We could go on, but the point should be clear: the markets in every economy are intimately interconnected. This has a critical implication for our study of macroeconomics, which is that it both complicates and enriches our comparative static analyses. When a shift in supply or demand in one market affects the equilibrium price and quantity in that market, there are changes in other markets as well. [***There is a second, more abstract implication: we have to worry about whether all the markets in the economy are in equilibrium at the same time. In our analyses, we have looked at only one market at a time. But we now know that the outcome in one market (for example, the real wage) can affect supply and demand in other markets (for example, the supply of credit). In advanced studies in economics, we use complicated mathematics to see if there are prices that are consistent with all the markets being in equilibrium at once. The bottom line is good news: we can usually be confident that there is an equilibrium for all markets. But because this is such an advanced area of economics, we do not worry about it further in this book.*** ] In this section, we show how these interactions across markets help us understand the propagation of the 2008 crisis from the US housing market to the economies of the world. We have already hinted at some of these linkages, but now we make them more explicit.
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