes.


22. Slumps and Depressions.
23. High Inflation.


24. Should Policy Makers Be Restrained?
25. Monetary Policy: A Summing Up.
26. Fiscal Policy: A Summing Up.


27. The Story of Macroeconomics.


Appendix 1: An Introduction to National Income and Product Accounts.
Appendix 2: A Math Refresher.
Appendix 3: AnIntroduction to Econometrics.
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I had two main goals in writing this book:
  • To make close contact with current macroeconomic events.

    What makes macroeconomics exciting is the light it sheds on what is happening around the world, from the introduction of the Euro in Western Europe, to the current U.S. recession, to the Japanese slump, to the economic and political crisis in Argentina. These events—and many more—are described in the book, not in footnotes, but in the text or in detailed boxes. Each box shows how you can use what you have learned to get an understanding of these events. My belief is that these boxes not only convey the "life" of macroeconomics, but also reinforce the lessons from the models, making them more concrete and easier to grasp.

  • To provide an integrated view of macroeconomics.

    The book is built on one underlying model, a model that concentrates on the implications of equilibrium conditions in three sets of markets: the goods market, the financial markets, and the labor market. Depending on the issue at hand, the parts of the model relevant to the issue are developed in more detail while the other parts are simplified or lurk in the background. But the underlying model is always the same. This way, you will see macroeconomics as a coherent whole, not a collection of models. And you will be able to make sense not only of past macroeconomic events, but also of those that unfold in the future.


The response to the first two editions, in the United States and around the world, has shown that there is a large demand for such an approach. At the same time, feedback from instructors and from students has led to anumber of important changes since the first edition.

  • The main change from the first to the second edition was in the architecture of the book. I reorganized the book into two parts: A core, and a set of three major extensions.

    The core focused on the behavior of the economy in the short run, the medium run, and the long run.

    The three extensions focused on the role of expectations, on the implications of openness, and on pathologies—times of very high inflation, or times of very high unemployment.

    The response to this new organization in the second edition has been very positive, and I have kept it in this third edition, with only a few minor changes: I have eliminated one chapter on pathologies, allocating some of its content to other chapters. Two chapters are largely new: Chapter 22 examines the economic slump in Japan. Chapter 21 focuses on the implications of different exchange rate regimes.

  • The main focus of revisions for this third edition has been on simplification.

    The truth: Macroeconomics is hard. It is hard because it is about understanding what economists call "general equilibrium." In thinking about what happens to the economy, you must keep in mind all at the same time, what happens in the labor market, what happens in the goods market, and what happens in financial markets. One way of writing a macroeconomics text is to hide these complexities, taking different "convenient" approaches when looking at different topics. This way makes for a textbook which may be easy to read, not a textbook you can use to understand events other than the events you read about in the text. As you may suspect, this is not the route I have taken. And so, because I did not want to take these intellectual shortcuts, I have had to work hard to make the arguments as simple as they could be.

    In the second edition, I introduced margin notes running in parallel to the text. These notes serve many purposes: to emphasize an important point, to help you follow a derivation, to relate an argument to an earlier one, to summarize a series of steps, to give a related fact, or to tell a related anecdote. My hope was that these notes would make reading the book and learning from it much easier. The reaction has been extremely positive, and you will find margin notes again in this third edition.

    To simplify further, I prepared for this third edition by putting together a team of students and giving them a simple mandate: Look at each argument in the book; tell me if it feels hard or confusing; tell me how it could be presented more simply. Their work has led to a nearly complete rewrite of the book. The architecture of the book is the same. But the book is very different in the small, that is, in the way things are discussed, explained, and illustrated. The arguments are, I believe, simpler and easier to grasp.


The book is organized around two central parts: A core, and a set of three major extensions. An introduction precedes the core. The set of extensions is followed by a review of the role of policy. The book ends with an epilogue. A flowchart on the front end paper makes it easy to see how the chapters are organized, and fit the book's overall structure.

  • Chapters 1 and 2 introduce the basic facts and issues of macroeconomics. Chapter 1 offers a tour of the world, from the United States, to Europe, to Japan. Some instructors will prefer to cover it later, perhaps after Chapter 2, which introduces basic concepts, articulates the notions of short run, medium run, and long run, and gives a quick tour of the book.

    While Chapter 2 gives the basics of national income accounting, I have put a detailed treatment of national income accounts to Appendix 1 at the end of the book. This decreases the burden on the beginning reader, and allows for a more thorough treatment in the appendix.

  • Chapters 3 to 13 constitute the core.

    Chapters 3 to 5 focus on the short run. These three chapters characterize equilibrium in the goods market and in the financial markets, and they derive the basic model used to study short-run movements in output, the IS-LM model.

    Chapters 6 to 9 focus on the medium run. Chapter 6 focuses on equilibrium in the labor market and introduces the notion of the natural rate of unemployment. Chapters 7 to 9 develop a model based on aggregate demand and aggregate supply, and show how that model can be used to understand movements in activity and movements in inflation, both in the short and in the medium run.

    Chapters 10 to 13 focus on the long run. Chapter 10 describes the facts, showing the evolution of output across countries and over long periods of time. Chapters 11 and 12 develop a model of growth, focusing on the determinants of capital accumulation and technological progress and the role of each in growth. Chapter 13, which is optional, focuses on the effects of technological progress not only in the long run, but also in the short run arid in the medium run. This topic is typically not covered in textbooks but is important. And the chapter shows how one can integrate the short run, the medium run, and the long run—an example of the payoff of an integrated approach to macroeconomics.

  • Chapters 14 to 24 cover the three major extensions.

    Chapters 14 to 17 focus on the role of expectations in the short run and in the medium run. Expectations play a major role in most economic decisions, and, by implication, play a major role in the determination of output.

    Chapters 18 to 21 focus on the implications of the openness of modern economies. Chapter 21, which is largely new, focuses on the implications of different exchange rate regimes, from flexible exchange rates, to fixed exchange rates, to currency boards, to dollarization.

    Chapters 22 and 23 focus on pathologies, times when (macroeconomic) things go very wrong. Chapter 22 looks at depressions and slumps. Much of the chapter, from the discussion of the dangers of deflation and the liquidity trap to the analysis of Japan's economic slump, is new. Chapter 23 looks at episodes of hyperinflation.

  • Chapters 24 to 26 return to macroeconomic policy. While most of the first 23 chapters constantly discuss macroeconomic policy in one form or another, the purpose of Chapters 24 to 26 is to tie the threads together. Chapter 24 looks at the role and the limits of macroeconomic policy in general. Chapters 25 and 26 review monetary policy and fiscal policy. Much of Chapter 26 is devoted to recent developments in monetary policy, from inflation targeting to interest rate rules. Some instructors may want to use parts of these chapters earlier. For example, it is easy to move forward the discussion of the government budget constraint in Chapter 26.

  • Chapter 27 serves as an epilogue; it puts macroeconomics in historical perspective, showing the evolution of macroeconomics in the last 60 years and discussing current directions of research.

Alternative Course Outlines

Within the book's broad organization, there is plenty of opportunity for alternative course organizations. I have made the chapters shorter than is standard in textbooks, and, in my experience, most chapters can be covered in an hour and a half. A few (Chapters 5 and 7 for example) may require two lectures to sink in.

  • 10 Short courses (15 lectures or less)

    A short course can be organized around the two introductory chapters and the core. Leaving aside Chapters 9 and 13 gives a total of 11 lectures. Informal presentations of one or two of the extensions, based for example on Chapter 17 for expectations (which can be taught as a stand alone) and on Chapter 18 for the open economy, can then follow, for a total of 13 lectures.

    A short course may leave out the study of growth (the long run). In this case, the course can be organized around the introductory chapters, and Chapters 3 to 8 in the core; this gives a total of 8 lectures, leaving enough time to cover, for example, Chapter 17 on expectations, Chapters 18 to 20 on the open economy, and Chapter 22 on depressions and slumps, for a. total of 13 lectures.

  • Longer courses (20 to 25 lectures)

    A full semester course gives more than enough time to cover the core, plus at least two extensions, and the review of policy.

    The extensions assume knowledge of the core, but are otherwise mostly self contained. Given the choice, the order in which they are best taught is probably the order in which they are presented in the book. Starting with the study of the role of expectations is useful, for example, in understanding the interest parity condition and the nature of exchange rate crises.

    One of the choices facing instructors is likely to be whether to teach growth (the long run) or not. If growth is taught, there may not be enough time to cover all three extensions and have a thorough discussion of policy. In this case, it may be best to leave out the study of pathologies. If growth is not taught, there should be time to cover most of the other topics in the book.


I have made sure never to present a theoretical result without relating it to the real world. In addition to discussions of facts in the text itself, I have written a large number of Focus boxes, which discuss particular macroeconomic events or facts, from the United States or from around the world.

I have tried to recreate some of the student-teacher interactions that take place in the classroom by the use of Margin notes running parallel to the text. The margin notes create a dialogue with the reader, to smooth the more difficult passages, and to give a deeper understanding of the concepts and the results derived along the way.

For students who want to explore macroeconomics further, I have introduced the following two features:

  • Short appendices to some chapters, which expand on a point made within the chapter.
  • Further readings section at the end of each chapter, indicating where to find more information, including a number of key Internet addresses.

Each chapter ends with three ways of making sure that the material in the chapter has been digested:

  • A summary of the chapter's main points.
  • A list of key terms.
  • A series of end-of-chapter exercises; some easy, some harder; some requiring access to the Internet, some requiring the use of a spreadsheet program. More challenging exercises, web based or otherwise, are indicated by an asterisk.

A list of symbols on the back endpapers makes it easy to recall the meaning of the symbols used in the text.

The Teaching and Learning Package

The book comes with a number of supplements to held both students and instructors.

For Instructors

  • Instructor's Manual. Written by Mark Moore, of the University of California-Irvine, the Instructor's manual discusses pedagogical choices, alternative ways of presenting the material, and ways of reinforcing students' understanding. For each chapter in the book, the manual has 7 sections: (1) a motivating question; (II) why the answer matters; (III) key tools, concepts, and assumptions; (IV) summary; (V) pedagogy; (VI) extensions, and (VII) observations and additional exercises. The Instructor's Manual also includes the answers to all end-of-chapter questions and exercises. The Instructor's Manual is available for download.
  • Test Item File. Written by David Findlay, of Colby College, the test bank is completely revised with an all new set of short-answer, analytical questions.
  • New TestGen-EQ Software. The print Test Bank is designed for use with the TestGen-EQ test generating software. This computerized package allows instructors to custom design, save, and generate classroom tests. The test program permits instructors to edit, add, or delete questions from the test bank; edit existing graphics and create new graphics; analyze test results; and organize a database of tests and student results. This new software allows for greater flexibility and ease of use. It provides many options for organizing and displaying tests, along with a search and sort feature. The software can prepare twenty-five versions of a single test.
  • Transparency Masters. A complete set of transparency masters for all figures in the text can be downloaded. Contact your Prentice Hall representative for a password.

For Students

  • Study Guide. David Findlay, of Colby College, has once again done an outstanding job of writing a student-friendly study guide. Each chapter begins with a presentation of objectives and review. It is organized in the form of a tutorial, covering the important points of the chapter, with learning tips along the way. The tutorial is followed by quick self-test questions, review problems, and multiple-choice questions. Solutions are provided for all study guide problems.
  • Active Graph CD-ROM. This interactive student tool contains a series of active graphs created specifically for this text and corresponding to the most important figures in the book. Each graph allows the student to change the value of some variable and see the effects in the movement of the graphs. Experience indicates that using graphs in this way considerably strengthens the students' intuition and understanding of the mechanisms at work.

For Both Instructors and Students

  • Companion Web site. The Companion Web site is a content-rich, multidisciplinary Web site with Internet exercises, activities, and resources related specifically to the third edition of Macroeconomics. It includes the following features:

    The Online Study Guide, prepared by David Black of the University of Toledo, offers students another opportunity to sharpen their problem-solving skills and to assess their understanding of the text material. The Online Study Guide now contains two levels of quizzes with a total of 20 questions per chapter. The Online Study Guide grades each question submitted by the student, provides immediate feedback for correct and incorrect answers, and allows students to e-mail results to up to four email addresses.

    Current Events Articles and Exercises, related to topics in each chapter, are fully supported by group activities, critical-thinking exercises, and discussion questions. These articles, from current news publications to economics-related publications, help show students the relevance of economics in today's world.

    Internet Exercises—New Internet resources are added every two weeks by a team of economics professors to provide both the student and the instructor with the most current, up-to-date resources available.

    Syllabus Manager—For the instructor, the Companion Web site offers resources such as the answers to Current Events and Internet exercises, and a Faculty Lounge area including teaching resources and faculty chat rooms.

    Downloadable Supplements—From the Companion Web site, instructors can also download supplements and lecture aids. Instructors should contact their Prentice Hall sales representative to get the necessary username and password to access the faculty resources. The supplements include the following:

    • The PowerPoint Presentation—This lecture presentation tool, prepared by Fernando and Yvonn Quijano, offers outlines and summaries of important text material, key equations, terms, tables and graphs. Many important graphs "build" upon themselves so that students may see the step-by-step process involved in these economics activities. This tool will allow instructors to make full-color, professional-looking presentations and custom handouts to be provided to their students.

    • The Instructor's Manual

    • Transparency Masters

Online Course Offerings

  • WebCT. Developed by educators, WebCT provides faculty with easy-to-use Internet tools to create online courses. Prentice Hall provides the content and enhanced features to help instructors create a complete online course. For more information, please visit our Web site.

  • Blackboard. Easy to use, Blackboard's single template and tools make it easy to create, manage, and use online course materials. Instructors can create online courses using the Blackboard tools, which include design, communication, testing, and course management tools. For more information, please visit our Web site.

  • CourseCompass. This customizable, interactive online course management tool powered by Blackboard provides the most intuitive teaching and learning environment available. Instructor's can communicate with students, distribute course material, and access student progress online. For further information, please visit our Web site.

Subscription Options

  • The Wall Street Journal Print and Interactive Editions Subscription. Prentice Hall has formed a strategic alliance with The Wall Street Journal, the most respected and trusted daily source for information on business and economics. For schools that adopt a special package containing the book and subscription supplement, professors will receive a complimentary one year personal subscription and students will receive a 10-week subscription to The Wall Street Journal print edition and The Wall Street Journal interactive edition. As well, professors will receive a weekly subject-specific Wall Street Journal educators' lesson plans.

  • The Financial Times Subscription. We are pleased to announce a special partnership with The Financial Times. For schools that adopt a special package containing the book and subscription supplement, instructors will receive a complimentary one-year personal subscription and students will receive a 15-week print subscription. Please contact your Prentice Hall representative for details and ordering information.

  • Subscription. Through a special arrangement with, upon adoption of a book and subscription supplement package, professors will receive a six-month subscription and students will get a 12-week subscription to the online version. Please contact your Prentice Hall representative for further details and ordering information.
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