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 modem 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 policyresearch projects at universities and central banks around the world. This view evolved gradually since the rational-expectations revolution of the 1970's and has solidified during the 1990's. It differs from past views, and it explains the growth and fluctuations of the modern economy; it can thus be said to represent a modem view of macroeconomics.1 The purpose of this paper is to show how this modem macroeconomics can be taught at the Principles level. I focus on macroeconomic concepts (including economic growth and fluctuations) and their graphical representation rather than on techniques of delivery, whether active learning, experiments, or the use of new media.2 The teaching ideas are similar to those used by David Romer (2000) and Taylor (1998), but the purpose of this paper is to show how closely they represent modern macroeconomics.