Principles of Macroeconomics

Title
Contents
PART I Introduction
	Chapter 1 Thinking Like an Economist
		Economics: Studying Choice in a World of Scarcity
		Applying the Cost-Benefit Principle
		Economic Surplus
		Opportunity Cost
		The Role of Economic Models
		Three Important Decision Pitfalls
		Pitfall 1: Measuring Costs and Benefits as Proportions Rather Than Absolute Dollar Amounts
		Pitfall 2: Ignoring Implicit Costs
		Pitfall 3: Failure to Think at the Margin
		Normative Economics versus Positive Economics
		Economics: Micro and Macro
		The Approach of This Text
		Economic Naturalism
		EXAMPLE 1.1 THE ECONOMIC NATURALIST: Why do many hardware manufacturers include more than $1,000 worth of “free” software with a computer selling for only slightly more than that?
		EXAMPLE 1.2 THE ECONOMIC NATURALIST: Why don’t auto manufacturers make cars without heaters?
		EXAMPLE 1.3 THE ECONOMIC NATURALIST: Why do the keypad buttons on drive-up automatic teller machines have Braille dots?
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
		Appendix: Working with Equations, Graphs, and Tables
	Chapter 2 Comparative Advantage
		Exchange and Opportunity Cost
		The Principle of Comparative Advantage
		EXAMPLE 2.1 THE ECONOMIC NATURALIST: Where have all the 400 hitters gone?
		Sources of Comparative Advantage
		EXAMPLE 2.2 THE ECONOMIC NATURALIST: Televisions and videocassette recorders were developed and first produced in the United States, but today the United xxiii
		States accounts for only a minuscule share of the total world production of these products. Why did the United States fail to retain its lead in these markets?
		Comparative Advantage and Production Possibilities
		The Production Possibilities Curve
		How Individual Productivity Affects the Slope and Position of the PPC
		The Gains from Specialization and Exchange
		A Production Possibilities Curve for a Many-Person Economy
		Factors That Shift the Economy’s Production Possibilities Curve
		Why Have Some Countries Been Slow to Specialize?
		Can We Have Too Much Specialization?
		Comparative Advantage and International Trade
		EXAMPLE 2.3 THE ECONOMIC NATURALIST: If trade between nations is so beneficial, why are free-trade agreements so controversial?
		Outsourcing
		EXAMPLE 2.4 THE ECONOMIC NATURALIST: Is PBS economics reporter Paul Solman’s job a likely candidate for outsourcing?
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 3 Supply and Demand
		What, How, and for Whom? Central Planning versus the Market
		Buyers and Sellers in Markets
		The Demand Curve
		The Supply Curve
		Market Equilibrium
		Rent Controls Reconsidered
		Pizza Price Controls?
		Predicting and Explaining Changes in Prices and Quantities
		Shifts in Demand
		EXAMPLE 3.1 THE ECONOMIC NATURALIST: When the federal government implements a large pay increase for its employees, why do rents for apartments located near Washington Metro stations go up relative to rents for apartments located far away from Metro stations?
		Shifts in the Supply Curve
		EXAMPLE 3.2 THE ECONOMIC NATURALIST: Why do major term papers go through so many more revisions today than in the 1970s?
		Four Simple Rules
		EXAMPLE 3.3 THE ECONOMIC NATURALIST: Why do the prices of some goods, like airline tickets to Europe, go up during the months of heaviest consumption, while others, like sweet corn, go down?
		Efficiency and Equilibrium
		Cash on the Table
		Smart for One, Dumb for All
		Summary
		Core Principles
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
		Appendix: The Algebra of Supply and Demand
PART 2 Macroeconomics: Data and Issues
	Chapter 4 Spending, Income, and GDP
		Gross Domestic Product: Measuring the Nation’s Output
		Market Value
		EXAMPLE 4.1 THE ECONOMIC NATURALIST: Why has female participation in the labor market increased by so much? What explains the trends illustrated in Figure 4.1?
		Final Goods and Services
		Produced within a Country during a Given Period
		The Expenditure Method for Measuring GDP
		GDP and the Incomes of Capital and Labor
		Nominal GDP versus Real GDP
		EXAMPLE 4.2 THE ECONOMIC NATURALIST: Can nominal and real GDP ever move in different directions?
		Real GDP Is Not the Same as Economic Well-Being
		Leisure Time
		EXAMPLE 4.3 THE ECONOMIC NATURALIST: Why do people work fewer hours today than their great-grandparents did?
		Nonmarket Economic Activities
		Environmental Quality and Resource Depletion
		Quality of Life
		Poverty and Economic Inequality
		But GDP Is Related to Economic Well-Being
		Availability of Goods and Services
		Health and Education
		EXAMPLE 4.4 THE ECONOMIC NATURALIST: Why do far fewer children complete high school in poor countries than in rich countries?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 5 Inflation and the Price Level
		The Consumer Price Index: Measuring the Price Level
		Inflation
		Adjusting for Inflation
		Deflating a Nominal Quantity
		Indexing to Maintain Buying Power
		Does the CPI Measure “True” Inflation?
		The Costs of Inflation: Not What You Think
		The True Costs of Inflation
		“Noise” in the Price System
		Distortions of the Tax System
		“Shoe-Leather” Costs
		Unexpected Redistribution of Wealth
		Interference with Long-Run Planning
		Hyperinflation
		Inflation and Interest Rates
		Inflation and the Real Interest Rate
		The Fisher Effect
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 6 Wages and Unemployment
		Five Important Labor Market Trends
		Trends in Real Wages
		Trends in Employment and Unemployment
		Supply and Demand in the Labor Market
		Wages and the Demand for Labor
		Shifts in the Demand for Labor
		The Supply of Labor
		Shifts in the Supply of Labor
		Explaining the Trends in Real Wages and Employment
		Why Have Real Wages Increased by So Much in the Industrialized Countries?
		Since the 1970s, Real Wage Growth in the United States Has Slowed, While Employment Has Expanded Rapidly
		Increasing Wage Inequality: The Effects of Globalization
		Increasing Wage Inequality: Technological Change
		Unemployment and the Unemployment Rate
		Measuring Unemployment
		The Costs of Unemployment
		The Duration of Unemployment
		The Unemployment Rate versus “True” Unemployment
		Types of Unemployment and Their Costs
		Frictional Unemployment
		Structural Unemployment
		Cyclical Unemployment
		Impediments to Full Employment
		Minimum Wage Laws
		Labor Unions
		Unemployment Insurance
		Other Government Regulations
		Why Are Unemployment Rates So High in Western Europe?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In Chapter Exercises
PART 3 The Economy in the Long Run
	Chapter 7 Economic Growth
		The Remarkable Rise in Living Standards: The Record
		Why “Small” Differences in Growth Rates Matter
		Why Nations Become Rich: The Crucial Role of Average Labor Productivity
		The Determinants of Average Labor Productivity
		Human Capital
		Physical Capital
		Land and Other Natural Resources
		Technology
		Entrepreneurship and Management
		EXAMPLE 7.1 THE ECONOMIC NATURALIST: Why did medieval China stagnate economically?
		The Political and Legal Environment
		The Costs of Economic Growth
		Promoting Economic Growth
		Policies to Increase Human Capital
		EXAMPLE 7.2 THE ECONOMIC NATURALIST: Why do almost all countries provide free public education?
		Policies That Promote Saving and Investment
		Policies That Support Research and Development
		The Legal and Political Framework
		The Poorest Countries: A Special Case?
		Are There Limits to Growth?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 8 Saving, Capital Formation, and Financial Markets
		Saving and Wealth
		Stocks and Flows
		Capital Gains and Losses
		National Saving and Its Components
		The Measurement of National Saving
		Private and Public Components of National Saving
		Public Saving and the Government Budget
		Is Low Household Saving a Problem?
		Why Do People Save?
		Saving and the Real Interest Rate
		Saving, Self-Control, and Demonstration Effects
		Investment and Capital Formation
		EXAMPLE 8.1 THE ECONOMIC NATURALIST: Why has investment in computers increased so much in recent decades?
		Saving, Investment, and Financial Markets
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 9 The Financial System, Money, and Prices
		The Financial System and the Allocation of Saving to Productive Uses
		The Banking System
		Bonds and Stocks
		Bond Markets, Stock Markets, and the Allocation of Savings
		EXAMPLE 9.1 THE ECONOMIC NATURALIST: Why did the U.S. stock market rise sharply in the 1990s, then fall in the new millennium?
		Money and Its Uses
		Measuring Money
		Commercial Banks and the Creation of Money
		The Money Supply with Both Currency and Deposits
		Central Banks, the Money Supply, and Prices
		Controlling the Money Supply with Open-Market Operations
		Money and Prices
		Velocity
		Money and Inflation in the Long Run
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
PART 4 The Economy in the Short Run
	Chapter 10 Short-Term Fluctuations
		Recessions and Expansions
		Some Facts about Short-Term Economic Fluctuations
		Output Gaps and Cyclical Unemployment
		Potential Output and the Output Gap
		The Natural Rate of Unemployment and Cyclical Unemployment
		Okun’s Law
		Why Do Short-Term Fluctuations Occur? A Preview and a Parable
		EXAMPLE 10.1 THE ECONOMIC NATURALIST: Why did the Coca-Cola Company test a vending machine that “knows” when the weather is hot?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 11 Spending and Output in the Short Run
		The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
		Planned Aggregate Expenditure
		Planned Spending versus Actual Spending
		Consumer Spending and the Economy
		Planned Aggregate Expenditure and Output
		Short-Run Equilibrium Output
		Finding Short-Run Equilibrium Output: Numerical Approach
		Finding Short-Run Equilibrium Output: Graphical Approach
		Planned Spending and the Output Gap
		The Multiplier
		Stabilizing Planned Spending: The Role of Fiscal Policy
		Government Purchases and Planned Spending
		EXAMPLE 11.1 THE ECONOMIC NATURALIST: Why did Japan build roads that nobody wanted to use?
		Taxes, Transfers, and Aggregate Spending
		Fiscal Policy as a Stabilization Tool: Three Qualifications
		Fiscal Policy and the Supply Side
		The Problem of Deficits
		The Relative Inflexibility of Fiscal Policy
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
		Appendix A: An Algebraic Solution of the Basic Keynesian Model
		Appendix B: The Multiplier in the Basic Keynesian Model
	Chapter 12 Stabilizing the Economy: The Role of the Federal Reserve
		The Federal Reserve
		The History and Structure of the Federal Reserve System
		The Fed’s Role in Stabilizing Financial Markets: Banking Panics
		The Effects of Federal Reserve Actions on the Economy
		Can The Fed Control the Real Interest Rate?
		Planned Aggregate Expenditure and the Real Interest Rate
		The Fed Fights a Recession
		The Fed Fights Inflation
		EXAMPLE 12.1THE ECONOMIC NATURALIST: Why does news of inflation hurt the stock market?
		The Fed’s Monetary Policy Rule
		The Federal Reserve and Interest Rates
		The Demand for Money
		Macroeconomic Factors That Affect the Demand for Money
		The Money Demand Curve
		EXAMPLE 12.2 THE ECONOMIC NATURALIST: Why does the average Argentine hold more U.S. dollars than the average U.S. citizen?
		The Supply of Money and Money Market Equilibrium
		How the Fed Controls the Nominal Interest Rate
		A Second Way the Fed Controls the Money Supply: Discount Window Lending
		A Third Way of Controlling the Money Supply: Changing Reserve Requirements
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
		Appendix: Monetary Policy in the Basic Keynesian Model
	Chapter 13 Aggregate Demand and Aggregate Supply
		The Aggregate Demand–Aggregate Supply Model: A Brief Overview
		Inflation, Spending, and Output: The Aggregate Demand Curve
		Inflation, the Fed, and the AD Curve
		Shifts of the AD Curve
		Inflation and Aggregate Supply
		Inflation Inertia, Output Gaps, and the AS Curve
		Shifts of the AS Curve
		Aggregate Demand–Aggregate Supply Analysis
		An Expansionary Gap
		A Recessionary Gap
		The Self-Correcting Economy
		Sources of Inflation
		Excessive Aggregate Spending
		Shocks to Potential Output
		Was Greenspan Right in 1996?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 14 Macroeconomic Policy
		Using Monetary Policy to Reduce High Inflation
		EXAMPLE 14.1 THE ECONOMIC NATURALIST: How was inflation conquered in the 1980s?
		Keeping Inflation Low
		Responding to Shocks in Spending
		Responding to Shocks in Aggregate Supply
		Why Has Macroeconomic Volatility in the United States Declined so Much Since 1985?
		Why Didn’t the Oil Price Increases of 2003–2005 Lead to a Recession or a Substantial Increase in Inflation?
		The Core Rate of Inflation
		Inflationary Expectations and Credibility
		Central Bank Independence
		Announcing a Numerical Inflation Target
		Central Bank Reputation
		Fiscal Policy and the Supply Side
		EXAMPLE 14.2 THE ECONOMIC NATURALIST: Why do Americans work more hours than Europeans?
		Policymaking: Art or Science?
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
PART 5: The International Economy
	Chapter 15 Exchange Rates and the Open Economy
		Exchange Rates
		Nominal Exchange Rates
		Flexible versus Fixed Exchange Rates
		The Determination of the Exchange Rate in the Short Run
		A Supply and Demand Analysis
		Changes in the Supply of Dollars
		Changes in the Demand for Dollars
		Monetary Policy and the Exchange Rate
		The Exchange Rate as a Tool of Monetary Policy
		Fixed Exchange Rates
		How to Fix an Exchange Rate
		Monetary Policy and the Fixed Exchange Rate
		Monetary Policy, Fixed Exchange Rates, and the Great Depression
		The International Monetary Fund
		Should Exchange Rates Be Fixed or Flexible?
		The Euro: A Common Currency for Europe
		Determination of the Exchange Rate in the Long Run
		The Real Exchange Rate
		A Simple Theory of Exchange Rates: Purchasing Power Parity (PPP)
		Shortcomings of the PPP Theory
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
	Chapter 16 International Trade and Capital Flows
		The Trade Balance and Net Capital Inflows
		Comparative Advantage as a Basis for Trade
		Production and Consumption Possibilities and the Benefits of Trade
		Consumption Possibilities With and Without International Trade
		How Do World Prices Affect What a Country Produces?
		Trade Restrictions: Causes and Consequences
		Protectionist Policies: Tariffs and Quotas
		EXAMPLE 16.1 THE ECONOMIC NATURALIST: Why do consumers in the United States pay more than double the world price for sugar?
		The Inefficiency of Protectionism
		International Capital Flows
		The Determinants of International Capital Flows
		Saving, Investment, and Capital Inflows
		The Saving Rate and the Trade Deficit
		Summary
		Key Terms
		Review Questions
		Problems
		Answers to In-Chapter Exercises
Glossary G-
Index I-