Macroeconomics for Today

Cover Page......Page 1
Title Page......Page 4
Copyright Page......Page 6
About the Author......Page 7
Preface......Page 21
Brief Contents......Page 9
Contents......Page 11
PART 1 Introduction to Economics......Page 37
CHAPTER 1 Introducing the Economic Way of Thinking......Page 38
Scarce Resources and Production......Page 39
Economics: The Study of Scarcity and Choice......Page 41
The Methodology of Economics......Page 42
Hazards of the Economic Way of Thinking......Page 45
CHECKPOINT Should Nebraska State Join a Big-Time Athletic Conference?......Page 46
YOU’RE THE ECONOMIST Mops and Brooms, the Boston Snow Index, the Super Bowl, and Other Economic Indicators......Page 47
Why Do Economists Disagree?......Page 48
Careers in Economics......Page 49
YOU’RE THE ECONOMIST Does Raising the Minimum Wage Help the Working Poor?......Page 50
A Direct Relationship......Page 57
An Inverse Relationship......Page 59
The Slope of a Straight Line......Page 60
The Slope of a Curve......Page 62
A Three-Variable Relationship in One Graph......Page 63
A Helpful Study Hint for Using Graphs......Page 65
CHAPTER 2 Production Possibilities, Opportunity Cost, and Economic Growth......Page 70
Three Fundamental Economic Questions......Page 71
Opportunity Cost......Page 72
Marginal Analysis......Page 73
The Production Possibilities Curve......Page 74
The Law of Increasing Opportunity Costs......Page 76
Sources of Economic Growth......Page 78
CHECKPOINT What Does a War on Terrorism Really Mean?......Page 81
Present Investment and the Future Production Possibilities Curve......Page 82
GLOBAL ECONOMICS How Does Public Capital Affect a Nation’s Curve?......Page 83
PART 1 ROAD MAP......Page 90
PART 2 Microeconomic Fundamentals......Page 93
CHAPTER 3 Market Demand and Supply......Page 94
The Law of Demand......Page 95
The Distinction Between Changes in Quantity Demanded and Changes in Demand......Page 97
Nonprice Determinants of Demand......Page 99
CHECKPOINT Can Gasoline Become an Exception to the Law of Demand?......Page 102
The Law of Supply......Page 104
The Distinction Between Changes in Quantity Supplied and Changes in Supply......Page 106
Nonprice Determinants of Supply......Page 110
YOU’RE THE ECONOMIST PC Prices: How Low Can They Go?......Page 111
A Market Supply and Demand Analysis......Page 114
CHECKPOINT Can the Price System Eliminate Scarcity?......Page 118
Consumer Surplus......Page 127
Producer Surplus......Page 128
Market Efficiency......Page 130
CHAPTER 4 Markets in Action......Page 136
Changes in Market Equilibrium......Page 137
CHECKPOINT Why the Higher Price for Ethanol Fuel?......Page 140
Can the Laws of Supply and Demand Be Repealed?......Page 141
YOU’RE THE ECONOMIST Rigging the Market for Milk......Page 146
CHECKPOINT Is There Price-Fixing at the Ticket Window?......Page 147
YOU’RE THE ECONOMIST Can Vouchers Fix Our Schools?......Page 152
CHECKPOINT Should There Be a War on Drugs?......Page 154
The Impact of Health Insurance......Page 161
Shifts in the Demand for Health Care......Page 163
Shifts in the Supply of Health Care......Page 164
PART 3 Macroeconomic Fundamentals......Page 165
CHAPTER 5 Gross Domestic Product......Page 166
Gross Domestic Product......Page 167
Measuring GDP......Page 168
The Expenditure Approach......Page 170
The Income Approach......Page 173
Compensation of Employees......Page 174
GDP in Other Countries......Page 176
GDP Shortcomings......Page 177
Other National Income Accounts......Page 179
Changing Nominal GDP to Real GDP......Page 183
YOU’RE THE ECONOMIST Is GDP a False Beacon Steering Us into the Rocks?......Page 180
CHECKPOINT Is the Economy Up or Down?......Page 186
APPENDIX TO CHAPTER 5: A Four-Sector Circular Flow Model......Page 192
CHAPTER 6: Business Cycles and Unemployment......Page 194
The Business-Cycle Roller Coaster......Page 195
CHECKPOINT What Kind of Unemployment Did the Invention of the Wheel Cause?......Page 208
Total Spending and the Business Cycle......Page 201
Unemployment......Page 202
Types of Unemployment......Page 206
YOU’RE THE ECONOMIST What Kind of Unemployment Do Robot Musicians Cause?......Page 209
The GDP Gap......Page 210
CHAPTER 7: Inflation......Page 219
Meaning and Measurement of Inflation......Page 220
CHECKPOINT The College Education Price Index......Page 223
YOU’RE THE ECONOMIST How Much More Does It Cost to Laugh?......Page 224
Consequences of Inflation......Page 227
CHECKPOINT What Is the Real Price of Gasoline?......Page 229
Demand-Pull and Cost-Push Inflation......Page 231
Inflation in Other Countries......Page 232
GLOBAL ECONOMICS Who Wants to be a Trillionaire?......Page 234
PART 3 ROAD MAP......Page 241
PART 4 Macroeconomic Theory and Policy......Page 245
CHAPTER 8 The Keynesian Model......Page 246
Introducing Classical Theory and the Keynesian Revolution......Page 247
Reasons the Consumption Function Shifts......Page 255
Investment Expenditures......Page 257
Why Investment Demand Is Unstable......Page 259
YOU'RE THE ECONOMIST Does a Stock Market Crash Cause Recession?......Page 262
The Aggregate Expenditures Function......Page 263
CHAPTER 9 The Keynesian Model in Action......Page 273
Adding Government and Global Trade to the Keynesian Model......Page 274
The Aggregate Expenditures Model......Page 276
The Spending Multiplier Effect......Page 279
Recessionary and Inflationary Gaps......Page 282
GLOBAL ECONOMICS The Great Ice Cream War......Page 285
CHECKPOINT Full-Employment Output, Where Are You?......Page 286
CHECKPOINT How Much Spending Must Uncle Sam Cut?......Page 287
CHAPTER 10 Aggregate Demand and Supply......Page 294
The Aggregate Demand Curve......Page 295
Reasons for the Aggregate Demand Curve’s Shape......Page 296
Nonprice-Level Determinants of Aggregate Demand......Page 298
The Aggregate Supply Curve......Page 299
Three Ranges of the Aggregate Supply Curve......Page 304
Changes in the AD-AS Macroeconomic Equilibrium......Page 306
Nonprice-Level Determinants of Aggregate Supply......Page 310
Cost-Push and Demand-Pull Inflation Revisited......Page 312
Increase in Both Aggregate Demand and Aggregate Supply Curves......Page 315
CHECKPOINT Would the Greenhouse Effect Cause Inflation,  Unemployment, or Both?......Page 316
Why the Short-Run Aggregate Supply Curve is Upward Sloping......Page 322
Why the Long-Run Aggregate Supply Curve is Vertical......Page 324
The Impact of an Increase in Aggregate Demand......Page 325
The Impact of a Decrease in Aggregate Demand......Page 327
Changes in Potential Real GDP......Page 329
Increase in the Aggregate Demand and Long-Run Aggregate Supply Curves......Page 330
CHAPTER 11 Fiscal Policy......Page 336
Discretionary Fiscal Policy......Page 337
CHECKPOINT What is the MPC for Uncle Sam’s Stimulus Package?......Page 342
CHECKPOINT Walking the Balanced Budget Tightrope......Page 346
Automatic Stabilizers......Page 347
Supply-Side Fiscal Policy......Page 349
YOU’RE THE ECONOMIST The Laffer Curve......Page 352
CHAPTER 12 The Public Sector......Page 359
Government Size and Growth......Page 360
Financing Government Budgets......Page 363
The Art of Taxation......Page 364
Public Choice Theory......Page 371
YOU’RE THE ECONOMIST Is It Time to Trash the 1040s?......Page 372
CHECKPOINT What Does Public Choice Say about a Budget Defi cit?......Page 376
CHAPTER 13 Federal Deficits, Surpluses, and the National Debt......Page 381
The Federal Budget Balancing Act......Page 382
YOU'RE THE ECONOMIST The Great Federal Budget Surplus Debate......Page 388
Why Worry over the National Debt?......Page 389
CHECKPOINT What’s Behind the National Debt?......Page 393
YOU’RE THE ECONOMIST How Real Is Uncle Sam’s Debt?......Page 398
PART 4 ROAD MAP......Page 404
PART 5 Money, Banking, and Monetary Policy......Page 409
CHAPTER 14 Money and the Federal Reserve System......Page 410
What Makes Money Money?......Page 411
Other Desirable Properties of Money......Page 413
GLOBAL ECONOMICS Why a Loan in Yap Is Hard to Roll Over......Page 414
Money Supply Definitions......Page 415
The Federal Reserve System......Page 418
What a Federal Reserve Bank Does......Page 423
The U.S. Banking Revolution......Page 425
YOU’RE THE ECONOMIST The Wreck of Lincoln Savings and Loan......Page 426
CHAPTER 15: Money Creation......Page 432
How a Single Bank Creates Money......Page 433
Multiplier Expansion of Money by the Banking System......Page 438
How Monetary Policy Creates Money......Page 440
CHECKPOINT Who Has More Dollar Creation Power?......Page 443
YOU’RE THE ECONOMIST How Does the FOMC Really Work? 410 Monetary Policy Shortcomings......Page 446
CHAPTER 16: Monetary Policy......Page 455
The Keynesian View of the Role of Money......Page 456
CHECKPOINT A Horse of Which Color?......Page 470
The Monetarist View of the Role of Money......Page 465
A Comparison of Macroeconomic Views......Page 471
YOU’RE THE ECONOMIST Monetary Policy during the Great  Depression......Page 474
The Classical versus Keynesian Views of Expansionary Policy......Page 482
Classical versus Keynesian Views of Contractionary Policy......Page 484
CHAPTER 17 The Phillips Curve and Expectations Theory......Page 488
The Phillips Curve......Page 489
The Long-Run Phillips Curve......Page 492
YOU'RE THE ECONOMIST The Political Business Cycle......Page 496
The Theory of Rational Expectations......Page 497
Applying the AD-AS Model to the Great Expectations Debate......Page 499
Incomes Policy......Page 501
YOU'RE THE ECONOMIST Ford’s Whip Infl ation Now (WIN) Button......Page 503
How Different Macroeconomic Theories Attack Inflation......Page 505
PART 5 ROAD MAP......Page 512
PART 6 The International Economy......Page 517
CHAPTER 18 International Trade and Finance......Page 518
Why Nations Need Trade......Page 519
Comparative and Absolute Advantage......Page 522
Free Trade versus Protectionism......Page 524
Arguments for Protection......Page 526
Free Trade Agreements......Page 527
GLOBAL ECONOMICS World Trade Slips on Banana Peel......Page 528
The Balance of Payments......Page 529
Birth of the Euro......Page 530
Exchange Rates......Page 535
GLOBAL ECONOMICS Return to the Yellow Brick Road?......Page 542
CHAPTER 19 Economies in Transition......Page 550
Basic Types of Economic Systems......Page 551
The “Isms”......Page 557
GLOBAL ECONOMICS Choosing an Economic System on Another Planet......Page 558
CHECKPOINT To Plan or Not to Plan—That Is the Question......Page 562
Comparing Economic Systems......Page 563
Economies in Transition......Page 564
GLOBAL ECONOMICS China’s Quest for Free Market Reform......Page 566
Privatization versus Nationalization......Page 568
CHAPTER 20 Growth and the Less-Developed Countries......Page 573
Comparing Developed and Less-Developed Countries......Page 574
Economic Growth and Development Around the World......Page 578
CHECKPOINT Does Rapid Growth Mean a Country is Catching Up?......Page 580
The Helping Hand of Advanced Countries......Page 584
GLOBAL ECONOMICS Hong Kong: A Crouching Pacific
Rim Tiger......Page 587
CHECKPOINT Is the Minimum Wage an Antipoverty Solution for Poor Countries?......Page 588
PART 6 ROAD MAP......Page 594
APPENDIX A Answers to Odd-Numbered Study Questions and Problems......Page 597
APPENDIX B Answers to Practice Quizzes......Page 612
APPENDIX C Answers to Road Map Questions......Page 614
GLOSSARY......Page 615
INDEX......Page 626