Principles of Economics

Brief Contents ... 3
Contents ... 5
Preface ... 25
About the Author ... 27
Glossary ... 29
Chapter 01 The interconnected Economy ... 39
	What Is an Economy? ... 40
		Market-Oriented vs. Command Economies ... 40
		The Interconnectedness of an Economy ... 40
	The Division of Labor ... 41
		Why the Division of Labor Increases Production ... 42
		Trade and Markets ... 42
		The Rise of Globalization ... 43
	Microeconomics and Macroeconomics ... 44
		Microeconomics: The Circular Flow Diagram ... 45
		Macroeconomics: Goals, Frameworks, and Tools ... 47
	Studying Economics Doesn’t Mean Worshiping the Economy ... 47
	Key Concepts and Summary ... 48
Appendix to Chapter 01 ... 50
	Pie Graphs ... 51
	Bar Graphs ... 52
	Line Graphs ... 52
	Comparing Line Graphs with Pie Charts and Bar Graphs ... 57
	Summary and Key Concepts ... 61
Chapter 02 Choice in a world of Scarcity ... 62
	Choosing What to Consume ... 63
		A Consumption Choice Budget Constraint ... 63
		How Changes in Income and Prices Affect the Budget Constraint ... 63
		Personal Preferences Determine Specific Choices ... 65
		From a Model with Two Goods to the Real World of Many Goods ... 66
	Choosing Between Labor and Leisure ... 66
		An Example of a Labor-Leisure Budget Constraint ... 66
		How a Change in Wages Affects the Labor-Leisure Budget Constraint ... 67
		Making a Choice Along the Labor-Leisure Budget Constraint ... 67
	Choosing Between Present and Future Consumption ... 68
		Interest Rates: The Price of Intertemporal Choice ... 69
		The Power of Compound Interest ... 70
		An Example of Intertemporal Choice ... 71
	Three Implications of Budget Constraints ... 72
		Opportunity Cost ... 72
		Marginal Decision-Making and Diminishing Marginal Utility ... 73
		Sunk Costs ... 74
	The Production Possibilities Frontier and Social Choices ... 74
		The Shape of the Production Possibilities Frontier and Diminishing Marginal Returns ... 75
		Productive Efficiency and Allocative Efficiency ... 77
		Why Society Must Choose ... 78
	Confronting Objections to the Economic Approach ... 78
		A First Objection: People, Firms, and Society Don’t Act Like This ... 79
		A Second Objection: People, Firms, and Society Shouldn’t Do This ... 79
	Facing Scarcity and Making Trade-offs ... 81
	Key Concepts and Summary ... 81
Chapter 03 International Trade ... 83
	Absolute Advantage ... 85
		A Numerical Example of Absolute Advantage and Trade ... 85
		Trade and Opportunity Cost ... 88
		Limitations of the Numerical Example ... 89
	Comparative Advantage ... 89
		Identifying Comparative Advantage ... 90
		Mutually Beneficial Trade with Comparative Advantage ... 92
		How Opportunity Cost Sets the Boundaries of Trade ... 94
		Comparative Advantage Goes Camping ... 95
		The Power of the Comparative Advantage Example ... 95
	Intra-industry Trade between Similar Economies ... 95
		The Prevalence of Intra-industry Trade between Similar Economies ... 95
		Gains from Specialization and Learning ... 96
		Economies of Scale, Competition, Variety ... 97
		Dynamic Comparative Advantage ... 98
	The Size of Benefits from International Trade ... 99
	From Interpersonal to International Trade ... 100
	Key Concepts and Summary ... 101
Chapter 04 Demand and Supply ... 102
	Demand, Supply, and Equilibrium in Markets  for Goods and Services ... 103
		Demand for Goods and Services ... 103
		Supply of Goods and Services ... 103
		Equilibrium—Where Demand and Supply Cross ... 105
	Shifts in Demand and Supply for Goods and Services ... 107
		The Ceteris Paribus Assumption ... 107
		An Example of a Shifting Demand Curve ... 107
		Factors That Shift Demand Curves ... 108
		Summing Up Factors That Change Demand ... 109
		An Example of a Shift in a Supply Curve ... 110
		Factors That Shift Supply Curves ... 111
		Summing Up Factors That Change Supply ... 112
	Shifts in Equilibrium Price and Quantity:  The Four-Step Process ... 112
		Good Weather for Salmon Fishing ... 113
		Seal Hunting and New Drugs ... 114
		The Interconnections and Speed of Adjustment in Real Markets ... 115
	Price Ceilings and Price Floors in Markets for Goods and Services ... 115
		Price Ceilings ... 115
		Price Floors ... 118
		Responses to Price Controls: Many Margins for Action ... 119
		Policy Alternatives to Price Ceilings and Price Floors ... 121
	Supply, Demand, and Efficiency ... 122
		Consumer Surplus, Producer Surplus, Social Surplus ... 122
		Inefficiency of Price Floors and Price Ceilings ... 123
	Demand and Supply as a Social Adjustment Mechanism ... 125
	Key Concepts and Summary ... 125
Chapter 05 Labor and Financial Capital Markets.pdf ... 127
	Demand and Supply at Work in Labor Markets ... 127
		Equilibrium in the Labor Market ... 128
		Shifts in Labor Demand ... 129
		Shifts in Labor Supply ... 130
		Technology and Wage Inequality: The Four-Step Process ... 130
		Price Floors in the Labor Market: Living Wages and Minimum Wages ... 131
		The Minimum Wage as an Example of a Price Floor ... 132
	Demand and Supply in Financial Capital Markets ... 133
		Who Demands and Who Supplies in Financial Capital Markets ... 134
		Equilibrium in Financial Capital Markets ... 135
		Shifts in Demand and Supply in Financial Capital Markets ... 135
		The United States as a Global Borrower: The Four-Step Process ... 136
		Price Ceilings in Financial Capital Markets: Usury Laws ... 137
	Don’t Kill the Price Messengers ... 138
	Key Concepts and Summary ... 140
Chapter 06 Globalization and Protectionism ... 141
	Protectionism: An Indirect Subsidy from Consumers to Producers ... 142
		Demand and Supply Analysis of Protectionism ... 142
		Who Benefits and Who Pays? ... 144
	International Trade and Its Effects on Jobs, Wages, and Working Conditions ... 145
		Fewer Jobs? ... 145
		Trade and Wages ... 147
		Labor Standards ... 148
	The Infant Industry Argument ... 149
	The Dumping Argument ... 150
		The Growth of Anti-Dumping Cases ... 150
		Why Might Dumping Occur? ... 151
		Should Anti-Dumping Cases Be Limited? ... 151
	The Environmental Protection Argument ... 151
		The Race to the Bottom Scenario ... 152
		Pressuring Low-Income Countries for Higher Environmental Standards ... 153
	The Unsafe Consumer Products Argument ... 153
	The National Interest Argument ... 154
	How Trade Policy Is Enacted: Global, Regional, and National ... 156
		The World Trade Organization ... 156
		Regional Trading Agreements ... 157
		Trade Policy at the National Level ... 158
		Long-Term Trends in Barriers to Trade ... 158
	The Trade-offs of Trade Policy ... 159
	Key Concepts and Summary ... 160
Chapter 07 Elasticity ... 162
	Price Elasticity of Demand ... 163
	Price Elasticity of Supply ... 166
	Elastic, Inelastic, and Unitary Elasticity ... 168
	Applications of Elasticity ... 170
	Elasticity as a General Concept ... 176
	Key Concepts and Summary ... 179
Chapter 08 Household Decision Making ... 181
	Consumption Choices ... 181
	How Changes in Income and Prices Affect Consumption Choices ... 185
	Labor-Leisure Choices ... 191
	Intertemporal Choices in Financial Capital Markets ... 194
	Key Concepts and Summary ... 198
Appendix to Chapter 08 ... 200
	What Is an Indifference Curve? ... 200
	Utility-Maximizing with Indifference Curves ... 202
	Changes in Income ... 204
	Responses to Price Changes: Substitution and Income Effects ... 205
	Indifference Curves with Labor-Leisure and Intertemporal Choices ... 207
	Conclusion ... 212
	Key Concepts and Summary ... 212
Chapter 09 Cost and Industry Structure ... 214
	The Structure of Costs in the Short Run ... 216
	The Structure of Costs in the Long Run ... 220
	Conclusion ... 228
	Key Concepts and Summary ... 228
Chapter 10 Perfect Competition ... 230
	Quantity Produced by a Perfectly Competitive Firm ... 231
	Entry and Exit in the Long-Run Output ... 239
	Factors of Production in Perfectly Competitive Markets ... 241
	Efficiency in Perfectly Competitive Markets ... 246
	Conclusion ... 247
	Key Concepts and Summary ... 247
Chapter 11 Monopoly ... 250
	Barriers to Entry ... 251
		Legal Restrictions ... 251
		Control of a Physical Resource ... 251
		Technological Superiority ... 252
		Natural Monopoly ... 253
		Intimidating Potential Competition ... 254
		Summing Up Barriers to Entry ... 254
	How a Profit-Maximizing Monopoly Chooses Output and Price ... 255
		Demand Curves Perceived by a Perfectly Competitive Firm and by a Monopoly ... 255
		Total and Marginal Revenue for a Monopolist ... 255
		Marginal Revenue and Marginal Cost for a Monopolist ... 258
		Illustrating Monopoly Profits ... 259
		The Inefficiency of Monopoly ... 261
	Conclusion ... 262
	Key Concepts and Summary ... 263
Chapter 12 Monopolistic Competition and Oligopoly ... 265
	Monopolistic Competition ... 266
		Differentiated Products ... 266
		Perceived Demand for a Monopolistic Competitor ... 266
		How a Monopolistic Competitor Chooses Price and Quantity ... 267
		Monopolistic Competitors and Entry ... 269
		Monopolistic Competition and Efficiency ... 271
		The Benefits of Variety and Product Differentiation ... 272
	Oligopoly ... 272
		Why Do Oligopolies Exist? ... 273
		Collusion or Competition? ... 273
		The Prisoner’s Dilemma ... 273
		The Oligopoly Version of the Prisoner’s Dilemma ... 274
		How to Enforce Cooperation ... 276
	Conclusion ... 277
	Key Concepts and Summary ... 278
Chapter 13 Competition and Public Policy ... 280
	Corporate Mergers ... 281
		Regulations for Approving Mergers ... 281
		The Four-Firm Concentration Ratio ... 282
		The Herfindahl-Hirschman Index ... 283
		New Directions for Antitrust ... 284
	Regulating Anticompetitive Behavior ... 285
	When Breaking Up Is Hard to Do: Regulating Natural Monopolies ... 287
		The Choices in Regulating a Natural Monopoly ... 287
		Cost-Plus versus Price Cap Regulation ... 289
	The Great Deregulation Experiment ... 289
		Doubts about Regulation of Prices and Quantities ... 289
		The Effects of Deregulation ... 290
		Frontiers of Deregulation ... 291
	Around the World: From Nationalization to Privatization ... 292
	Key Concepts and Summary ... 293
Chapter 14 Environmental Protection and Negative Externalities ... 295
	Externalities ... 297
	Pollution as a Negative Externality ... 297
	Command-and-Control Regulation ... 298
	Market-Oriented Environmental Tools ... 299
		Market-Friendly Environmental Tool #1: Pollution Charges ... 299
		Market-Friendly Environmental Tool #2: Marketable Permits ... 300
		Market-Friendly Environmental Tool #3:  Better-Defined Property Rights ... 302
		Applying Market-Oriented Environmental Tools ... 303
	The Benefits and Costs of U.S. Environmental Laws ... 303
		Benefits and Costs of Clean Air and Clean Water ... 304
		Marginal Benefits and Marginal Costs ... 305
		The Unrealistic Goal of Zero Pollution ... 306
	International Environmental Issues ... 306
	The Trade-off between Economic Output and Environmental Protection ... 307
	Key Concepts and Summary ... 308
Chapter 15 Technology, Positive Externalities and Public Goods ... 310
	The Incentives for Developing New Technology ... 312
		Some Grumpy Inventors ... 312
		The Positive Externalities of New Technology ... 313
		Contrasting Positive Externalities and Negative Externalities ... 314
	How to Raise the Rate of Return for Innovators ... 315
		Intellectual Property Rights ... 315
		Government Spending on Research and Development ... 317
		Tax Breaks for Research and Development ... 318
		Cooperative Research and Development ... 318
		A Balancing Act ... 318
	Public Goods ... 319
		The Definition of a Public Good ... 319
		The Free Rider Problem ... 320
		The Role of Government in Paying for Public Goods ... 322
	Positive Externalities and Public Goods ... 322
	Key Concepts and Summary ... 323
Chapter 16 Poverty and Economic Inequality ... 324
	Drawing the Poverty Line ... 325
	The Poverty Trap ... 327
	The Safety Net ... 329
		Temporary Assistance for Needy Families ... 330
		Earned Income Credit (EIC) ... 330
		Food Stamps ... 331
		Medicaid ... 331
		Other Safety Net Programs ... 332
	Measuring Income Inequality ... 332
		Income Distribution by Quintiles ... 332
		Lorenz Curve ... 333
	Causes of Growing Income Inequality ... 335
		The Changing Composition of American Households ... 335
		A Shift in the Distribution of Wages ... 335
	Government Policies to Reduce Income Inequality ... 337
		Redistribution ... 338
		The Ladder of Opportunity ... 338
		Inheritance Taxes ... 339
	The Trade-off between Incentives and Income Equality ... 340
	Key Concepts and Summary ... 341
Chapter 17 Issues in Labor Market - Unions, Discrimination and Immigration ... 343
	Labor Unions ... 344
		Facts about Union Membership and Pay ... 345
		Higher Wages for Union Workers ... 346
		The Decline in U.S. Union Membership ... 348
		Concluding Thoughts about the Economics of Unions ... 351
	Employment Discrimination ... 351
		Earnings Gaps by Race and Gender ... 351
		Investigating the Female/Male Earnings Gap ... 353
		Investigating the Black/White Earnings Gap ... 353
		Competitive Markets and Discrimination ... 355
		Public Policies to Reduce Discrimination ... 355
		An Increasingly Diverse Workforce ... 356
	Immigration ... 356
		Historical Patterns of Immigration ... 357
		Economic Effects of Immigration ... 357
		Proposals for Immigration Reform ... 358
	Conclusion ... 359
	Key Concepts and Summary ... 359
Chapter 18 Information, Risk and Insurance ... 361
	The Problem of Imperfect Information ... 362
		“Lemons” and Other Examples of Imperfect Information ... 362
		How Imperfect Information Can Affect Equilibrium Price and Quantity ... 363
		When Price Mixes with Imperfect Information about Quality ... 363
		Mechanisms to Reduce the Risk of Imperfect Information ... 364
	Insurance and Imperfect Information ... 366
		How Insurance Works ... 366
		Risk Groups and Actuarial Fairness ... 368
		The Moral Hazard Problem ... 368
		The Adverse Selection Problem ... 370
		Government Regulation of Insurance ... 370
	Conclusion ... 373
	Key Concepts and Summary ... 373
Chapter 19 Financial Markets ... 375
	How Businesses Raise Financial Capital ... 376
		Early-Stage Financial Capital ... 376
		Profits as a Source of Financial Capital ... 377
		Borrowing: Banks and Bonds ... 377
		Corporate Stock and Public Firms ... 378
		How Firms Choose between Sources of Financial Capital ... 379
	How Households Supply Financial Capital ... 381
		Bank Accounts ... 381
		Bonds ... 383
		Stocks ... 384
		Mutual Funds ... 388
		Housing and Other Tangible Assets ... 388
		The Trade-offs between Return and Risk ... 389
	How to Become Rich ... 391
		Why It’s Hard to Get Rich Quick: The Random Walk Theory ... 391
		Getting Rich the Slow, Boring Way ... 392
	How Capital Markets Transform Financial Flows ... 392
	Key Concepts and Summary ... 393
Appendix to Chapter 19 ... 395
Chapter 20 Public Choice ... 398
	When Voters Don’t Participate ... 399
	Special-Interest Politics ... 400
	Identifiable Winners, Anonymous Losers ... 401
	Pork Barrels and Logrolling ... 401
	Voting Cycles ... 403
	Where Is Government’s Self-Correcting Mechanism? ... 403
	A Balanced View of Markets and Government ... 404
	Key Concepts and Summary ... 405
Chapter 21 The Macroeconomic Perspective.pdf ... 407
	Measuring the Size of the Economy: Gross Domestic Product ... 409
		GDP Measured by Components of Demand ... 409
		GDP Measured by What Is Produced ... 412
		The Problem of Double Counting ... 412
	Comparing GDP among Countries ... 413
		Converting Currencies with Exchange Rates ... 413
		Converting to Per Capita GDP ... 416
	The Pattern of GDP over Time ... 417
	How Well Does GDP Measure the Well-Being of Society? ... 418
		Some Differences between GDP and Standard of Living ... 418
		Does a Rise in GDP Overstate or Understate the Rise in the Standard of Living? ... 421
		GDP Is Rough, but Useful ... 421
	Conclusion ... 421
	Key Concepts and Summary ... 422
Chapter 22 Economic Growth.pdf ... 423
	The Relatively Recent Arrival of Economic Growth ... 424
	Worker Productivity and Economic Growth ... 425
	The Power of Sustained Economic Growth ... 427
	The Aggregate Production Function ... 428
		Components of the Aggregate Production Function ... 428
		Growth Accounting Studies ... 431
		A Healthy Climate for Economic Growth ... 432
	Future Economic Convergence? ... 432
		Arguments Favoring Convergence ... 434
		Arguments That Convergence Is Neither Inevitable Nor Likely ... 435
		The Slowness of Convergence ... 436
	Key Concepts and Summary ... 437
Chapter 23 Unemployment.pdf ... 438
	Unemployment and the Labor Force ... 439
		In or Out of the Labor Force? ... 439
		Calculating the Unemployment Rate ... 439
		Controversies over Measuring Unemployment ... 440
	Patterns of Unemployment ... 441
		The Historical U.S. Unemployment Rate ... 441
		Unemployment Rates by Group ... 442
		International Unemployment Comparisons ... 443
	Why Unemployment Is a Puzzle for Economists ... 444
		Looking for Unemployment with Flexible Wages ... 445
		Why Wages Might Be Sticky Downward ... 445
	The Short Run: Cyclical Unemployment ... 446
	The Long Run: The Natural Rate of Unemployment ... 447
		Frictional Unemployment ... 448
		Productivity Shifts and the Natural Rate of Unemployment ... 449
		Public Policy and the Natural Rate of Unemployment ... 450
		The Natural Rate of Unemployment in Recent Years ... 451
		The Natural Rate of Unemployment in Europe ... 452
	A Preview of Policies to Fight Unemployment ... 453
	Key Concepts and Summary ... 453
Chapter 24 Inflation.pdf ... 455
	Combining Prices to Measure the Inflation Rate ... 456
		The Changing Price of a Basket of Goods ... 456
		Index Numbers ... 458
		Measuring Changes in the Cost of Living ... 460
		Practical Solutions for the Substitution  and the Quality/New Goods Biases ... 461
		Alternative Price Indexes:  PPI, GDP Deflator, and More ... 462
	Inflation Experiences ... 463
		Historical Inflation in the U.S. Economy ... 463
		Inflation around the World ... 464
	Adjusting Nominal Values to Real Values ... 465
		Nominal to Real GDP ... 465
		Nominal to Real Interest Rates ... 467
	The Dislocations of Inflation ... 468
		The Land of Funny Money ... 468
		Unintended Redistributions of Purchasing Power ... 469
		Blurred Price Signals ... 471
		Problems of Long-Term Planning ... 471
		Some Benefits of Inflation? ... 472
	Indexing and Its Limitations ... 472
		Indexing in Private Markets ... 472
		Indexing in Government Programs ... 473
		Might Indexing Reduce Concern Over Inflation? ... 473
	A Preview of Policy Discussions of Inflation ... 473
	Key Concepts and Summary ... 474
Chapter 25 The Balance of Trade.pdf ... 476
	Measuring Trade Balances ... 477
		Components of the U.S. Current Account Balance ... 477
	Trade Balances in Historical and International Context ... 479
	The Intimate Connection between Trade Balances and Flows of Financial Capital ... 480
		The Parable of Robinson Crusoe and Friday ... 480
		The Balance of Trade as the Balance of Payments ... 481
	The National Saving and Investment Identity ... 483
		The National Saving and Investment Identity ... 483
		Domestic Savings and Investment Determine the Trade Balance ... 484
		Exploring Trade Balances One Factor at a Time ... 484
		How Short-Term Movements in the Business Cycle Can Affect the Trade Balance ... 485
	When Are Trade Deficits and Surpluses Beneficial or Harmful? ... 486
	The Difference between Level of Trade and the Trade Balance ... 487
	Final Thoughts about Trade Balances ... 489
	Key Concepts and Summary ... 489
Chapter 26 The Aggregate Supply - Aggregate Demand Model.pdf ... 491
	Macroeconomic Perspectives on Demand and Supply ... 492
		Say’s Law and the Macroeconomics of Supply ... 492
		Keynes’ Law and the Macroeconomics of Demand ... 493
		Combining Supply and Demand in Macroeconomics ... 494
	Building a Model of Aggregate Supply and Aggregate Demand ... 494
		The Aggregate Supply Curve and Potential GDP ... 494
		The Aggregate Demand Curve ... 496
		Equilibrium in the Aggregate Supply–Aggregate Demand Model ... 497
		AS and AD Are Macro, not Micro ... 497
	Shifts in Aggregate Supply ... 498
		How Productivity Growth Shifts the AS Curve ... 498
		How Changes in Input Prices Shift the AS Curve ... 498
	Shifts in Aggregate Demand ... 499
		How Changes by Consumers and Firms Can Affect AD ... 500
		How Government Macroeconomic Policy Choices Can Shift AD ... 502
	How the AS–AD Model Combines Growth, Unemployment, Inflation, and the Balance of Trade ... 503
		Growth and Recession in the AS–AD Diagram ... 504
		Unemployment in the AS–AD Diagram ... 504
		Inflationary Pressures in the AS–AD Diagram ... 504
		The Balance of Trade and the AS–AD Diagram ... 506
	Keynes’ Law and Say’s Law in the AS–AD Model ... 507
	Key Concepts and Summary ... 508
Chapter 27 The Keynesian Perspective.pdf ... 511
	The Building Blocks of Keynesian Analysis ... 512
		The Importance of Aggregate Demand in Recessions ... 512
		Wage and Price Stickiness ... 513
		The Two Keynesian Assumptions in the AS–AD Model ... 514
	The Components of Aggregate Demand ... 515
		What Causes Consumption to Shift? ... 515
		What Causes Investment to Shift? ... 516
		What Causes Government Demand to Shift? ... 517
		What Causes Exports and Imports to Shift? ... 517
	The Phillips Curve ... 518
		The Discovery of the Phillips Curve ... 518
		The Instability of the Phillips Curve ... 520
		Keynesian Policy for Fighting Unemployment and Inflation ... 521
	The Expenditure-Output Model ... 522
		The Axes of the Expenditure-Output Diagram ... 522
		The Potential GDP Line and the 45-degree Line ... 523
		The Aggregate Expenditure Schedule ... 524
	Building the Aggregate Expenditure Schedule ... 524
		Consumption as a Function of National Income ... 524
		Investment as a Function of National Income ... 525
		Government Spending and Taxes as a Function of National Income ... 526
		Exports and Imports as a Function of National Income ... 527
		Building the Combined Aggregate Expenditure Function ... 528
	Equilibrium in the Keynesian Cross Model ... 530
		Where Equilibrium Occurs ... 530
		Recessionary and Inflationary Gaps ... 531
	The Multiplier Effect ... 532
		How Does the Multiplier Work? ... 532
		Calculating the Multiplier ... 534
		Calculating Keynesian Policy Interventions ... 535
		Multiplier Trade-offs: Stability vs. the Power of Macroeconomic Policy ... 536
	Is Keynesian Economics Pro-Market or Anti-Market? ... 536
	Key Concepts and Summary ... 537
Appendix to Chapter 27.pdf ... 539
Chapter 28 The Neo Classical Perspective.pdf ... 543
	The Building Blocks of Neoclassical Analysis ... 544
		The Importance of Potential GDP in the Long Run ... 544
		The Role of Flexible Prices ... 546
		How Fast Is the Speed of Macroeconomic Adjustment? ... 548
	Policy Implications of the Neoclassical Perspective ... 549
		Fighting Recession or Encouraging Long-Term Growth? ... 549
		Fighting Unemployment or Inflation? ... 550
		The Neoclassical Phillips Curve Trade-Off ... 552
	Macroeconomists Riding Two Horses ... 553
	Key Comments and Summary ... 554
Chapter 29 Money and Banks.pdf ... 556
	Defining Money by Its Functions ... 557
		Barter and the Double Coincidence of Wants ... 557
		Three Functions for Money ... 558
	Measuring Money: Currency, M1, and M2 ... 558
	How Banks Work ... 560
		Banks as Financial Intermediaries ... 561
		A Bank’s Balance Sheet ... 562
		How Banks Go Bankrupt ... 564
	How Banks Create Money ... 565
		The Story of System Bank ... 566
		The Money Multiplier ... 567
		Cautions about the Money Multiplier ... 568
	Conclusion ... 569
	Key Concepts and Summary ... 569
Chapter 30 Monetary Policy and Bank Regulation.pdf ... 571
	Monetary Policy and the Central Bank ... 572
		The Federal Reserve ... 572
		Other Tasks and Funding of Central Banks ... 573
	How a Central Bank Affects the Money Supply ... 574
		Open Market Operations ... 574
		Reserve Requirements ... 577
		The Discount Rate ... 577
		Quantitative Easing ... 577
		Forward Guidance ... 578
	Monetary Policy and Economic Outcomes ... 578
		The Effect of Monetary Policy on Interest Rates ... 578
		The Effect of Monetary Policy on Aggregate Demand ... 579
		What the Federal Reserve Has Done ... 580
	Pitfalls for Monetary Policy ... 582
		Long and Variable Time Lags ... 583
		Excess Reserves ... 583
		Unpredictable Movements of Velocity ... 584
		Is Unemployment or Inflation More Important? ... 586
		Should the Central Bank Tackle Asset Bubbles and Leverage Cycles? ... 588
	Bank Regulation ... 588
		Bank Runs ... 589
		A Weakened Banking Sector ... 589
		Deposit Insurance ... 590
		Bank Supervision ... 590
		Lender of Last Resort ... 591
		Summary ... 592
	Conclusion ... 592
	Key Concepts and Summary ... 592
Chapter 31 Exchange Rates and International Capital Flows.pdf ... 594
	How the Foreign Exchange Market Works ... 595
		The Extraordinary Size of the Foreign Exchange Markets ... 595
		Demanders and Suppliers of Currency in Foreign Exchange Markets ... 595
		Participants in the Exchange Rate Market ... 598
		Strengthening and Weakening Currency ... 598
	Demand and Supply Shifts in Foreign Exchange Markets ... 601
		Expectations about Future Exchange Rates ... 602
		Differences across Countries in Rates of Return ... 603
		Relative Inflation ... 603
		Purchasing Power Parity ... 605
	Macroeconomic Effects of Exchange Rates ... 605
		Exchange Rates, Aggregate Demand, and Aggregate Supply ... 606
		Fluctuations in Exchange Rates ... 608
		Exchange Rates, Trade Balances, and International Capital Flows ... 609
		Summing Up Public Policy and Exchange Rates ... 612
	Exchange Rate Policies ... 612
		Floating Exchange Rates ... 612
		Using Soft Pegs and Hard Pegs ... 614
		Trade-offs of Soft Pegs and Hard Pegs ... 615
		A Single Currency ... 617
	Conclusion ... 618
Chapter 32 Government Budgets and Fiscal Policy.pdf ... 620
	An Overview of Government Spending ... 621
		Total U.S. Government Spending ... 621
		Keeping Federal Budget Numbers in Perspective ... 623
		State and Local Government Spending ... 623
	An Overview of Taxation ... 624
		State and Local Taxes ... 626
	Federal Deficits and Debt ... 628
		Debt/GDP Ratio ... 628
		The Path from Deficits to Surpluses to Deficits ... 629
	Using Fiscal Policy to Affect Recession, Unemployment and Inflation ... 630
		Expansionary Fiscal Policy ... 632
		Contractionary Fiscal Policy ... 633
	Automatic Stabilizers ... 634
		Counterbalancing Recession and Boom ... 634
	Practical Problems with Discretionary Fiscal Policy ... 635
		Long and Variable Time Lags ... 635
		Temporary and Permanent Fiscal Policy ... 636
		Coordinating Fiscal and Monetary Policy ... 636
		Structural Economic Change Takes Time ... 637
		The Limitations of Potential GDP and the Natural Rate of Unemployment ... 637
		Educating Politicians ... 637
		Summing Up Discretionary Fiscal Policy ... 638
	Requiring a Balanced Budget? ... 638
	Conclusion ... 639
	Key Concepts and Summary ... 639
Chapter 33 Government borrowings and National Savings.pdf ... 641
	How Government Borrowing Affects Investment and the Trade Balance ... 641
		The National Saving and Investment Identity ... 642
		What about Budget Surpluses and Trade Surpluses? ... 642
	Fiscal Policy, Investment, and Economic Growth ... 643
		Crowding Out Physical Capital Investment ... 643
		The Interest Rate Connection ... 644
		Public Investment in Human Capital ... 646
		How Fiscal Policy Can Improve Technology ... 648
		Summary of Fiscal Policy, Investment, and Economic Growth ... 648
	Will Private Saving Offset Government Borrowing? ... 649
	Fiscal Policy and the Trade Balance ... 650
		Twin Deficits? ... 650
		Fiscal Policy and Exchange Rates ... 650
		From Budget Deficits to International Economic Crisis ... 652
		Using Fiscal Policy to Address Trade Imbalances ... 653
	Conclusion ... 654
	Key Concepts and Summary ... 654
Chapter 34 Macroeconomic Policy around the world.pdf ... 656
	The Diversity of Countries and Economies across the World ... 657
	Economic Growth ... 658
		Growth Policies for the Technological Leaders ... 659
		Growth Policies for the Converging Economies ... 659
		Growth Policies for the Technologically Disconnected ... 660
	Lower Unemployment ... 662
		Unemployment from a Recession ... 662
		The Natural Rate of Unemployment ... 663
		Undeveloped Labor Markets ... 664
	Policies for Lower Inflation ... 664
	Policies for a Sustainable Balance of Trade ... 665
		Concerns over International Trade in Goods and Services ... 666
		Concerns over International Flows of Capital ... 666
	Final Thoughts on Economics and Market Institutions ... 668
	Key Concepts and Summary ... 670
Index.pdf ... 671