This book has six parts. This chapter and the next make up Part One, the “Introduction.” Chapter 2 discusses how economists measure economic variables, such as aggregate income, the inflation rate, and the unemployment rate.

Part Two, “Classical Theory: The Economy in the Long Run,” presents the classical model of how the economy works. The key assumption of the classical model is that prices are flexible. That is, with rare exceptions, the classical model assumes that markets clear. The assumption of price flexibility greatly simplifies the analysis, which is why we start with it. Yet because this assumption accurately describes the economy only in the long run, classical theory is best suited for analyzing a time horizon of at least several years.

Part Three, “Growth Theory: The Economy in the Very Long Run,” builds on the classical model. It maintains the assumptions of price flexibility and market clearing but adds a new emphasis on growth in the capital stock, the labor force, and technological knowledge. Growth theory is designed to explain how the economy evolves over a period of several decades.

Part Four, “Business Cycle Theory: The Economy in the Short Run,” examines the behavior of the economy when prices are sticky. The non-market-clearing model developed here is designed to analyze short-run issues, such as the reasons for economic fluctuations and the influence of government policy on those fluctuations. It is best suited for analyzing the changes in the economy we observe from month to month or from year to year.

The last two parts of the book cover various topics to supplement, reinforce, and refine our long-run and short-run analyses. Part Five, “Topics in Macroeconomic Theory,” presents advanced material of a somewhat theoretical nature, including macroeconomic dynamics, models of consumer behavior, and theories of firms’ investment decisions. Part Six, “Topics in Macroeconomic Policy,” considers what role the government should have in the economy. It discusses the policy debates over stabilization policy, government debt, and financial crises.

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