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Preface

Why read this book?

This online book has two main objectives: Firstly, it is intended to enable readers with little or no previous knowledge of economics to understand one of the most influential macroeconomic models of the last thirty years in its simple textbook version. Readers will also learn how to use an interactive version of the model (click here for a preview of what this can look like). Secondly, the book aims to develop an understanding of the fact that the assumptions of this particular model have been challenged by other schools of economic thought and that changing a few assumptions may lead to a completely different basic concept of economic policy.

To this end, we explicitly introduce two competing paradigms, the new Keynesian “new consensus” on the one hand and the post-Keynesian paradigm on the other. In addition to a basic introduction, several interactive model elements and scenarios are provided in which users can take control of the model parameters and various economic policy instruments. In the last chapter, the users are then guided through a series of interactive problems that require appropriate measures against the background of the two different macroeconomic approaches.

The project

This online book is the result of the project Model-theoretic Foundations of Controversies in Economic Policy conducted at the Institute for International Political Economy Berlin of the Berlin School of Economics and Law. The aim of this project was to develop a digital instrument for a paradigm-oriented teaching of macroeconomics at the bachelor level in order to interactively explore some basic foundations of macroeconomic controversies.

Brief overview

Part I of the online book deals with the measurement of aggregate economic activity. In particular, a brief introduction to national accounts, which form the empirical basis of macroeconomics, is given.

Part II introduces the demand side of our simple model economy. We first introduce consumption, investment and government demand as components of aggregated demand and then derive the simple income-expenditure model with the goods market equilibrium and the multiplier.

Part III deals with the supply side of the model economy. Here the relationship between labour supply, productivity and employment for a given level of aggregate demand is briefly presented and the change in the price level is discussed as a result of a distributional conflict between wages and profits.

In Part IV, the supply and the demand side are then combined to form full macroeconomic models. First, the standard textbook model of the new Keynesian “New Consensus” is presented. This model is then transformed into post-Keynesian variations through changes in assumptions. In this part, the discussion focuses on the implications for economic policy.

Acknowledgements

We would like to thank the Ministry for Culture and Science of the State of North Rhine-Westphalia for financing the project. We would also like to thank Till van Treeck from the Institute for Socio-Economics of the University of Duisburg-Essen for many inspiring and motivating suggestions. Furthermore, we are grateful to Johannes Buchner for his help in initialising the project. Additional thanks go to the Research Institute for Social Development and especially to Janina Urban. This project would not have been possible without a number of open source software packages from the R-Universe. We therefore also thank the developers of the R community. We are grateful to Anne Marie Martin and Michael Maguire for the proofreading of the English translation of the book.


Creative Commons License
The online version of this book is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0).