Ifanyonehadadoubtregardingtheimportanceofmacroeconomics, the?nancial andeconomiccrisisof2007-2009shouldhaverelievedhim/herofit.Furthe rmore, at times the unfolding drama and its historical background was an education in macroeconomicsinitself.Itseemedeveryonewasanxioustolearnaboutthe causes of the crisis, its turns and twists, and the possible remedies and their effecti- ness.Thisisbe?ttingsincemacroeconomics asweknowitnowwastheproduct ofanothereconomiccrisis. OnThursday, October 24, 1929 (known asBlack Thursday), thestockmarket crashed.Withinayear, thenumberofjoblessworkersclimbedtomorethanfour millionandhungryprotesterstooktothestreetsofNewYork.Thusbeganthe Great Depression, which in the course of the decades to come changed the economies ofindustrialcountries, fundamentallytransformedourvisionoftheeconomyand economicpolicy, andbroughtintoprominenceabranchofeconomicsthatin1933 RagnarFrisch christenedmacroeconomics. Overthenext80yearstheinteractionofeconomicevents, economictheory, and economicpolicyresultedinabodyofknowledgethatisanintegralpartofpo litical andeconomicdiscourseandindeedofeverydaylifeintheUnitedStatesanda round theworld.Economists, businessleaders, policymakers, andallconcernedcitizens needtobefamiliarwithmacroeconomics. Macroeconomics is best understood in a historical context. The book offers an introduction to macroeconomic theory and policy as they relate to events and developments of thepast 80years. The United States economy and its?scal and monetarypoliciesarethemainconcerns, butbecausetheUnitedStateseconomy andworldeconomiesareintertwined, thestoriesoftheirinteractionswillalsobe recounted. Let me emphasize that the book is neither an economic history of the United States nor a history of economic thought. The purpose of this book is to teach macroeconomicsinthecontextofactualeventsandwithemphasisontherela ti- shipsbetweenmacroeconomictheoryandpolicy. Students of economics, professional economists, and the interested public are the target audience. The book can be used as the main text or a supplement in advancedundergraduateandbeginninggraduatecoursesinmacroeconomics .P- fessionaleconomistsmay?nditausefulreference.Thebookisnotintended for vii viii Contents readerswithnobackgroundineconomics.Butanyonewhoisreadytoexpendth e effortandisnotputoffbyoccasionalequationscouldbene?tfromreadingi t. IwouldliketothankSpringer-VerlageditorsBarbaraFessandChristianeB eisel for their help, support, and understanding during the writing of this book. I also wouldliketothankAnnaDittrichofSpringer-VerlagandSaranyaBaskarand her colleagues at Integra for their excellent work in producing the book. Colleagues, friends, and students helped with their comments and questions. In particular I would like to thank Neil Alper, Oscar Brookins, William Dickens, Tess Forsell, AmaritaNattwhoreadallorlargepartsofthebookandmadeextensivesugges tions andcorrections.MythanksalsogoestoAndrewSumandMariaLuengo-Pradowh o madeusefulcomments.StudentsinmygraduatemacroeconomicsclassYuanGa o (Highfar), EmilyHalle, YelenaKuznetsov, AliciaParillo, andBrianSiebendetected errorsandmadesuggestionsforimprovement.