Scarcely a day goes by without at least one media report on the country’s economic prospects or performance. Releases by Statistics New Zealand of their latest figure for gross domestic product, the consumer price index, surveyed unemployment or the balance of payments current account deficit often make the front page of the daily newspapers. A swarm of journalists attend the quarterly monetary policy statements of the governor of the Reserve Bank. Changes in key interest rates and exchange rates are reported on the television news every weeknight. The delivery of the budget speech to Parliament is a major event each year for the government of the day.

It is easy to understand this intense interest. The state of the economy affects our lives in a host of ways. Our standard of living and ability to find a good job depends on growth and the level of unemployment. Inflation affects what we can afford to buy with our regular income. Policy decisions by the government and the Reserve Bank influence tertiary fees paid by students and the interest rate payable on student loans or home mortgages. A fall in the exchange rate increases the cost of imported textbooks, but also reduces the cost of New Zealand education for overseas students.

Hence it is no surprise that debates about economic management, including arguments about whether taxes are too high or public spending too low, usually lie at the heart of election campaigns. Nor is it always simple self-interest that motivates these debates. From its beginnings as a separate academic subject, the discipline of economics has been concerned with the problem of how to reduce poverty and minimise social exclusion. This remains a burning issue for citizens concerned about equal opportunity in our society and global justice between poor and rich countries.

Macroeconomics is the branch of economics that studies these issues. It explores the complex relationships among the key variables of national economies and of the global economy itself. Macroeconomics has several objectives: to identify and measure the important factors affecting the economy; to construct models explaining how these factors precisely have their influence; to design institutions and policies that will improve economic performance and raise living standards; and to evaluate the success of our models and policies so that we constantly improve our understanding of the way economies work.

This book is a New Zealand adaptation of a textbook written by one of the world’s leading economists in the United States. The adaptation integrates the very latest macroeconomic theories and models from Professor Taylor’s text with a deep appreciation of New Zealand’s own particular history, institutions and data. In this book, Taylor’s models (especially his innovative and insightful model of inflation and output, which replaces the conventional aggregate supply and demand model) are not simply applied to New Zealand, but are carefully derived, step by step, using New Zealand data and experience.

Principles of Macroeconomics – New Zealand Edition falls into four parts. Part 1 deals with basic concepts of macroeconomics and how consumers, firms and the government behave in a market economy. Part 2 introduces the main concepts used in macroeconomics and how they are measured. It explains the long-run determinants of output (especially labour, capital and technology), and analyses the role of the monetary sector and how uncontrolled changes in monetary variables can produce inflation. Part 3 explains short-run economic fluctuations and how recessions start and end. It also examines macroeconomic policy, including fiscal policy, monetary policy and exchange rate policy.