Key principles of macroeconomics

Taking one step back after the introduction of the development economics debates in Chapter 1, this chapter explains the main mechanisms of macroeconomics. There is a section for each of the respective issues of endogenous money, the monetary circuit, the economy of production including uncertainty and effective demand, and the profit rate. It is also shown that these issues are neglected by neoclassical theory despite their fundamental importance. The principles, based on both post-Keynesian and classical elements, are the cornerstones of the framework to which this book sticks. Their introduction is necessary to understand the essential macroeconomic dynamics. To demonstrate them, the chapter presents the basic version of the stock-flow consistent (SFC) model that will be used throughout the book. The model shows the various macroeconomic effects triggered by a simple change in the interest rate level.