Macroeconomic Models

Much of the study of economics involves the use of models. How is it possible to consider the effects of a government policy upon inflation and unemployment? What is the possible impact upon an economy of a central bank raising interest rates? What happens if workers succeed with a particular wage bid? Does it matter if there is a significant increase in the money supply? All of these, and many more, macroeconomic issues are viewed through the lens of a particular macroeconomic model. Such models, simplifications of reality relying on the use of assumptions (see Chapter 1 on economic methodology), provide a framework within which it is possible to discuss pertinent issues. Without such models, analysis would be more difficult and discussion could easily end as description.