Frameworks and Policy Tools

Frameworks

As you learn in the micro part of this book, principal tools used by economists are theories and models (see Introduction to Economics for more on this). In microeconomics, we used the theories of supply and demand; in macroeconomics, we use the theories of aggregate demand (AD) and aggregate supply (AS). This book presents two perspectives on macroeconomics: the Neoclassical perspective and the Keynesian perspective, each of which has its own version of AD and AS. Between the two perspectives, you will obtain a good understanding of what drives the macroeconomy.

Policy Tools

National governments have two tools for influencing the macroeconomy. The first is monetary policy, which involves managing the money supply and interest rates. The second is fiscal policy, which involves changes in government spending/purchases and taxes.

Each of the items in this figure will be explained in detail in one or more other tutorials. As you learn these things, you will discover that the goals and the policy tools are in the news almost every day.