Chapter 2 outlines the microeconomics of general equilibrium with particular reference to categories of behavior relevant to macroeconomic analysis. Chapter 3 provides a theoretical foundation for public choice beginning with a positive note, May s theorem, followed by a negative one, Arrow s theorem. In its usual deterministic form, the median voter model is remarkably unstable, requiring rather implausible conditions for a political equilibrium. But in its probabilistic form it provides a more realistic theoretical foundation. The probabilistic model has a unique and stable political equilibrium under more general conditions, providing a basis for a positive theory of political economy.
Macroeconomic theory is the subject of the fourth chapter.
In recent decades the once well-established Keynesian consensus has been surprised by unexpected events, and shaken by the rise of alternative doctrines. There is even a popular book titled The Seven Schools of Macroeconomics . We do not attempt to extend these debates with new twists of theory, nor do we settle arguments about theoretical coherence. We do present the main conceptual differences of the competing models within a microeconomic framework. Our discussion emphasizes the Keynesian approach because it is the one most closely identified with activist stabilization.