2.2. Macroeconomics as background of microeconomics

The New Keynesian economists work on issues such as coordination problems, welfare implications under economic cycles, relevance of monetary and fiscal policies in recovering from deep cycles and supply and demand shocks. One way they work on these issues is through the use of microeconomic theory.

In addition, New Keynesians have also developed models which are performed under general equilibrium and market imperfections. Finally New Keynesians have paid attention to failures in the market. The most famous New Keynesian economist is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) Joseph Stiglitz.

2.3. Orthodox macroeconomics

Post Keynesians

A feature of post-Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment.

A loose grouping of Post Keynesians can made by splitting them into two groups: "European," including Richard Kahn, Nicholas Kaldor, Michal Kalecki and "American," including Hyman Minsky, George Shackle, Sidney Weintraub, and Paul Davidson. Minsky's theory tells about the macroeconomic dangers of speculative bubbles in asset prices. The financial crisis of 2007-2010 has brought mainstream attention to Minsky's work.

Austrian economics

Austrian economics is generally focused on microeconomics, but Friedrich Hayek combined the capital theory of Carl Menger and Ludwig von Mises's theory of money and credit to create the Austrian business cycle theory. The theory views business cycles as the consequence of excessive growth in bank credit, reinforced by ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings. The financial crisis of 2007-2010 has resulted in a revival of interest in the Austrian business cycle theory.

2.4. New tendencies of macroeconomics

New political macroeconomics

The new political macroeconomics have focused more on the effect of politically induced incentives on the inherent amount of inflation in the economic system.

Major New political macroeconomics economist is Alberto Alesina.

The renaissance of economic growth

Growth theory advanced again with the theories of economist Paul Romer in the late 1980s and early 1990s. Other important new growth theorists include Robert E. Lucas (he received the Nobel Memorial Prize in Economic Sciences in 1995) and Robert J. Barro.

This model incorporated a new concept of human capital, the skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Research done in this area has focused on what increases human capital (e.g. education) or technological change (e.g. innovation).