ECONOMIC EXPANSIONS AND contractions (often called the business cycle) are common features in all economies around the world—no country can escape them. However, people tend to pay more attention to bad times, like recessions, than to the good times of expansions because of the pain and economic losses associated with slowdowns and recessions.

The Great Depression of the 1930s was by far the harshest recession Canada has ever endured. Life was hard as the unemployment rate rose from less than 2% to almost 20% and many Canadians had to rely on relief. From 1928 to 1930, Canada’s economic output fell 42%, from $6050 million to $3492 million. Not until 1939, more than a decade after the Depression began, was the national level of output restored to pre-Depression levels.

When the Great Depression hit the country, the federal government simply had no idea what to do. What happened during the Great Depression, and on a smaller scale on many subsequent occasions (most recently between 2008 and 2009), was a blow to the economy as a whole. In any economic environment at any given moment there are always some industries laying off workers. But workers who lose their jobs in one industry generally have a good chance of finding new jobs elsewhere, because other industries are expanding. Unfortunately, this did not hold true in the Great Depression. Every industry was headed downward.

Although we suffered greatly during the Great Depression, we learned a lot from it. Governments realized that they could and should play a more active role in smoothing out business cycles. The Bank of Canada was created in 1934 to help stabilize the banking system; the Canadian Wheat Board was established in 1935 to help wheat farmers promote their crops and stabilize their incomes. Macroeconomics came into its own as a branch of economics as a result of the Great Depression. Economists realized that to recover from the catastrophe that had overtaken Canada and most of the world, and to learn how to avoid such catastrophes in the future, they needed to understand what had happened. To this day, the effort to understand economic fluctuations, especially slumps, and to find ways to prevent them, is at the core of macroeconomics. Over time, however, the study of macroeconomics has expanded to encompass other subjects, such as long-run economic growth, inflation, and open-economy macroeconomics.

This chapter offers an overview of macroeconomics. We start with a general description of the difference between macroeconomics and microeconomics, and then we briefly describe some of the field’s major concerns.