Macroeconomic Policies

Macroeconomics is one of the two main branches of the field of economics. It evolved during the Great Depression as an attempt to provide a plausible explanation for why the economy failed to automatically recover from the deep slump. For almost two centuries leading up to the Great Depression, classical economists had predicted the economy would automatically recover from a recession. When it failed to do so, the formulators of the new macroeconomics sought to explain why and formulate policies that would reverse both the slump in production and mounting unemployment.

According to classical economists, unemployment could persist only because wage demands of workers and labor unions, or policies of the government, kept wage rates above the market-clearing level. Classical economists concluded unemployment was a result ...