An economist must be “mathematician, historian, statesman, philosopher, in some degree … as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.” So remarked John Maynard Keynes, the great British economist who, as much as anyone, could be called the father of macroeconomics. No single statement summarizes better what it means to be an economist.

As Keynes’s assessment suggests, students who aim to learn economics need to draw on many disparate talents. The job of helping students find and develop these talents falls to instructors and textbook authors. My goal for this textbook is to make macroeconomics understandable, relevant, and (believe it or not) fun. Those of us who have chosen to be professional macroeconomists have done so because we are fascinated by the field. More important, we believe that the study of macroeconomics can illuminate much about the world and that the lessons learned, if properly applied, can make the world a better place. I hope this book conveys not only our profession’s accumulated wisdom but also its enthusiasm and sense of purpose.

Macroeconomists share a common body of knowledge, but they do not all have the same perspective on how that knowledge is best taught. Let me begin this new edition by recapping my objectives, which together define this book’s approach to the field.

First, I try to offer a balance between short-run and long-run issues in macroeconomics. All economists agree that public policies and other events influence the economy over different time horizons. We live in our own short run, but we also live in the long run that our parents bequeathed us. As a result, courses in macroeconomics need to cover both short-run topics, such as the business cycle and stabilization policy, and long-run topics, such as economic growth, the natural rate of unemployment, persistent inflation, and the effects of government debt. Neither time horizon trumps the other.

Second, I integrate the insights of Keynesian and classical theories. Although Keynes’s General Theory provides the foundation for much of our current understanding of economic fluctuations, it is important to remember that classical economics provides the right answers to many fundamental questions. In this book I incorporate many of the contributions of the classical economists before Keynes and the new classical economists of the past several decades. Substantial coverage is given, for example, to the loanable-funds theory of the interest rate, the quantity theory of money, and the problem of time inconsistency. At the same time, I recognize that many of the ideas of Keynes and the new Keynesians are necessary for understanding economic fluctuations. Substantial coverage is given also to the IS–LM model of aggregate demand, the short-run tradeoff between inflation and unemployment, and modern models of business cycle dynamics.

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Third, I present macroeconomics using a variety of simple models. Instead of pretending that there is one model that is complete enough to explain all facets of the economy, I encourage students to learn how to use and compare a set of prominent models. This approach has the pedagogical value that each model can be kept relatively simple and presented within one or two chapters. More important, this approach asks students to think like economists, who always keep various models in mind when analyzing economic events or public policies.

Fourth, I emphasize that macroeconomics is an empirical discipline, motivated and guided by a wide array of experience. This book contains numerous Case Studies that use macroeconomic theory to shed light on real-world data and events. To highlight the broad applicability of the basic theory, I have drawn the Case Studies both from current issues facing the world’s economies and from dramatic historical episodes. The Case Studies analyze the policies of Alexander Hamilton, Henry Ford, George Bush (both of them!), and Barack Obama. They teach the reader how to apply economic principles to issues from fourteenth-century Europe, the island of Yap, the land of Oz, and today’s newspaper.

Economics instructors are vigilant in keeping their lectures up to date as the economic landscape changes. Textbook authors cannot be less so. This book is therefore updated about every three years. In this ninth edition, you will find several kinds of changes.

Most obviously, tables and figures throughout the book have been revised to include the latest available data. College students take courses in economics to understand the world in which they live. It is important, therefore, that the data presented be as current as possible.

The book has also been updated to take into account recent events and economic developments. For example:

In 2013, the Bureau of Economic Analysis revised the definition of GDP to include investment in intellectual property products; a new section in Chapter 2 discusses the change.

Over the past few years, Bitcoin has arisen as a modern medium of exchange; a new box in Chapter 4 examines this unusual form of money.

Between 2007 and 2014, the U.S. economy experienced a large decline in labor-force participation; a new case study in Chapter 7 examines the reasons for this development.

In 2014, U.S. policymakers were concerned about the increasing frequency of corporate inversions; a new case study in Chapter 17 discusses the policy debate over inversions and corporate tax reform.

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In the wake of the financial crisis of 2008–2009, policymakers are increasingly taking a more macroeconomic perspective on regulating financial institutions; a new section in Chapter 20 discusses macroprudential regulation.

In addition, the book reflects the evolution of macroeconomic thought based on recent research. For example:

A new case study in Chapter 9 discusses work by Nicholas Bloom and John Van Reenen on management practices as a source of productivity differences.

A new case study in Chapter 11 examines research by Emi Nakamura, Jón Steinsson, and others on the size of the fiscal-policy multipliers.

A new case study in Chapter 18 discusses work by Scott Baker, Nicholas Bloom, and Steven Davis on economic policy uncertainty.

Perhaps most important, this edition includes a significant pedagogical innovation. In most of the core chapters, some end-of-chapter problems are identified with this icon: . For these problems, students can go to LaunchPad to find a Work It Out tutorial for a similar problem. Because the Work It Out has a similar structure to the in-text problem, it is a resource for students to learn how to tackle the in-text problem. But because the Work It Out has different numbers and thus a different answer, the in-text problem can still be used as assigned homework. The Work It Out tutorials can be found at http://www.macmillanhighered.com/launchpad/mankiw9e.

Finally, very careful readers of this book will notice a subtle change in the use of pronouns. A nagging problem for authors is which pronoun to use for a person of unspecified gender. The traditional “he” sounds sexist to some modern readers, while “he or she” is cumbersome. So, in this edition, I use “she” in odd-numbered chapters and “he” in even-numbered chapters. That will have to do, until we all adopt some more perfect language.

As always, all the changes I made and the many others I considered were evaluated keeping in mind the benefits of brevity. From my own experience as a student, I know that long books are less likely to be read. My goal in this book is to offer the clearest, most up-to-date, most accessible course in macroeconomics in the fewest words possible.

My strategy for teaching macroeconomics is first to examine the long run, when prices are flexible, and then to examine the short run, when prices are sticky. This approach has several advantages. First, because the classical dichotomy permits the separation of real and monetary issues, the long-run material is easier for students to understand. Second, when students begin studying short-run fluctuations, they understand fully the long-run equilibrium around which the economy is fluctuating. Third, beginning with market-clearing models clarifies the link between macroeconomics and microeconomics. Fourth, students learn first the material that is less controversial among macroeconomists. For all these reasons, the strategy of beginning with long-run classical models simplifies the teaching of macroeconomics.

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Let’s now move from strategy to tactics. What follows is a whirlwind tour of the book.

Part One, IntroductionThe introductory material in Part One is brief so that students can get to the core topics quickly. Chapter 1 discusses the broad questions that macroeconomists address and the economist’s approach of building models to explain the world. Chapter 2 introduces the key data of macroeconomics, emphasizing gross domestic product, the consumer price index, and the unemployment rate.

Part Two, Classical Theory: The Economy in the Long RunPart Two examines the long run, over which prices are flexible. Chapter 3 presents the basic classical model of national income. In this model, the factors of production and the production technology determine the level of income, and the marginal products of the factors determine its distribution to households. In addition, the model shows how fiscal policy influences the allocation of the economy’s resources among consumption, investment, and government purchases, and it highlights how the real interest rate equilibrates the supply and demand for goods and services.

Money and the price level are introduced next. Chapter 4 examines the monetary system and the tools of monetary policy. Chapter 5 begins the discussion of the effects of monetary policy. Because prices are assumed to be fully flexible, the chapter presents the prominent ideas of classical monetary theory: the quantity theory of money, the inflation tax, the Fisher effect, the social costs of inflation, and the causes and costs of hyperinflation.

The study of open-economy macroeconomics begins in Chapter 6. Maintaining the assumption of full employment, this chapter presents models to explain the trade balance and the exchange rate. Various policy issues are addressed: the relationship between the budget deficit and the trade deficit, the macroeconomic impact of protectionist trade policies, and the effect of monetary policy on the value of a currency in the market for foreign exchange.

Chapter 7 relaxes the assumption of full employment by discussing the dynamics of the labor market and the natural rate of unemployment. It examines various causes of unemployment, including job search, minimum-wage laws, union power, and efficiency wages. It also presents some important facts about patterns of unemployment.

Part Three, Growth Theory: The Economy in the Very Long RunPart Three makes the classical analysis of the economy dynamic by developing the tools of modern growth theory. Chapter 8 introduces the Solow growth model as a description of how the economy evolves over time. This chapter emphasizes the roles of capital accumulation and population growth. Chapter 9 then adds technological progress to the Solow model. It uses the model to discuss growth experiences around the world as well as public policies that influence the level and growth of the standard of living. Finally, Chapter 9 introduces students to the modern theories of endogenous growth.

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Part Four, Business Cycle Theory: The Economy in the Short RunPart Four examines the short run when prices are sticky. It begins in Chapter 10 by examining some of the key facts that describe short-run fluctuations in economic activity. The chapter then introduces the model of aggregate supply and aggregate demand as well as the role of stabilization policy. Subsequent chapters refine the ideas introduced in this chapter.

Chapter 11 and Chapter 12 look more closely at aggregate demand. Chapter 11 presents the Keynesian cross and the theory of liquidity preference and uses these models as building blocks for developing the IS–LM model. Chapter 12 uses the IS–LM model to explain economic fluctuations and the aggregate demand curve. It concludes with an extended case study of the Great Depression.

The study of short-run fluctuations continues in Chapter 13, which focuses on aggregate demand in an open economy. This chapter presents the Mundell– Fleming model and shows how monetary and fiscal policies affect the economy under floating and fixed exchange-rate systems. It also discusses the debate over whether exchange rates should be floating or fixed.

Chapter 14 looks more closely at aggregate supply. It examines various approaches to explaining the short-run aggregate supply curve and discusses the short-run tradeoff between inflation and unemployment.

Part Five, Topics in Macroeconomic TheoryAfter developing basic theories to explain the economy in the long run and in the short run, the book turns to several topics that refine our understanding of the economy. Part Five focuses on theoretical topics, and Part Six focuses on policy topics. These chapters are written to be used flexibly, so instructors can pick and choose which topics to cover. Some of these chapters can also be covered earlier in the course, depending on the instructor’s preferences.

Chapter 15 develops a dynamic model of aggregate demand and aggregate supply. It builds on ideas that students have already encountered and uses those ideas as stepping-stones to take the student close to the frontier of knowledge concerning short-run economic fluctuations. The model presented here is a simplified version of modern dynamic, stochastic, general equilibrium (DSGE) models.

The next two chapters analyze more fully some of the microeconomic decisions behind macroeconomic phenomena. Chapter 16 presents the various theories of consumer behavior, including the Keynesian consumption function, Fisher’s model of intertemporal choice, Modigliani’s life-cycle hypothesis, Friedman’s permanent-income hypothesis, Hall’s random-walk hypothesis, and Laibson’s model of instant gratification. Chapter 17 examines the theory behind the investment function.

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Part Six, Topics in Macroeconomic PolicyOnce students have solid command of standard macroeconomic models, the book uses these models as the foundation for discussing some of the key debates over economic policy. Chapter 18 considers the debate over how policymakers should respond to short-run economic fluctuations. It emphasizes two broad questions: Should monetary and fiscal policy be active or passive? Should policy be conducted by rule or by discretion? The chapter presents arguments on both sides of these questions.

Chapter 19 focuses on the various debates over government debt and budget deficits. It gives a broad picture about the magnitude of government indebtedness, discusses why measuring budget deficits is not always straightforward, recaps the traditional view of the effects of government debt, presents Ricardian equivalence as an alternative view, and discusses various other perspectives on government debt. As in the previous chapter, students are not handed conclusions but are given the tools to evaluate the alternative viewpoints on their own.

Chapter 20 discusses the financial system and its linkages to the overall economy. It begins by examining what the financial system does: financing investment, sharing risk, dealing with asymmetric information, and fostering economic growth. It then discusses the causes of financial crises, their macroeconomic impact, and the policies that might mitigate their effects and reduce their likelihood.

EpilogueThe book ends with a brief epilogue that reviews the broad lessons about which most macroeconomists agree and discusses some of the most important open questions. Regardless of which chapters an instructor chooses to cover, this capstone chapter can be used to remind students how the many models and themes of macroeconomics relate to one another. Here and throughout the book, I emphasize that despite the disagreements among macroeconomists, there is much that we know about how the economy works.

Although I have organized the material in the way that I prefer to teach intermediate-level macroeconomics, I understand that other instructors have different preferences. I tried to keep this in mind as I wrote the book so that it would offer a degree of flexibility. Here are a few ways that instructors might consider rearranging the material:

Some instructors are eager to cover short-run economic fluctuations. For such a course, I recommend covering Chapters 1 through 5 so that students are grounded in the basics of classical theory and then jumping to Chapters 10, 11, 12, 14, and 15 to cover the model of aggregate demand and aggregate supply.

Some instructors are eager to cover long-run economic growth. These instructors can cover Chapter 8 and Chapter 9 immediately after Chapter 3.

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An instructor who wants to defer (or even skip) open-economy macroeconomics can put off Chapter 6 and Chapter 13 without loss of continuity.

An instructor who wants to emphasize economic policy can skip Chapters 8, 9, 15, 16, and 17 in order to get to Chapters 18, 19, and 20 more quickly.

The successful experiences of hundreds of instructors with previous editions suggest this text complements well a variety of approaches to the field.

I am pleased that students have found the previous editions of this book user-friendly. I have tried to make this ninth edition even more so. I am most excited about the parallel problems that students can see in LaunchPad’s Work It Out feature.

Case StudiesEconomics comes to life when it is applied to understanding actual events. Therefore, the numerous Case Studies (many new or revised in this edition) are an important learning tool, integrated closely with the theoretical material presented in each chapter. The frequency with which these Case Studies occur ensures that a student does not have to grapple with an overdose of theory before seeing the theory applied. Students report that the Case Studies are their favorite part of the book.

FYI BoxesThese boxes present ancillary material “for your information.” I use these boxes to clarify difficult concepts, to provide additional information about the tools of economics, and to show how economics relates to our daily lives. Several are new or revised in this edition.

GraphsUnderstanding graphical analysis is a key part of learning macroeconomics, and I have worked hard to make the figures easy to follow. I often use comment boxes within figures to briefly describe and draw attention to the important points that the figures illustrate. The pedagogical use of color, detailed captions, and comment boxes makes it easier for students to learn and review the material.

Mathematical NotesI use occasional mathematical footnotes to keep more difficult material out of the body of the text. These notes make an argument more rigorous or present a proof of a mathematical result. They can easily be skipped by those students who have not been introduced to the necessary mathematical tools.

Chapter SummariesEvery chapter ends with a brief, nontechnical summary of its major lessons. Students can use the summaries to place the material in perspective and to review for exams.

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Key ConceptsLearning the language of a field is a major part of any course. Within the chapter, each key concept is in boldface when it is introduced. At the end of the chapter, the key concepts are listed for review.

Questions for ReviewAfter studying a chapter, students can immediately test their understanding of its basic lessons by answering the Questions for Review.

Problems and ApplicationsEvery chapter includes Problems and Applications designed for homework assignments. Some are numerical applications of the theory in the chapter. Others encourage the student to go beyond the material in the chapter by addressing new issues that are closely related to the chapter topics. In most of the core chapters, a few problems are identified with this icon: . For each of these problems, students can find a Work It Out tutorial on LaunchPad for Macroeconomics, Ninth Edition: http://www.macmillanhighered.com/launchpad/mankiw9e.

Chapter AppendicesSeveral chapters include appendices that offer additional material, sometimes at a higher level of mathematical sophistication. These appendices are designed so that instructors can cover certain topics in greater depth if they wish. The appendices can be skipped altogether without loss of continuity.

GlossaryTo help students become familiar with the language of macroeconomics, a glossary of more than 250 terms is provided at the back of the book.

International EditionsThe English-language version of this book has been used in dozens of countries. To make the book more accessible for students around the world, editions are (or will soon be) available in 15 other languages: Armenian, Chinese, French, German, Greek, Hungarian, Indonesian, Italian, Japanese, Korean, Portuguese, Romanian, Russian, Spanish, and Ukrainian. In addition, a Canadian adaptation coauthored with William Scarth (McMaster University) and a European adaptation coauthored with Mark Taylor (University of Warwick) are available. Instructors who would like information about these versions of the book should contact Worth Publishers.

Since I started writing the first edition of this book, I have benefited from the input of many reviewers and colleagues in the economics profession. Now that the book is in its ninth edition, these people are too numerous to list in their entirety. However, I continue to be grateful for their willingness to have given up their scarce time to help me improve the economics and pedagogy of this text. Their advice has made this book a better teaching tool for hundreds of thousands of students around the world.

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I would like to mention the instructors whose recent input shaped this new edition.

Dale Deboer
University of Colorado–Colorado Springs

Brian Dempsey
Syracuse University

Reid Click
George Washington University

Alex Gialanella
Fordham University

William Hauk
University of South Carolina

Paul Johnson
Vassar College

Bryce Kanago
University of Northern Iowa

John Keating
University of Kansas

Sukanya Kemp
University of Akron

Mikhail Melnik
Southern Polytechnic State University

Carlos Liard-Muriente
Central Connecticut State University

Robert Murphy
Boston College

John Neri
University of Maryland

Jasminka Ninkovic
Emory University

Andrew Paizis
New York University

Benjamin Russo
University of North Carolina– Charlotte

Mikael Sandberg
Flagler College

David Spencer
Brigham Young University

Liliana Stern
Auburn University

Henry Terrell
George Washington University

A special shout-out goes to my frequent collaborator Ricardo Reis of Columbia University. Ricardo was enormously helpful in suggesting new topics and research references for this edition. In addition, I am grateful to Tina Liu, a student at Harvard, who helped me update the data, refine my prose, and proofread the entire book.

The people at Worth Publishers have continued to be congenial and dedicated. I would like to thank Catherine Woods, Vice President, Content Management, and Media Production; Charles Linsmeier, Vice President, Editorial, Sciences, and Social Sciences; Shani Fisher, Publisher; Tom Digiano, Marketing Manager; Paul Shensa, Consulting Editor; Tom Acox, Digital Solutions Manager; Lukia Kliossis, Media Editor; Lisa Kinne, Managing Editor; Tracey Kuehn, Director, Content Management Enhancement; Julio Espin, Project Editor; Paul Rohloff, Senior Production Supervisor; Barbara Seixas, Production Manager; Diana Blume, Director of Design, Content Management; Deborah Heimann, Copyeditor; Edgar Doolan, Supplements Project Editor; and Stacey Alexander, Supplements Production Manager.

Many other people made valuable contributions as well. Most important, Jane Tufts, freelance developmental editor, worked her magic on this book once again, confirming that she’s the best in the business. Alexandra Nickerson did a great job preparing the index. Deborah Mankiw, my wife and in-house editor, continued to be the first reader of new material, providing the right mix of criticism and encouragement.

Finally, I would like to thank my three children, Catherine, Nicholas, and Peter. They helped immensely with this revision—both by providing a pleasant distraction and by reminding me that textbooks are written for the next generation.

March 2015

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