Economics

Cover
Title Page
Copyright Page
About the Author
Preface
Brief Contents
Contents
PART I INTRODUCTION: THINKING LIKE AN ECONOMIST
	1 Economics and Economic Reasoning
		What Economics Is
			Scarcity
			Microeconomics and Macroeconomics
		A Guide to Economic Reasoning
			Marginal Costs and Marginal Benefits
			The Economic Decision Rule
			Economics and Passion
			Opportunity Cost
		Economic Forces, Social Forces, and Political Forces
			Economic and Market Forces
			Social and Political Forces
		Using Economic Insights
			The Invisible Hand Theorem
			Economic Theory and Stories
			Economic Institutions
		Economic Policy Options
			Objective Policy Analysis
			Policy and Social and Political Forces
		Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
	2 The Production Possibility Model, Trade, and Globalization
		The Production Possibilities Model
			A Production Possibility Curve for an Individual
			Increasing Opportunity Costs of the Trade-off
		Comparative Advantage
			Efficiency
			Distribution and Productive Efficiency
			Examples of Shifts in the PPC
		Trade and Comparative Advantage
			Markets, Specialization, and Growth
			The Benefits of Trade
		Globalization and the Law of One Price
			Globalization
			Exchange Rates and Comparative Advantage
			The Law of One Price
			Globalization and the Timing of Benefits of Trade
		Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
		Appendix: Graphish: The Language of Graphs
	3 Economic Institutions
		Economic Systems
			How Markets Work
			What's Good about the Market?
			Capitalism and Socialism
		Economic Institutions in a Market Economy
			Business
			Households
		The Roles of Government
			Government as an Actor
			Government as a Referee
			Specific Roles for Government
			Market Failures and Government Failures
		Global Institutions
			Global Corporations
			Coordinating Global Issues
		Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
		Appendix: The History of Economic Systems
	4 Supply and Demand
		Demand
			The Law of Demand
			The Demand Curve
			Shifts in Demand versus Movements along a Demand Curve
			Some Shift Factors of Demand
			The Demand Table
			From a Demand Table to a Demand Curve
			Individual and Market Demand Curves
		Supply
			The Law of Supply
			The Supply Curve
			Shifts in Supply versus Movements along a Supply Curve
			Shift Factors of Supply
			The Supply Table
			From a Supply Table to a Supply Curve
			Individual and Market Supply Curves
		The Interaction of Supply and Demand
			Equilibrium
			The Graphical Interaction of Supply and Demand
			What Equilibrium Isn't
			Political and Social Forces and Equilibrium
			Shifts in Supply and Demand
		A Limitation of Supply/Demand Analysis
		Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
	5 Using Supply and Demand
		Real-World Supply and Demand Applications
		Government Intervention: Price Ceilings and Price Floors
			Price Ceilings
			Price Floors
		Government Intervention: Excise Taxes and Tariffs
		Government Intervention: Quantity Restrictions
		Third-Party-Payer Markets
		Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
		Appendix: Algebraic Representation of Supply, Demand, and Equilibrium
PART II MICROECONOMICS
	SECTION I THE POWER OF TRADITIONAL ECONOMIC MODELS
		6 Describing Supply and Demand: Elasticities
			Price Elasticity
				What Information Price Elasticity Provides
				Classifying Demand and Supply as Elastic or Inelastic
				Elasticity Is Independent of Units
				Calculating Elasticities
				Other Examples
				Elasticity Is Not the Same as Slope
				Five Terms to Describe Elasticity
			Substitution and Elasticity
				Substitution and Demand
				How Substitution Factors Affect Specific Decisions
			Elasticity, Total Revenue, and Demand
				Total Revenue along a Demand Curve
			Income and Cross-Price Elasticity
				Income Elasticity of Demand
				Cross-Price Elasticity of Demand
				Some Examples
			The Power of Supply/Demand Analysis
				When Should a Supplier Not Raise Price?
				Elasticity and Shifting Supply and Demand
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		7 Taxation and Government Intervention
			Producer and Consumer Surplus
			Burden of Taxation
				Who Bears the Burden of a Tax?
				Tax Incidence and Current Policy Debates
			Government Intervention as Implicit Taxation
				Price Ceilings and Floors
				The Difference between Taxes and Price Controls
			Rent Seeking, Politics, and Elasticities
				Inelastic Demand and Incentives to Restrict Supply
				Inelastic Supplies and Incentives to Restrict Prices
				The Long-Run/Short-Run Problem of Price Controls
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		8 Market Failure versus Government Failure
			Externalities
				A Negative Externality Example
				A Positive Externality Example
			Alternative Methods of Dealing with Externalities
				Direct Regulation
				Incentive Policies
				Voluntary Reductions
				The Optimal Policy
			Public Goods
				The Market Value of a Public Good
				Excludability and the Costs of Pricing
			Informational and Moral Hazard Problems
				Signaling and Screening
				Policies to Deal with Informational Problems
			Government Failure and Market Failures
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		8W Politics and Economics: The Case of Agricultural Markets and 8W-1
			The Good/Bad Paradox in Agriculture
				The Long-Run Decline of Farming
				The Short-Run Cyclical Problem Facing Farmers
				The Difficulty of Coordination Farm Production
				Ways around the Good/Bad Paradox
				The General Rule of Political Economy
			Four Price Support Options
				Supporting the Price by Regulatory Measures
				Providing Economic Incentives to Reduce Supply
				Subsidizing the Sale of the Good
				Buying Up and Storing, Giving Away, or Destroying the Good
				Which Groups Prefers Which Option?
			Economics, Politics, and Real-World Policies
				Interest Groups
				International Issues
			Conclusion
			Summary
			Key Terms
			Questions and Exercises
			Questions from Alternative Perspectives
			Issues to Ponder
			Answers to Margin Questions
	SECTION II INTERNATIONAL ECONOMIC POLICY ISSUES
		9 Comparative Advantage, Exchange Rates, and Globalization
			The Principle of Comparative Advantage
				The Gains from Trade
				Dividing Up the Gains from Trade
			Why Economists and Laypeople Differ in Their Views of Trade
				Gains Are Often Stealth
				Opportunity Cost Is Relative
				Trade Is Broader Than Manufactured Goods
				Trade Has Distributional Effects
			Sources of U.S. Comparative Advantage
				Some Concerns about the Future
				Inherent and Transferable Sources of Comparative Advantages
				The Law of One Price
				How the United States Gained and Is Now Losing Sources of Comparative Advantage
				Methods of Equalizing Trade Balances
			Determination of Exchange Rates and Trade
				Exchange Rates and Trade
				Some Complications in Exchange Rates
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		10 International Trade Policy
			The Nature and Patterns of Trade
				Increasing but Fluctuating World Trade
				Differences in the Importance of Trade
				What and with Whom the United States Trades
				Debtor and Creditor Nations
			Varieties of Trade Restrictions
				Tariffs and Quotas
				Voluntary Restraint Agreements
				Embargoes
				Regulatory Trade Restrictions
				Nationalistic Appeals and "Buy Domestic" Requirements
			Reasons for Trade Restrictions
				Unequal Internal Distribution of the Gains from Trade
				Haggling by Companies over the Gains from Trade
				Haggling by Countries over Trade Restrictions
				Specialized Production
				Macroeconomic Costs of Trade
				National Security
				International Politics
				Increased Revenue Brought in by Tariffs
				Why Economists Generally Oppose Trade Restrictions
			Institutions Supporting Free Trade
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION III PRODUCTION AND COST ANALYSIS
		11 Production and Cost Analysis I
			The Role of the Firm
				Firms Maximize Profit
				The Difference between Economists' Profits and Accountants' Profits
			The Production Process
				The Long Run and the Short Run
				Production Tables and Production Functions
				The Law of Diminishing Marginal Productivity
			The Costs of Production
				Fixed Costs, Variable Costs, and Total Costs
				Average Costs
				Marginal Cost
			Graphing Cost Curves
				Total Cost Curves
				Average and Marginal Cost Curves
			Intermission
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		12 Production and Cost Analysis II
			Technical Efficiency and Economic Efficiency
			The Shape of the Long-Run Cost Curve
				Economies of Scale
				Diseconomies of Scale
				Constant Returns to Scale
				The Importance of Economies and Diseconomies of Scale
				Envelope Relationship
			Entrepreneurial Activity and the Supply Decision
			Using Cost Analysis in the Real World
				Economies of Scope
				Learning by Doing and Technological Change
				Many Dimensions
				Unmeasured Costs
				The Standard Model as a Framework
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: Isocost/Isoquant Analysis
	SECTION IV MARKET STRUCTURE
		13 Perfect Competition
			Perfect Competition as a Reference Point
				Conditions for Perfect Competition
				Demand Curves for the Firm and the Industry
			The Profit-Maximizing Level of Output
				Marginal Revenue
				Marginal Cost
				Profit Maximization: MC = MR
				The Marginal Cost Curve Is the Supply Curve
				Firms Maximize Total Profit
			Total Profit at the Profit-Maximizing Level of Output
				Determining Profit from a Table of Costs and Revenue
				Determining Profit from a Graph
				The Shutdown Point
				Short-Run Market Supply and Demand
				Long-Run Competitive Equilibrium: Zero Profit
			Adjustment from the Short Run to the Long Run
				An Increase in Demand
				Long-Run Market Supply
				An Example in the Real World
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		14 Monopoly and Monopolistic Competition
			The Key Difference between a Monopolist and a Perfect Competitor
			A Model of Monopoly
				Determining the Monopolist's Price and Output Numerically
				Determining Price and Output Graphically
				Comparing Monopoly and Perfect Competition
				An Example of Finding Output and Price
				Profits and Monopoly
			Welfare Loss from Monopoly
				The Normal Monopolist
				The Price-Discriminating Monopolist
			Barriers to Entry and Monopoly
				Natural Ability
				Natural Monopolies
				Government-Created Monopolies
				Government Policy and Monopoly: AIDS Drugs
			Monopolistic Competition
				Characteristics of Monopolistic Competition
				Advertising and Monopolistic Competition
				Output, Price, and Profit of a Monopolistic Competitor
				Comparing Monopoly, Monopolistic Competition and Perfect Competition
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: The Algebra of Competitive and Monopolistic Firms
		15 Oligopoly and Antitrust Policy
			The Distinguishing Characteristics of Oligopoly
			Models of Oligopoly Behavior
				The Cartel Model
				The Contestable Market Model
				Comparison of the Contestable Market Model and the Cartel Model
			Classifying Industries and Markets in Practice
				The North American Industry Classification System
				Empirical Measures of Industry Structure
				Conglomerate Firms and Bigness
				Oligopoly Models and Empirical Estimates of Market Structure
			Antitrust Policy
				Judgment by Performance or Structure?
				Standard Oil: Judging Market Competitiveness by Performance
				The ALCOA Case: Judging Market Competitiveness by Structure
				Judging Markets by Structure and Performance: The Reality
				The Role of Antitrust in Today's Economy
				Assessment of U.S. Antitrust Policy
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		16 Real-World Competition and Technology
			The Goals of Real-World Firms and the Monitoring Problem
				Short-Run versus Long-Run Profit
				The Problem with Profit Maximization
				What Do Real-World Firms Maximize?
				The Lazy Monopolist and X-Inefficiency
			The Fight between Competitive and Monopolistic Forces
				How Monopolistic Forces Affect Perfect Competition
				Economic Insights and Real-World Competition
				How Competitive Forces Affect Monopoly
				Competition and Natural Monopoly
			How Firms Protect Their Monopolies
				Cost/Benefit Analysis of Creating and Maintaining Monopolies
				Establishing Market Position
			Technology, Efficiency, and Market Structure
				Perfect Competition and Technology
				Monopolistic Competition and Technology
				Monopoly and Technology
				Oligopoly and Technology
				Network Externalities, Standards, and Technological Lock-In
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION V FACTOR MARKETS
		17 Work and the Labor Market
			The Supply of Labor
				Real Wages and the Opportunity Cost of Work
				The Supply of Labor and Nonmarket Activities
				Income Taxation, Work, and Leisure
				The Elasticity of the Supply of Labor
				Immigration and the International Supply of Labor
			The Derived Demand for Labor
				Factors Influencing the Elasticity of Demand for Labor
				Labor as a Factor of Production
				Shift Factors of Demand
			Determination of Wages
				Imperfect Competition and the Labor Market
				Political and Social Forces and the Labor Market
				Fairness and the Labor Market
			Discrimination and the Labor Market
				Three Types of Direct Demand-Side Discrimination
				Institutional Discrimination
			The Evolution of Labor Markets
				Evolving Labor Laws
				Unions and Collective Bargaining
				The Labor Market and You
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: Derived Demand
		17W Nonwage and Asset Income: Rents, Profits, and Interest and 17W-1
			Rent
				The Effect of a Tax on Land
				Quasi Rents
				Rent Seeking and Institutional Constraints
			Profit
				Profit, Entrepreneurship, and Disequilibrium Adjustment
				Market Niches, Profit, and Rent
			Interest
				The Present Value Formula
				Some Rules of Thumb for Determining Present Value
				The Importance of Present Value
			The Marginal Productivity Theoryof Income Distribution
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		18 Who Gets What? The Distribution of Income
			Measuring the Distribution of Income, Wealth, and Poverty
				The Lorenz Curve
				U.S. Income Distribution over Time
				Defining Poverty
				International Dimensions of Income Inequality
				The Distribution of Wealth
			Socioeconomic Dimensions of Income and Wealth Inequality
				Income Distribution According to Socioeconomic Characteristics
				Income Distribution According to Class
			Income Distribution and Fairness
				Philosophical Debates about Equality and Fairness
				Fairness and Equality
				Fairness as Equality of Opportunity
			The Problems of Redistributing Income
				Three Important Side Effects of Redistributive Programs
				Politics, Income Redistribution, and Fairness
				Income Redistribution Policies
				How Successful Have Income Redistribution Programs Been?
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION VI CHOICE AND DECISION MAKING
		19 The Logic of Individual Choice: The Foundation of Supply and Demand
			Rational Choice Theory
				Total Utility and Marginal Utility
				Diminishing Marginal Utility
				Rational Choice and Marginal Utility
			Maximizing Utility and Equilibrium
				An Example of Maximizing Utility
				Extending the Principle of Rational Choice
			Rational Choice and the Laws of Demand and Supply
				The Law of Demand
				Income and Substitution Effects
				The Law of Supply
				Opportunity Cost
			Applying Economists' Theory of Choice to the Real World
				The Cost of Decision Making
				Given Tastes
				Utility Maximization
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: Indifference Curve Analysis
		20 Game Theory, Strategic Decision Making, and Behavioral Economics
			Game Theory and the Economic Way of Thinking
				Game Theory and Economic Modeling
				The Game Theory Framework
				The Prisoner's Dilemma
				Dominant Strategies and Nash Equilibrium
			An Overview of Game Theory as a Tool in Studying Strategic Interaction
				Some Specific Games
				Strategies of Players
			Informal Game Theory and Modern Behavioral Economics
				Informal Game Theory
				Real-World Applications of Informal Game Theory
				An Application of Game Theory: Auction Markets
			Game Theory and the Challenge to Standard Economic Assumptions
				Fairness
				Endowment Effects
				Framing Effects
				Behavioral Economics and the Traditional Model
				The Importance of the Traditional Model: Money Is Not Left on the Table
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: Game Theory and Oligopoly
	SECTION VII MODERN ECONOMIC THINKING
		21 Thinking Like a Modern Economist
			The Nature of Economists' Models
				Scientific and Engineering Models
				Behavioral and Traditional Building Blocks
				Behavioral Economic Models
				The Advantages and Disadvantages of Modern Traditional and Behavioral Models
			Behavioral and Traditional Informal (Heuristic) Models
				The Armchair Economist: Heuristic Models Using Traditional Building Blocks
				The Economic Naturalist: Heuristic Models Using Behavioral Building Blocks
				The Limits of Heuristic Models
			Empirical and Formal Models
				The Importance of Empirical Work in Modern Economics
				The Role of Formal Models
			What Difference Does All This Make to Policy?
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		22 Behavioral Economics and Modern Economic Policy
			Behavioral Economic Policy in Perspective
				Behavioral Economics and Economic Engineering
				Economists as Mechanism Design Engineers
				Behavioral Economics and Mechanism Design
				Policy Implications of Traditional Economics
			Choice Architecture and Behavioral Economic Policy
				Nudge Policy and Libertarian Paternalism
				When Are Nudges Needed?
				Two Types of Nudges
			The Problems of Implementing Nudges
				Distinguishing a Nudge from a Push
				Behavioral and Traditional Economic Policy Frames
			Concerns about Behavioral Economic Policies
				Few Policies Meet Libertarian Paternalism Criterion
				Designing Helpful Policies Is Complicated
				It Isn't Clear Government Knows Better
				Government Policy May Make the Situation Worse
				A Changing View of Economists: From Pro-market Advocates to Economic Engineers
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		23 Microeconomic Policy, Economic Reasoning, and Beyond
			Economists' Differing Views about Social Policy
				How Economists' Value Judgments Creep into Policy Proposals
				The Need for a Worldview
				Agreement among Economists about Social Policy
			Economists' Cost/Benefit Approach to Government Regulation
				The Value of Life
				Comparing Costs and Benefits of Different Dimensions
				Putting Cost/Benefit Analysis in Perspective
				The Problem of Other Things Changing
				The Cost/Benefit Approach in Context
			Failure of Market Outcomes
				Distribution
				Consumer Sovereignty and Rationality Problems
				Inalienable Rights
			Government Failure
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
PART III MACROECONOMICS
	SECTION I MACROECONOMIC BASICS
		24 Economic Growth, Business Cycles, and Unemployment
			The Historical Development of Macroeconomics
				From Classical to Keynesian Economics
				Classical Economics
				Keynesian Economics
				The Merging of Classical and Keynesian Economics
				The Unraveling of the Keynesian/Classical Synthesis
				Two Frameworks: The Long Run and the Short Run
			Growth
				Global Experiences with Growth
				The Prospect for Future U.S. Growth
			Business Cycles and Structural Stagnation
				Describing the Business Cycle
				Structural Stagnation
			Unemployment and Jobs
				How Is Unemployment Measured?
				Unemployment as a Social Problem
				Unemployment as Government's Problem
				Underemployment as a Government Problem
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		25 Measuring and Describing the Aggregate Economy
			Aggregate Accounting
				Calculating GDP
				The Components of GDP
				Two Things to Remember about GDP
				Calculating GDP: Some Examples
				Some Complications
			Calculating Aggregate Income
				Equality of Aggregate Income, Output, and Production
				Adjusting for Global Dimensions of Production
			Inflation: Distinguishing Real from Nominal
				Real versus Nominal GDP
				Other Real-World Price indexes
				Other Real and Nominal Distinctions
			Some Limitations of Aggregate Accounting
				Comparing GDP among Countries
				GDP Measures Market Activity, Not Welfare
				Measurement Errors
				Misinterpretation of Subcategories
				Genuine Progress Indicator
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION II POLICY MODELS
		26 The Keynesian Short-Run Policy Model: Demand-Side Policies
			The Key Insight of the Keynesian AS/AD Model
				Fixed Price Level
				The Paradox of Thrift
				Three Things to Remember about the Keynesian Model
				The Components of the AS/AD Model
			The Aggregate Demand Curve
				The Slope of the AD Curve
				Dynamic Price Level Adjustment Feedback Effects
				Shifts in the AD Curve
			The Aggregate Supply Curves
				The Short-Run Aggregate Supply Curve
				The Long-Run Aggregate Supply Curve
			Equilibrium in the Aggregate Economy
				Integrating the Short-Run and Long-Run Frameworks
				The Recessionary Gap
				The Inflationary Gap
				The Economy beyond Potential
				Aggregate Demand Policy
				Some Additional Policy Examples
			Limitations of the AS/AD Model
				How Feedback Effects Complicate the AS/AD Model
				Additional Complications That the AS/AD Model Misses
				Reality and Models
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		26W The Multiplier Model and 26W-1
			The Multiplier Model
				Aggregate Production
				Aggregate Expenditures
			Determining the Equilibrium Level of Aggregate Income
				The Multiplier Equation
				The Multiplier Process
				The Circular-Flow Model and the Intuitionbehind the Multiplier Process
				The Multiplier Model in Action
			Fiscal Policy in the Multiplier Model
				Fighting Recession: Expansionary Fiscal Policy
				Fighting Inflation: Contractionary Fiscal Policy
				Using Taxes Rather than Expendituresas the Tool of Fiscal Policy
			Limitations of the Multiplier Model
				The Multiplier Model Is Not a Complete Modelof the Economy
				Shifts Are Sometimes Not as Great asthe Model Suggests
				Fluctuations Can Sometimes Be Greaterthan the Model Suggests
				The Price Level Will Often Change in Responseto Shifts in Demand
				People’s Forward-Looking Expectations Make theAdjustment Process Much More Complicated
				Shifts in Expenditures Might Reflect Desired Shifts in Supply and Demand
				Expenditures Depend on Much More than Current Income
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			APPENDIX A : An Algebraic Presentation of the Expanded Multiplier Model
			APPENDIX B : The Multiplier Model and the AS/AD Model
		27 The Classical Long-Run Policy Model: Growth, and Supply-Side Policies
			General Observations about Growth
				Growth and the Economy's Potential Output
				The Benefits and Costs of Growth
				The Importance of Growth for Living Standards
			Markets, Specialization, and Growth
				Economic Growth, Distribution, and Markets
				Per Capita Growth
			The Sources of Growth
				Growth-Compatible Institutions
				Investment and Accumulated Capital
				Available Resources
				Technological Development
				Entrepreneurship
			Turning the Sources of Growth into Growth
				Capital and Investment
				Technology
				Growth Policies
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION III FINANCE, MONEY, AND THE ECONOMY
		28 The Financial Sector and the Economy
			The Definition and Functions of Money
				The U.S. Central Bank: The Fed
				Functions of Money
				Alternative Measures of Money
				Distinguishing between Money and Credit
			Banks and the Creation of Money
				How Banks Create Money
				The Process of Money Creation
				The Relationship between Reserves and Total Money
				Faith as the Backing of Our Money Supply
			Why Is the Financial Sector Important to Macro?
			The Role of Interest Rates in the Financial Sector
				Long- and Short-Term Interest Rates
				The Demand for Money and the Role of the Interest Rate
				Why People Hold Money
				The Many Interest Rates in the Economy
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: A Closer Look at Financial Assets and Liabilities
		29 Monetary Policy
			How Monetary Policy Works in the Models
			How Monetary Policy Works in Practice
				Monetary Policy and the Fed
				Structure of the Fed
				Duties of the Fed
			The Tools of Conventional Monetary Policy
				Open Market Operations
				The Reserve Requirement and the Money Supply
				Borrowing from the Fed and the Discount Rate
				The Fed Funds Market
			The Complex Nature of Monetary Policy
				The Taylor Rule
				Maintaining Policy Credibility
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		30 Financial Crises, Panics and Unconventional Monetary Policy
			The Central Bank's Role in a Crisis
				Anatomy of a Financial Crisis
				The Financial Crisis: The Bubble Bursts
				The Fed as Lender of Last Resort
			The Role of Leverage and Herding in a Crisis
				Leverage
				Herding
			The Problem of Regulating the Financial Sector
				Regulation, Bubbles, and the Financial Sector
				The Law of Diminishing Control
				General Principles of Regulation
			Monetary Policy in the Post-Financial Crisis Era
				Unconventional Monetary Policy
				Criticisms of Unconventional Monetary Policy
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION IV TAXES, BUDGETS, AND FISCAL POLICY
		31 Deficits and Debt: The Austerity Debate
			Defining Deficits and Surpluses
				Financing the Deficit
				Arbitrariness of Defining Deficits and Surpluses
				Many Right Definitions
				Deficits and Surpluses as Summary Measures
				Structural and Cyclical Deficits and Surpluses
			Nominal and Real Deficits and Surpluses
			Defining Debt and Assets
				Debt Management
				Difference between Individual and Government Debt
			U.S. Government Deficits and Debt: The Historical Record
				The Debt Burden
				U.S. Debt Relative to Other Countries
				Interest Rates and Debt Burden
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		32 The Fiscal Policy Dilemma
			Classical Economics and Sound Finance
				Ricardian Equivalence Theorem: Deficits Don't Matter
				The Sound-Finance Precept
			Keynesian Economics and Functional Finance
			Assumptions of the AS/AD Model
				Financing the Deficit Has No Offsetting Effects
				The Government Knows the Situation
				The Government Knows the Economy's Potential Income Level
				The Government Has Flexibility in Changing Spending and Taxes
				The Size of Government Debt Doesn't Matter
				Fiscal Policy Doesn't Negatively Affect Other Government Goals
				Summary of the Problems
			Building Fiscal Policies into Institutions
				How Automatic Stabilizers Work
				State Government Finance and Procyclical Fiscal Policy
				The Negative Side of Automatic Stabilizers
				Modern Macro Policy Precepts
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION V MACROECONOMIC PROBLEMS
		33 Jobs and Unemployment
			The Debate about the Nature and Measurement of Unemployment
				Entrepreneurship and Unemployment
				Microeconomic Categories of Unemployment
			Unemployment and Potential Output
				Okun's Rule of Thumb
				Is Unemployment Structural or Cyclical?
				Why Has the Target Rate of Unemployment Changed over Time?
				Globalization, Immigration, and Jobs
			Framing the Debate about Voluntary and Involuntary Unemployment
				Individual Responsibility and Unemployment
				Social Responsibility and Unemployment
				The Tough Policy Choices
				Summary of the Debate
			A Guaranteed-Job Proposal: Government as Employer of Last Resort
				The Design and Characteristics of the Program
				Why Don't the Guaranteed Jobs Do Something Useful?
				Paying for the Program
				Would Such a Plan Ever Be Implemented?
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		34 Inflation, Deflation, and Macro Policy
			Defining Inflation
				Asset Price Inflation and Deflation
			The Costs and Benefits of Inflation
				The Costs of Inflation
				The Benefits of (Low) Inflation
				The Danger of Accelerating Inflation
			The Inflation Process and the Quantity Theory of Money
				Productivity, Inflation, and Wages
				The Quantity Theory of Money and Inflation
				The Declining Influence of the Quantity Theory
			Inflation and the Phillips Curve Trade-Off
				The Long-Run and Short-Run Phillips Curves
				Global Competition and the Phillips Curve
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
	SECTION VI INTERNATIONAL MACROECONOMIC POLICY ISSUES
		35 International Financial Policy
			The Balance of Payments
				The Current Account
				The Financial and Capital Account
				What Is Meant by a Balance of Payment Deficit or Surplus?
			Exchange Rates
				Fundamental Forces Determining Exchange Rates
				Exchange Rate Dynamics
				Influencing Exchange Rates with Monetary and Fiscal Policy
			The Problems of Determining the Appropriate Exchange Rate
				Purchasing Power Parity and Real Exchange Rates
				Criticisms of the Purchasing Power Parity Method
				Real Exchange Rates
			Advantages and Disadvantages of Alternative Exchange Rate Systems
				Fixed Exchange Rates
				Flexible Exchange Rates
				Partially Flexible Exchange Rates
				Which View Is Right?
				Advantages and Disadvantages of a Common Currency: The Future of the Euro
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: History of Exchange Rate Systems
		36 Macro Policy in a Global Setting
			The Ambiguous International Goals of Macroeconomic Policy
				The Exchange Rate Goal
				The Trade Balance Goal
				International versus Domestic Goals
				Balancing the Exchange Rate Goal with Domestic Goals
			Monetary and Fiscal Policy and the Trade Deficit
				Monetary Policy's Effect on the Trade Balance
				Fiscal Policy's Effect on the Trade Balance
			International Phenomena and Domestic Goals
				International Goals and Policy Alternatives
				International Monetary and Fiscal Coordination
				Coordination Is a Two-Way Street
				Crowding Out and International Considerations
			Globalization, Macro Policy, and the U.S. Economy
				International Issues and Macro Policy
				Restoring International Trade Balance to the U.S. Economy
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
		37 Structural Stagnation and Globalization
			The Structural Stagnation Hypothesis
				Differentiating a Structural Stagnation from a Standard Recession
				Why the Assumed Underlying Growth Trend Is Important for Policy
				Structural Stagnation as a Cause for the Slow Recovery
				Structural Stagnation's Implications for Macro Policy
				Structural, not Secular, Stagnation
			The AS/AD Model with Globalization
				Globalization Can Limit Potential Output
				International Adjustment Forces
				Why the Adjustments Did Not Occur
				Aggregate Demand Increases No Longer Cause Accelerating Inflation
				Summary: Globalization and Structural Imbalances
			Structural Problems of Globalization
				Structural Change in the Nontradable Sector
				Globalization and Income Distribution
				Remembering the Benefits of Globalization
				The Future of Globalization
			Policies to Deal with Structural Stagnation
				Shifting the World Supply Curve Up
				Shifting the Domestic SAS Curve Down
				The Problems with the Standard Political Solution
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
			Appendix: Creating a Targeted Safety Net to Help the Least Well Off
		38 Macro Policy in Developing Countries
			Developing Countries in Perspective
				Don't Judge Society by Its Income Alone
				Some Comparative Statistics on Rich and Poor Nations
			Growth versus Development
				Differing Goals
				Differing Institutions
			Monetary Policy in Developing Countries
				Central Banks Are Less Independent
				Focus on the International Sector and the Exchange Rate Constraint
				The Need for Creativity
			Obstacles to Economic Development
				Political Instability
				Corruption
				Lack of Appropriate Institutions
				Lack of Investment
				Inappropriate Education
				Overpopulation
				Health and Disease
			Conclusion
				Summary
				Key Terms
				Questions and Exercises
				Questions from Alternative Perspectives
				Issues to Ponder
				Answers to Margin Questions
Glossary
Colloquial Glossary
Index