Teaching Modern Macroeconomics at the Principles Level

Ideas taught at the macroeconomics principles level should satisfy two goals. First, they should be simple enough to be both understandable and memorable for the beginning student. Second, they should be consistent both with the modern economy and with the macroeconomic models of this economy that are used in practice for policy evaluation. There is no necessary conflict between these two goals. The greater the consistency between the ideas taught in the classroom and the models used in practice, the easier the ideas are to understand and the worthier they are of being remembered. It would be an exaggeration to say that a consensus now exists in advanced research about how macroeconomics should evolve in the future. Debates continue, for example, about the usefulness of models with representative agents or what it means to have a fully articulated model of money. Nevertheless, at the practical level, a common view of macroeconomics is now pervasive in policy research projects at universities and central banks around the world. This view evolved gradually since the rational expectations revolution of the1970s and has solidified during the 1990s. It differs from past views, and it explains the growth and fluctuations of the modern economy; it can