Principles of Macroeconomics, 10th Edition (Pearson Series in Economics)

Cover......Page 1
Title Page......Page 5
Copyright Page......Page 6
Contents......Page 9
About the Authors......Page 7
Preface......Page 19
Acknowledgments......Page 28
1 The Scope and Method of Economics......Page 35
Why Study Economics?......Page 36
The Scope of Economics......Page 40
The Method of Economics......Page 43
Summary......Page 49
Problems......Page 50
Appendix: How to Read and Understand Graphs......Page 51
2 The Economic Problem: Scarcity and Choice......Page 59
Scarcity, Choice, and Opportunity Cost......Page 60
ECONOMICS IN PRACTICE: Frozen Foods and Opportunity Costs......Page 62
Economic Systems and the Role of Government......Page 73
Looking Ahead......Page 76
Review Terms and Concepts......Page 77
Problems......Page 78
Firms and Households: The Basic Decision-Making Units......Page 81
Input Markets and Output Markets: The Circular Flow......Page 82
Demand in Product/Output Markets......Page 84
ECONOMICS IN PRACTICE: Kindle in the College Market?......Page 89
Supply in Product/Output Markets......Page 94
Market Equilibrium......Page 100
ECONOMICS IN PRACTICE: High Prices for Tomatoes......Page 104
Looking Ahead: Markets and the Allocation of Resources......Page 106
ECONOMICS IN PRACTICE: Why Do the Prices of Newspapers Rise?......Page 107
Summary......Page 108
Review Terms and Concepts......Page 109
Problems......Page 110
The Price System: Rationing and Allocating Resources......Page 113
ECONOMICS IN PRACTICE: Prices and Total Expenditure: A Lesson From the Lobster Industry in 2008–2009......Page 115
Supply and Demand Analysis: An Oil Import Fee......Page 120
ECONOMICS IN PRACTICE: The Price Mechanism at Work for Shakespeare......Page 121
Supply and Demand and Market Efficiency......Page 123
Summary......Page 127
Problems......Page 128
5 Introduction to Macroeconomics......Page 131
Macroeconomic Concerns......Page 132
The Components of the Macroeconomy......Page 134
A Brief History of Macroeconomics......Page 137
The U.S. Economy Since 1970......Page 139
ECONOMICS IN PRACTICE: John Maynard Keynes......Page 141
Summary......Page 142
Problems......Page 143
Gross Domestic Product......Page 145
Calculating GDP......Page 147
ECONOMICS IN PRACTICE: Where Does eBay Get Counted?......Page 149
ECONOMICS IN PRACTICE GDP: One of the Great Inventions of the 20th Century......Page 153
Nominal versus Real GDP......Page 154
Limitations of the GDP Concept......Page 157
Summary......Page 159
Review Terms and Concepts......Page 160
Problems......Page 161
Unemployment......Page 163
ECONOMICS IN PRACTICE: A Quiet Revolution: Women Join the Labor Force......Page 167
Inflation......Page 169
ECONOMICS IN PRACTICE: The Politics of Cost-of-Living Adjustments......Page 172
Long-Run Growth......Page 174
Looking Ahead......Page 176
Problems......Page 177
PART III: The Core of Macroeconomic Theory......Page 179
8 Aggregate Expenditure and Equilibrium Output......Page 181
The Keynesian Theory of Consumption......Page 182
Planned Investment (I)......Page 186
The Determination of Equilibrium Output (Income)......Page 187
The Multiplier......Page 191
ECONOMICS IN PRACTICE: The Paradox of Thrift......Page 194
Looking Ahead......Page 195
Problems......Page 196
Appendix: Deriving the Multiplier Algebraically......Page 198
9 The Government and Fiscal Policy......Page 199
Government in the Economy......Page 200
Fiscal Policy at Work: Multiplier Effects......Page 204
The Federal Budget......Page 209
The Economy’s Influence on the Government Budget......Page 214
ECONOMICS IN PRACTICE: Governments Disagree on How Much More Spending Is Needed......Page 215
Summary......Page 216
Problems......Page 217
Appendix B: The Case in Which Tax Revenues Depend on Income......Page 219
An Overview of Money......Page 223
ECONOMICS IN PRACTICE: Dolphin Teeth as Currency......Page 225
How Banks Create Money......Page 227
The Federal Reserve System......Page 233
How the Federal Reserve Controls the Money Supply......Page 237
Review Terms and Concepts......Page 243
Problems......Page 244
Interest Rates and Bond Prices......Page 247
The Demand for Money......Page 248
ECONOMICS IN PRACTICE: ATMs and the Demand for Money......Page 253
The Equilibrium Interest Rate......Page 254
Summary......Page 257
Problems......Page 258
Appendix A: The Various Interest Rates in the U.S. Economy......Page 259
Appendix B: The Demand For Money: A Numerical Example......Page 261
12 Aggregate Demand in the Goods and Money Markets......Page 263
Planned Investment and the Interest Rate......Page 264
ECONOMICS IN PRACTICE: Small Business and the Credit Crunch......Page 265
Equilibrium in Both the Goods and Money Markets: The IS-LM Model......Page 266
Policy Effects in the Goods and Money Markets......Page 267
The Aggregate Demand (AD) Curve......Page 271
Summary......Page 275
Problems......Page 276
Appendix: The IS-LM Model......Page 277
The Aggregate Supply Curve......Page 281
The Equilibrium Price Level......Page 284
The Long-Run Aggregate Supply Curve......Page 285
ECONOMICS IN PRACTICE: The Simple “Keynesian” Aggregate Supply Curve......Page 286
Monetary and Fiscal Policy Effects......Page 287
Causes of Inflation......Page 289
ECONOMICS IN PRACTICE: Inflationary Expectations in China......Page 292
The Behavior of the Fed......Page 293
ECONOMICS IN PRACTICE: Markets Watch the Fed......Page 295
Summary......Page 298
Problems......Page 299
The Labor Market: Basic Concepts......Page 303
The Classical View of the Labor Market......Page 304
Explaining the Existence of Unemployment......Page 306
ECONOMICS IN PRACTICE: Does Unemployment Insurance Increase Unemployment or Only Protect the Unemployed?......Page 308
The Short-Run Relationship Between the Unemployment Rate and Inflation......Page 310
The Long-Run Aggregate Supply Curve, Potential Output, and the Natural Rate of Unemployment......Page 315
Summary......Page 317
Problems......Page 318
15 Financial Crises, Stabilization, and Deficits......Page 321
The Stock Market, the Housing Market, and Financial Crises......Page 322
ECONOMICS IN PRACTICE: Bubbles or Rational Investors?......Page 325
Time Lags Regarding Monetary and Fiscal Policy......Page 328
Government Deficit Issues......Page 332
Summary......Page 334
Problems......Page 335
Households: Consumption and Labor Supply Decisions......Page 337
ECONOMICS IN PRACTICE: Household Reactions to Winning the Lottery......Page 344
Firms: Investment and Employment Decisions......Page 346
Productivity and the Business Cycle......Page 351
The Short-Run Relationship Between Output and Unemployment......Page 352
The Size of the Multiplier......Page 353
Summary......Page 354
Problems......Page 355
17 Long-Run Growth......Page 357
The Growth Process: From Agriculture to Industry......Page 358
Sources of Economic Growth......Page 359
ECONOMICS IN PRACTICE: Education and Skills in the United Kingdom......Page 363
Growth and the Environment and Issues of Sustainability......Page 366
Summary......Page 368
Problems......Page 369
Keynesian Economics......Page 371
Monetarism......Page 372
Supply-Side Economics......Page 375
New Classical Macroeconomics......Page 377
ECONOMICS IN PRACTICE: How Are Expectations Formed?......Page 379
Summary......Page 382
Problems......Page 383
19 International Trade, Comparative Advantage, and Protectionism......Page 385
Trade Surpluses and Deficits......Page 386
The Economic Basis for Trade: Comparative Advantage......Page 387
The Sources of Comparative Advantage......Page 394
Trade Barriers: Tariffs, Export Subsidies, and Quotas......Page 395
Free Trade or Protection?......Page 398
ECONOMICS IN PRACTICE: A Petition......Page 401
Summary......Page 404
Problems......Page 405
20 Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates......Page 409
The Balance of Payments......Page 410
ECONOMICS IN PRACTICE: The Composition of Trade Gaps......Page 413
Equilibrium Output (Income) in an Open Economy......Page 414
ECONOMICS IN PRACTICE: The Recession Takes Its Toll on Trade......Page 417
The Open Economy with Flexible Exchange Rates......Page 418
ECONOMICS IN PRACTICE: China’s Increased Flexibility......Page 424
ECONOMICS IN PRACTICE: Losing Monetary Policy Control......Page 426
Summary......Page 427
Review Terms and Concepts......Page 428
Problems......Page 429
Appendix: World Monetary Systems Since 1900......Page 430
21 Economic Growth in Developing and Transitional Economies......Page 435
Life in the Developing Nations: Population and Poverty......Page 436
Economic Development: Sources and Strategies......Page 437
ECONOMICS IN PRACTICE: Corruption......Page 440
ECONOMICS IN PRACTICE: Cell Phones Increase Profits for Fishermen in India......Page 444
Development Interventions......Page 445
The Transition to a Market Economy......Page 449
Summary......Page 453
Review Terms and Concepts......Page 454
Problems......Page 455
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Photo Credits......Page 473