By William Baumol, 1967.
The justification of a macroeconomic model should reside primarily in its ability to provide insights into the workings of observed phenomena. Its aggregation of diverse variables usually deny it the elegance and the rigor that are provided by microeconomic analysis at its best. Yet macromodels have succeeded in explaining the structure of practical problems and in offering guidance for policy to a degree that has so far eluded the more painstaking modes of economic analysis. This article hopes to follow in the tradition-the structure of its basic model is rudimentary. Yet it can perhaps shed some light on a variety of economic problems of our generation.
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