[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Chapter 21
MACROECONOMICS
AND THE
ECONOMIC
PERSPECTIVE
∂
Macroeconomics is the study of the overall economy—not the study of
employment levels and prices in a particular industry but the study of
total employment and unemployment and the general level of prices
throughout the economy. It is also concerned with the effects on the overall economy
of government policies. Macroeconomics deals with the aggregate economy. To
begin to get a sense of the field of macroeconomics, it is useful to start with a brief
history of the macroeconomy. The episodes described in this brief history have been
important in shaping the field of macroeconomics, and we will use them throughout
the following chapters to illustrate macroeconomic topics.
Imagine the world in 1929, three-quarters of a century ago. The stock market
was booming, and no end to the good times was in sight. True, some commentators
were saying the market was overvalued, that a crash was sure to come, but most
investors were optimistic about the future. Unemployment was low, and the
general level of prices was stable.
Only one year later, the world had changed forever. The October 1929 stock
market crash wiped out almost a quarter of the value of the New York stock market;
similar crashes occurred in other countries. The Dow industrial average (the precursor
of today’s Dow Jones industrial average, a measure of stock market prices),
which had hit a high of 381 in September 1929, fell to 41 in July 1932. Unemployment
rose to previously unseen levels throughout the world economy. By 1933, one of every
four workers in the United States was unemployed. The United States and other
industrialized economies still had the same buildings, plants, and equipment as
before, the same labor force was available and apparently willing to work, yet many
of these resources lay idle. This period, the 1930s—now indelibly linked with hardship
and depressed economic conditions—is commonly called the Great Depression.
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