Macroeconomics, Sixteenth Canadian Edition, 16/e

Cover......Page 1
Title Page......Page 2
Copyright Page......Page 3
Forward......Page 4
About the Authors......Page 6
Brief Contents......Page 7
Contents......Page 8
Flexibility Chart......Page 17
Preface......Page 20
A Word of Thanks......Page 44
 Why Does Ford Assemble Cars in Both the United States and Mexico?......Page 46
 1.1. Three Key Economic Ideas......Page 48
  Apply the Concept: Does Health Insurance Give People an Incentive to Become Obese?......Page 49
  Solved Problem 1.1: The Marginal Benefit and Marginal Cost of Speed Limits......Page 51
 1.2. The Economic Problem That Every Society Must Solve......Page 52
  Who Will Receive the Goods and Services Produced?......Page 53
  The Modern “Mixed” Economy......Page 54
  Efficiency and Equity......Page 55
  The Role of Assumptions in Economic Models......Page 56
  Forming and Testing Hypotheses in Economic Models......Page 57
  Don’t Let This Happen to You: Don’t Confuse Positive Analysis with Normative Analysis......Page 58
  Apply the Concept: What Can Economics Contribute to the Debate over Tariffs?......Page 59
 1.5. Economic Skills and Economics as a Career......Page 60
 1.6. A Preview of Important Economic Terms......Page 61
 Conclusion......Page 63
  An Inside Look: Is Manufacturing Returning to the United States?......Page 64
 Chapter Summary and Problems......Page 66
 Appendix: Using Graphs and Formulas......Page 72
  Graphs of One Variable......Page 73
  Graphs of Two Variables......Page 74
   Slopes of Lines......Page 75
   Positive and Negative Relationships......Page 76
   Determining Cause and Effect......Page 78
   Slopes of Nonlinear Curves......Page 79
  Formulas......Page 80
   Formulas for the Areas of a Rectangle and a Triangle......Page 81
   Problems and Applications......Page 82
 Managers at Tesla Motors Face Trade-offs......Page 84
  Graphing the Production Possibilities Frontier......Page 86
  Solved Problem 2.1: Drawing a Production Possibilities Frontier for Tesla Motors......Page 88
  Increasing Marginal Opportunity Costs......Page 90
  Economic Growth......Page 91
  Specialization and Gains from Trade......Page 92
  Absolute Advantage versus Comparative Advantage......Page 94
  Don’t Let This Happen to You: Don’t Confuse Absolute Advantage andComparative Advantage......Page 95
  Solved Problem 2.2: Comparative Advantage and the Gains from Trade......Page 96
  Apply the Concept: Comparative Advantage, Opportunity Cost, and Housework......Page 97
 2.3. The Market System......Page 98
  The Circular Flow of Income......Page 99
  The Market Mechanism......Page 100
  Apply the Concept: A Story of the Market System in Action: How Do You Make an iPad?......Page 101
  The Legal Basis of a Successful Market System......Page 103
  Apply the Concept: Managers at Feeding America Use the Market Mechanism to Reduce Hunger......Page 106
 Conclusion......Page 107
  An Inside Look: Tesla Bets Big on Nevada Battery Plant......Page 108
 Chapter Summary and Problems......Page 110
 How Smart Is Your Water?......Page 116
  Demand Schedules and Demand Curves......Page 118
  What Explains the Law of Demand?......Page 119
  Variables That Shift Market Demand......Page 120
  Apply the Concept: Virtual Reality Headsets: Will a Substitute Fail for a Lack of Complements?......Page 121
  Apply the Concept: Millennials Shake Up the Markets for Soda, Groceries, Big Macs, and Running Shoes......Page 122
  Apply the Concept: Forecasting the Demand for Premium Bottled Water......Page 125
 3.2. The Supply Side of the Market......Page 126
  Variables That Shift Market Supply......Page 127
 3.3. Market Equilibrium: Putting Demand and Supply Together......Page 130
  How Markets Eliminate Surpluses and Shortages......Page 131
  Solved Problem 3.3: Demand and Supply Both Count: A Tale of Two Letters......Page 132
  The Effect of Shifts in Demand and Supply over Time......Page 134
  Apply the Concept: Lower Demand for Orange Juice—But Higher Prices?......Page 136
  Solved Problem 3.4: Can We Predict Changes in the Price and Quantity of Organic Corn?......Page 138
  Shifts in a Curve versus Movements along a Curve......Page 139
  Don’t Let This Happen to You: Remember: A Change in a Good\'s Price Does Not Cause the Demand or Supply Curve to Shift......Page 140
 Conclusion......Page 141
  An Inside Look: McDonald’s Looks for New Ways to Attract Customers......Page 142
 Chapter Summary and Problems......Page 144
 What Do Food Riots in Venezuela and the Rise of Uber in the United States Have in Common?......Page 152
  Consumer Surplus......Page 154
  Apply the Concept: The Consumer Surplus from Uber......Page 156
  Producer Surplus......Page 158
  Marginal Benefit Equals Marginal Cost in Competitive Equilibrium......Page 159
  Economic Surplus......Page 160
  Economic Surplus and Economic Efficiency......Page 161
  Price Floors: Government Policy in Agricultural Markets......Page 162
  Apply the Concept: Price Floors in Labor Markets: The Debate over Minimum Wage Policy......Page 163
  Price Ceilings: Government Rent Control Policy in Housing Markets......Page 165
  Black Markets and Peer-to-Peer Sites......Page 166
  Solved Problem 4.3: What’s the Economic Effect of a Black Market in Renting Apartments?......Page 167
  Apply the Concept: Price Controls Lead to Economic Decline in Venezuela......Page 168
  The Effect of Taxes on Economic Efficiency......Page 170
  Tax Incidence: Who Actually Pays a Tax?......Page 171
  Solved Problem 4.4: When Do Consumers Pay All of a Sales Tax Increase?......Page 172
  Apply the Concept: Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms?......Page 174
 Conclusion......Page 175
  An Inside Look: Will Uber Be Required to Pay British VAT?......Page 176
 Chapter Summary and Problems......Page 178
  Demand and Supply Equations......Page 185
  Calculating Consumer Surplus and Producer Surplus......Page 186
   Problems and Applications......Page 188
 Where Will You Find Health Insurance?......Page 190
 5.1. The Improving Health of People in the United States......Page 192
  Reasons for Long-Run Improvements in U.S. Health......Page 193
  The U.S. Health Care System......Page 194
  Apply the Concept: The Increasing Importance of Health Care in the U.S. Economy......Page 196
  The Health Care Systems of Canada, Japan, and the United Kingdom......Page 197
  Comparing Health Care Outcomes around the World......Page 198
  How Useful Are Cross-Country Comparisons of Health Outcomes?......Page 199
  Adverse Selection and the Market for “Lemons”......Page 200
  Asymmetric Information in the Market for Health Insurance......Page 201
  Don’t Let This Happen to You: Don’t Confuse Adverse Selection with Moral Hazard......Page 202
  Externalities in the Market for Health Care......Page 203
  Should the Government Run the Health Care System?......Page 205
  The Rising Cost of Health Care......Page 206
  Apply the Concept: Are U.S. Firms Handicapped by Paying for Their Employees’ Health Insurance?......Page 208
  Explaining Increases in Health Care Spending......Page 209
  The Continuing Debate over Health Care Policy......Page 212
  Solved Problem 5.4: Recent Trends in U.S. Health Care......Page 213
  Apply the Concept: How Much Is That MRI Scan?......Page 215
 Conclusion......Page 217
 Chapter Summary and Problems......Page 218
 Is Snapchat the Next Facebook . . . or the Next Twitter?......Page 224
  Who Is Liable? Limited and Unlimited Liability......Page 226
  Corporations Earn the Majority of Revenue and Profits......Page 227
  Apply the Concept: Why Are Fewer Young People Starting Businesses?......Page 228
  The Structure of Corporations and the Principal–Agent Problem......Page 229
  Sources of External Funds......Page 230
  Apply the Concept: The Rating Game: Are the Federal Government or State Governments Likely to Default on Their Bonds?......Page 231
  Stock and Bond Markets Provide Capital—and Information......Page 233
  Don’t Let This Happen to You: When Snap Shares Are Sold, Snap Doesn’t Get the Money......Page 234
  Apply the Concept: Why Are Many People Poor Stock Market Investors?......Page 236
  Solved Problem 6.2: Why Does Warren Buffett Like Mutual Funds?......Page 237
  The Income Statement......Page 238
  The Balance Sheet......Page 239
  Corporate Governance and the Financial Crisis of 2007–2009......Page 240
  Did Principal–Agent Problems Help Cause the 2007–2009 Financial Crisis?......Page 241
  Apply the Concept: Should Investors Worry about Corporate Governance at Snapchat?......Page 242
 Conclusion......Page 244
 Chapter Summary and Problems......Page 245
  Using Present Value to Make Investment Decisions......Page 250
   Solved Problem 6A.1: How to Receive Your Contest Winnings......Page 252
   Using Present Value to Calculate Bond Prices......Page 253
   A Simple Formula for Calculating Stock Prices......Page 254
  Going Deeper into Financial Statements......Page 255
   Analyzing Balance Sheets......Page 256
   Problems and Applications......Page 258
 President Trump, Oreo Cookies, and Free Trade......Page 260
 7.1. The United States in the International Economy......Page 262
  The Importance of Trade to the U.S. Economy......Page 263
 7.2. Comparative Advantage in International Trade......Page 264
  Comparative Advantage and Absolute Advantage......Page 265
  Increasing Consumption through Trade......Page 266
  Solved Problem 7.3: The Gains from Trade......Page 268
  Why Don’t We See Complete Specialization?......Page 269
  Apply the Concept: Who Gains and Who Loses from U.S. Trade with China?......Page 270
  Where Does Comparative Advantage Come From?......Page 273
 7.4. Government Policies That Restrict International Trade......Page 274
  Tariffs......Page 275
  Measuring the Economic Effect of the Sugar Quota......Page 276
  Solved Problem 7.4: Measuring the Economic Effect of a Quota......Page 278
  Apply the Concept: Smoot-Hawley, the Politics of Tariffs, and the Cost of Protecting a Vanishing Industry......Page 279
  Why Do Some People Oppose the World Trade Organization?......Page 281
  Apply the Concept: Protecting Consumer Health or Protecting U.S. Firms from Competition?......Page 284
  Positive versus Normative Analysis (Once Again)......Page 285
 Conclusion......Page 286
 Chapter Summary and Problems......Page 287
 The Ford Motor Company Meets Macroeconomics......Page 296
  Measuring Total Production: Gross Domestic Product......Page 299
  Production, Income, and the Circular-Flow Diagram......Page 300
  Components of GDP......Page 302
  An Equation for GDP and Some Actual Values......Page 303
  Apply the Concept: Microsoft’s Steve Ballmer Uses the U.S. Constitution to Reorganize Government Data......Page 304
  Shortcomings in GDP as a Measure of Total Production......Page 306
  Apply the Concept: Why Do Many Developing Countries Have Such Large Underground Economies?......Page 307
  Shortcomings of GDP as a Measure of Well-Being......Page 308
  Solved Problem 8.3: Calculating Real GDP......Page 309
  Comparing Real GDP and Nominal GDP......Page 310
  The GDP Deflator......Page 311
  Apply the Concept: Did the Standard of Living in Nigeria Almost Double Overnight?......Page 312
  National Income......Page 313
  The Division of Income......Page 314
 Conclusion......Page 315
 Chapter Summary and Problems......Page 316
 Why Would Boeing Cut Thousands of Jobs As the Economy Expands?......Page 322
  The Household Survey......Page 324
  Solved Problem 9.1: What Happens if the BLS Includes the Military?......Page 326
  Problems with Measuring the Unemployment Rate......Page 327
  Trends in Labor Force Participation......Page 328
  Unemployment Rates for Different Groups......Page 329
  Apply the Concept: Eight Million Workers Are Missing!......Page 330
  The Establishment Survey: Another Measure of Employment......Page 332
  Job Creation and Job Destruction over Time......Page 333
  Frictional Unemployment and Job Search......Page 334
  Cyclical Unemployment......Page 335
  Apply the Concept: How Should We Categorize the Unemployment Resulting from Boeing’s Layoffs?......Page 336
  Government Policies and the Unemployment Rate......Page 337
  Labor Unions......Page 338
  The Consumer Price Index......Page 339
  Don’t Let This Happen to You: Don’t Miscalculate the Inflation Rate......Page 341
 9.5. Using Price Indexes to Adjust for the Effects of Inflation......Page 342
  Solved Problem 9.5: What Has Been Happening to Real Wages in the United States?......Page 343
 9.6. Nominal Interest Rates versus Real Interest Rates......Page 345
 9.7. Does Inflation Impose Costs on the Economy?......Page 346
  The Problem with Anticipated Inflation......Page 347
  Apply the Concept: What’s So Bad about Falling Prices?......Page 348
 Conclusion......Page 350
 Chapter Summary and Problems......Page 351
 Economic Growth and the Business Cycle at Chevron Corporation......Page 362
 10.1. Long-Run Economic Growth......Page 364
  Apply the Concept: The Connection between Economic Prosperity and Health......Page 365
  Calculating Growth Rates and the Rule of 70......Page 367
  What Determines the Rate of Long-Run Growth?......Page 368
  Solved Problem 10.1: Where Does Productivity Come From?......Page 369
  Apply the Concept: Can India Sustain Its Rapid Growth?......Page 370
  Potential GDP......Page 372
  An Overview of the Financial System......Page 373
  The Macroeconomics of Saving and Investment......Page 374
  The Market for Loanable Funds......Page 376
  Apply the Concept: Ebenezer Scrooge: Accidental Promoter of Economic Growth?......Page 377
  Solved Problem 10.2: Are Future Budget Deficits a Threat to the Economy?......Page 379
  Some Basic Business Cycle Definitions......Page 381
  How Do We Know When the Economy Is in a Recession?......Page 382
  What Happens during the Business Cycle?......Page 383
  Don’t Let This Happen to You: Don’t Confuse the Price Level and the Inflation Rate......Page 385
  Will the U.S. Economy Return to Stability?......Page 388
 Conclusion......Page 389
 Chapter Summary and Problems......Page 390
 What Explains Slow Growth in Mexico?......Page 396
  Economic Growth from 1,000,000 B.C.E. to the Present......Page 398
  Apply the Concept: Why Did the Industrial Revolution Begin in England?......Page 399
  Small Differences in Growth Rates Are Important......Page 400
  “The Rich Get Richer and … ”......Page 401
  Apply the Concept: Is Income All That Matters?......Page 402
 11.2. What Determines How Fast Economies Grow?......Page 403
  The Per-Worker Production Function......Page 404
  Technological Change: The Key to Sustaining Economic Growth......Page 405
  Apply the Concept: What Explains the Economic Failure of the Soviet Union?......Page 406
  Solved Problem 11.2: Using the Economic Growth Model to Analyze the Failure of the Soviet Economy......Page 407
  New Growth Theory......Page 408
  Economic Growth in the United States since 1950......Page 410
  Is the United States Headed for a Long Period of Slow Growth?......Page 411
 11.4. Why Isn’t the Whole World Rich?......Page 413
  Catch-up: Sometimes but Not Always......Page 414
  Solved Problem 11.4: The Economic Growth Model’s Prediction of Catch-Up......Page 416
  Why Haven’t Most Western European Countries, Canada, and Japan Caught Up to the United States?......Page 417
  Why Don’t More Low-Income Countries Experience Rapid Growth?......Page 419
  Apply the Concept: Why Hasn’t Mexico Grown as Fast as China?......Page 420
  The Benefits of Globalization......Page 422
  Apply the Concept: Will China’s Standard of Living Ever Exceed That of the United States?......Page 423
  Policies That Promote Saving and Investment......Page 425
  Is Economic Growth Good or Bad?......Page 426
 Conclusion......Page 427
 Chapter Summary and Problems......Page 428
 Fluctuating Demand Helps—and Hurts—Intel and Other Firms......Page 436
  Aggregate Expenditure......Page 438
  Macroeconomic Equilibrium......Page 439
  Adjustments to Macroeconomic Equilibrium......Page 440
  Consumption......Page 441
  The Relationship between Consumption and National Income......Page 444
  Income, Consumption, and Saving......Page 446
  Solved Problem 12.2: Calculating the Marginal Propensity to Consume and the Marginal Propensity to Save......Page 447
  Planned Investment......Page 448
  Apply the Concept: Is Student Loan Debt Causing Fewer Young People to Buy Houses?......Page 449
  Government Purchases......Page 451
  Net Exports......Page 452
 12.3. Graphing Macroeconomic Equilibrium......Page 454
  Showing a Recession on the 45°-Line Diagram......Page 458
  A Numerical Example of Macroeconomic Equilibrium......Page 459
  Solved Problem 12.3: Determining Macroeconomic Equilibrium......Page 460
 12.4. The Multiplier Effect......Page 461
  Apply the Concept: The Multiplier in Reverse: The Great Depression of the 1930s......Page 464
  A Formula for the Multiplier......Page 465
  Summarizing the Multiplier Effect......Page 466
  Solved Problem 12.4: Using the Multiplier Formula......Page 467
 12.5. The Aggregate Demand Curve......Page 468
 Conclusion......Page 470
 Chapter Summary and Problems......Page 471
 Appendix: The Algebra of Macroeconomic Equilibrium......Page 478
  Review Questions......Page 479
 The Fortunes of KB Home Follow the Business Cycle......Page 480
  Why Is the Aggregate Demand Curve Downward Sloping?......Page 482
  The Variables That Shift the Aggregate Demand Curve......Page 484
  Don’t Let This Happen to You: Understand Why the Aggregate Demand Curve Is Downward Sloping......Page 485
  Solved Problem 13.1: Movements along the Aggregate Demand Curve or Shifts of the Curve?......Page 486
  Apply the Concept: Which Components of Aggregate Demand Changed the Most during the 2007–2009 Recession?......Page 488
  The Long-Run Aggregate Supply Curve......Page 490
  The Short-Run Aggregate Supply Curve......Page 491
  Apply the Concept: How Sticky Are Wages?......Page 492
  Variables That Shift the Short-Run Aggregate Supply Curve......Page 494
 13.3. Macroeconomic Equilibrium in the Long Run and the Short Run......Page 496
  Recessions, Expansions, and Supply Shocks......Page 497
  Apply the Concept: Does It Matter What Causes a Decline in Aggregate Demand?......Page 498
  Apply the Concept: How Long Is the Long Run in Macroeconomics?......Page 501
 13.4. A Dynamic Aggregate Demand and Aggregate Supply Model......Page 503
  The Recession of 2007–2009......Page 504
  Solved Problem 13.4: Showing the Oil Shock of 1974–1975 on a Dynamic Aggregate Demand and Aggregate Supply Graph......Page 507
 Conclusion......Page 508
 Chapter Summary and Problems......Page 509
  The Monetarist Model......Page 518
  The Real Business Cycle Model......Page 519
   Apply the Concept: Karl Marx: Capitalism’s Severest Critic......Page 520
 Does India Need Paper Currency?......Page 522
  Barter and the Invention of Money......Page 524
  The Functions of Money......Page 525
  What Can Serve as Money?......Page 526
  Apply the Concept: Your Money Is No Good Here!......Page 527
  M1: A Narrow Definition of the Money Supply......Page 528
  M2: A Broad Definition of Money......Page 529
  Solved Problem 14.2: The Definitions of M1 and M2......Page 530
  Apply the Concept: Are Bitcoins Money?......Page 531
  Bank Balance Sheets......Page 532
  Apply the Concept: Will Fintech Make It Easier for You to Borrow?......Page 533
  Using T-accounts to Show How a Bank Can Create Money......Page 534
  The Simple Deposit Multiplier......Page 536
  Don’t Let This Happen to You: Don’t Confuse Assets and Liabilities......Page 537
  Solved Problem 14.3: Showing How Banks Create Money......Page 538
  The Simple Deposit Multiplier versus the Real-World Deposit Multiplier......Page 540
  The Establishment of the Federal Reserve System......Page 541
  How the Federal Reserve Manages the Money Supply......Page 542
  The “Shadow Banking System” and the Financial Crisis of 2007–2009......Page 545
 14.5. The Quantity Theory of Money......Page 547
  The Quantity Theory Explanation of Inflation......Page 548
  How Accurate Are Forecasts of Inflation Based on the Quantity Theory?......Page 549
  Apply the Concept: The German Hyperinflation of the Early 1920s......Page 550
 Conclusion......Page 551
 Chapter Summary and Problems......Page 552
 Why Would a Bank Pay a Negative Interest Rate?......Page 560
  The Goals of Monetary Policy......Page 562
  The Demand for Money......Page 564
  Shifts in the Money Demand Curve......Page 565
  Equilibrium in the Money Market......Page 566
  The Importance of the Federal Funds Rate......Page 568
  The Fed’s New Policy Tools......Page 569
  How Interest Rates Affect Aggregate Demand......Page 570
  The Effects of Monetary Policy on Real GDP and the Price Level......Page 571
  Apply the Concept: Too Low for Zero: Central Banks, Quantitative Easing, and Negative Interest Rates......Page 572
  Can the Fed Eliminate Recessions?......Page 574
  Fed Forecasts......Page 575
  Apply the Concept: Trying to Hit a Moving Target: Making Policy with “Real-Time Data”......Page 576
  A Summary of How Monetary Policy Works......Page 577
 15.4. Monetary Policy in the Dynamic Aggregate Demand and Aggregate Supply Model......Page 578
  The Effects of Monetary Policy on Real GDP and the Price Level: A More Complete Account......Page 579
  Using Monetary Policy to Fight Inflation......Page 580
  Solved Problem 15.4: The Effects of Monetary Policy......Page 581
  Why Doesn’t the Fed Target Both the Money Supply and the Interest Rate?......Page 583
  The Taylor Rule......Page 584
  Solved Problem 15.5: Applying the Taylor Rule......Page 585
  Inflation Targeting......Page 586
  Apply the Concept: Should the Fed Worry about the Prices of Food and Gasoline?......Page 587
  The Inflation and Deflation of the Housing Market Bubble......Page 588
  The Role of Investment Banks......Page 590
  Apply the Concept: The Wonderful World of Leverage......Page 591
  The Fed and the Treasury Department Respond......Page 592
 Conclusion......Page 594
 Chapter Summary and Problems......Page 595
 Can Fiscal Policy Increase Economic Growth?......Page 604
  An Overview of Government Spending and Taxes......Page 606
  Apply the Concept: Is Spending on Social Security and Medicare a Fiscal Time Bomb?......Page 609
  Short-Run Expansionary and Contractionary Fiscal Policy......Page 611
  A Summary of How Fiscal Policy Affects Aggregate Demand......Page 613
 16.3. Fiscal Policy in the Dynamic Aggregate Demand and Aggregate Supply Model......Page 614
 16.4. The Government Purchases and Tax Multipliers......Page 615
  Taking into Account the Effects of Aggregate Supply......Page 618
  Solved Problem 16.4: Fiscal Policy Multipliers......Page 619
 16.5. The Limits to Using Fiscal Policy to Stabilize the Economy......Page 620
  Apply the Concept: Why Was the Recession of 2007–2009 So Severe?......Page 621
  Crowding Out in the Short Run......Page 622
  Fiscal Policy in Action: Did the Stimulus Package of 2009 Succeed?......Page 624
 16.6. Deficits, Surpluses, and Federal Government Debt......Page 627
  How the Federal Budget Can Serve as an Automatic Stabilizer......Page 628
  Apply the Concept: Did Fiscal Policy Fail during the Great Depression?......Page 629
  Should the Federal Budget Always Be Balanced?......Page 630
  Solved Problem 16.6: The Greek Government Confronts a Budget Deficit......Page 631
  The Federal Government Debt......Page 632
  Explaining Long-Run Increases in Real GDP......Page 633
  How Can Fiscal Policy Affect Long-Run Economic Growth? The Long-Run Effects of Tax Policy......Page 634
  Tax Simplification......Page 635
  The Economic Effects of Tax Reform......Page 636
  How Large Are Supply-Side Effects?......Page 637
  Apply the Concept: Will President Trump’s Policy Proposals Raise the Rate of Economic Growth?......Page 638
 Conclusion......Page 640
 Chapter Summary and Problems......Page 641
  An Expression for Equilibrium Real GDP......Page 649
  A Formula for the Government Purchases Multiplier......Page 650
  The “Balanced Budget” Multiplier......Page 651
  The Multiplier in an Open Economy......Page 652
   Problem and Applications......Page 653
 The Fed Tries for a “Soft Landing,” while General Motors and Toll Brothers Look On......Page 654
 17.1. The Discovery of the Short-Run Trade-off between Unemployment and Inflation......Page 656
  Explaining the Phillips Curve with Aggregate Demand and Aggregate Supply Curves......Page 657
  The Long-Run Phillips Curve......Page 658
  The Role of Expectations of Future Inflation......Page 659
  Apply the Concept: Do Workers Understand Inflation?......Page 660
 17.2. The Short-Run and Long-Run Phillips Curves......Page 661
  Shifts in the Short-Run Phillips Curve......Page 662
  How Does a Vertical Long-Run Phillips Curve Affect Monetary Policy?......Page 663
  Apply the Concept: Does the Natural Rate of Unemployment Ever Change?......Page 664
  Solved Problem 17.2: Changing Views of the Phillips Curve......Page 665
  The Implications of Rational Expectations for Monetary Policy......Page 666
  Is the Short-Run Phillips Curve Really Vertical?......Page 667
 17.4. Federal Reserve Policy from the 1970s to the Present......Page 668
  The Effect of a Supply Shock on the Phillips Curve......Page 669
  Paul Volcker and Disinflation......Page 670
  Solved Problem 17.4: Using Monetary Policy to Lower the Inflation Rate......Page 671
  Alan Greenspan, Ben Bernanke, Janet Yellen, and the Crisis in Monetary Policy......Page 673
  Apply the Concept: Should the Fed Attempt to Guide the Expectations of Investors?......Page 675
  The Debate over the Fed’s Future......Page 677
 Conclusion......Page 680
 Chapter Summary and Problems......Page 681
 Amazon Deals with the Effects of a Strong Dollar......Page 688
  The Current Account......Page 690
  Why Is the Balance of Payments Always Zero?......Page 692
  Don’t Let This Happen to You: Don’t Confuse the Balance of Trade, the Current Account Balance, and the Balance of Payments......Page 693
 18.2. The Foreign Exchange Market and Exchange Rates......Page 694
  Apply the Concept: Exchange Rate Listings......Page 695
  Equilibrium in the Market for Foreign Exchange......Page 696
  How Do Shifts in Demand and Supply Affect the Exchange Rate?......Page 697
  Some Exchange Rates Are Not Determined by the Market......Page 698
  Apply the Concept: Is a Strong Currency Good for a Country?......Page 699
  Solved Problem 18.2: Toyota Rides the Exchange Rate Rollercoaster......Page 701
  The Real Exchange Rate......Page 702
  Net Exports Equal Net Foreign Investment......Page 703
  Solved Problem 18.3: Arriving at the Saving and Investment Equation......Page 704
 18.4. The Effect of a Government Budget Deficit on Investment......Page 706
  Apply the Concept: Why Is the United States Called the “World’s Largest Debtor”?......Page 707
 18.5. Monetary Policy and Fiscal Policy in an Open Economy......Page 708
  Fiscal Policy in an Open Economy......Page 709
 Conclusion......Page 710
 Chapter Summary and Problems......Page 711
 Bayer and the Great European Currency Experiment......Page 718
 19.1. Exchange Rate Systems......Page 720
  The Floating Dollar......Page 721
  What Determines Exchange Rates in the Long Run?......Page 722
  Apply the Concept: The Big Mac Theory of Exchange Rates......Page 723
  Solved Problem 19.2: Calculating Purchasing Power Parity Exchange Rates Using Big Macs......Page 724
  The Euro......Page 726
  Apply the Concept: Greece and Germany: Diverse Economies, Common Currency......Page 727
  Pegging against the Dollar......Page 729
  Apply the Concept: The Chinese Yuan: The World’s Most Controversial Currency......Page 731
 19.3. International Capital Markets......Page 733
 Conclusion......Page 735
 Chapter Summary and Problems......Page 736
  The End of the Gold Standard......Page 741
  The Bretton Woods System......Page 742
  The Collapse of the Bretton Woods System......Page 743
   Problems and Applications......Page 745
Glossary......Page 748
Company Index......Page 753
Subject Index......Page 755
Credits......Page 771