Principles of macroeconomics

Cover......Page 1
Title Page......Page 5
Copyright Page......Page 6
Brief Contents......Page 9
Contents......Page 11
 Chapter 1 The Scope and Method of Economics......Page 37
   To Learn a Way of Thinking......Page 38
   To Understand Society......Page 39
   Microeconomics and Macroeconomics......Page 40
   The Diverse Fields of Economics......Page 41
   Theories and Models......Page 43
   Economic Policy......Page 45
  Summary......Page 47
  Problems......Page 48
  Appendix: How to Read and Understand Graphs......Page 50
 Chapter 2 The Economic Problem: Scarcity and Choice......Page 58
   Scarcity and Choice in a One-Person Economy......Page 59
   Scarcity and Choice in an Economy of Two or More......Page 60
  Economics in Practice Nannies and Opportunity Costs......Page 61
   The Production Possibility Frontier......Page 65
   The Economic Problem......Page 71
   Laissez-Faire Economies: The Free Market......Page 72
   Mixed Systems, Markets, and Governments......Page 73
  Review Terms and Concepts......Page 74
  Problems......Page 75
 Chapter 3 Demand, Supply, and Market Equilibrium......Page 78
  Input Markets and Output Markets: The Circular Flow......Page 79
   Changes in Quantity Demanded versus Changes in Demand......Page 81
   Price and Quantity Demanded: The Law of Demand......Page 82
   Other Determinants of Household Demand......Page 85
  Economics in PracticE Have You Bought ThisTextbook?......Page 86
  Economics in Practice People Drink Tea on Rainy Days......Page 87
   Shift of Demand versus Movement along a Demand Curve......Page 88
   From Household Demand to Market Demand......Page 89
  Supply in Product/Output Markets......Page 91
   Price and Quantity Supplied: The Law of Supply......Page 92
   Other Determinants of Supply......Page 93
   Shift of Supply versus Movement along a Supply Curve......Page 94
   From Individual Supply to Market Supply......Page 95
   Excess Demand......Page 96
   Excess Supply......Page 98
   Changes in Equilibrium......Page 99
   Demand and Supply in Product Markets: A review......Page 101
  Economics in Practice Why Do the Prices ofDelicacies and Goodies Increase Prior to Chinese New Year?......Page 102
  Summary......Page 103
  Review Terms and Concepts......Page 104
  Problems......Page 105
 Chapter 4 Demand and Supply Applications......Page 108
   Price Rationing......Page 109
   Constraints on the Market and Alternative Rationing Mechanisms......Page 111
  Economics in Practice Why Do I Have To Pay More For My Food? The Truth Behind The Flood Crises......Page 113
   Price Floor......Page 115
  Supply and Demand Analysis: An Oil Import Fee......Page 116
  Economics in Practice The Price Mechanism at Work for Shakespeare......Page 117
   Consumer Surplus......Page 118
   Producer Surplus......Page 119
   Competitive Markets Maximize the Sum of Producer and Consumer Surplus......Page 120
  Looking Ahead......Page 121
  Problems......Page 122
 Chapter 5 Introduction to Macroeconomics......Page 126
   Output Growth......Page 127
   Inflation and Deflation......Page 129
   The Circular Flow Diagram......Page 130
   The Three Market Arenas......Page 131
   The Role of the Government in the Macroeconomy......Page 132
  A Brief History of Macroeconomics......Page 133
  Economics in Practice Macroeconomics in Literature......Page 134
   The U.S. Economy Since 1970......Page 135
  Problems......Page 137
 Chapter 6 Measuring National Output and National Income......Page 139
   Final Goods and Services......Page 140
   Exclusion of Output Produced Abroad by Domestically Owned Factors of Production......Page 141
   The Expenditure Approach......Page 142
  Economics in Practice Where Does eBay GetCounted?......Page 143
   The Income Approach......Page 145
  Nominal versus Real GDP......Page 147
  Economics in Practice GDP: One of the GreatInventions of the 20th Century......Page 148
   Calculating Real GDP......Page 149
   Calculating the GDP Deflator......Page 150
   The Problems of Fixed Weights......Page 151
   The Informal Economy......Page 152
   Gross National Income per Capita......Page 153
  Summary......Page 154
  Review Terms and Concepts......Page 155
  Problems......Page 156
 Chapter 7 Unemployment, Inflation, and Long-Run Growth......Page 159
   Measuring Unemployment......Page 160
  Economics in Practice Youth Unemployment......Page 161
   Components of the Unemployment Rate......Page 162
   The Costs of Unemployment......Page 163
  Economics in Practice The Consequences ofUnemployment Persist......Page 164
   The Consumer Price Index......Page 165
   The Costs of Inflation......Page 167
  Long-Run Growth......Page 169
   Output and Productivity Growth......Page 170
  Looking Ahead......Page 171
  Problems......Page 172
Part III The Core of Macroeconomic Theory......Page 175
 Chapter 8 Aggregate Expenditure and Equilibrium Output......Page 177
  The Keynesian Theory of Consumption......Page 178
   Other Determinants of Consumption......Page 181
  Economics in Practice Behavioral Biases in Saving Behavior......Page 182
  Planned investment and the interest rate (r)......Page 183
  The Determination of Equilibrium Output (Income)......Page 184
   The Saving/Investment Approach to Equilibrium......Page 187
  The Multiplier......Page 188
  Economics in Practice General Motors’ Silverado......Page 189
   The Multiplier Equation......Page 191
  Economics in Practice The Paradox of Thrift......Page 192
  Looking Ahead......Page 193
  Review Terms and Concepts......Page 194
  Problems......Page 195
  Appendix......Page 197
 Chapter 9 The Government and Fiscal Policy......Page 198
   Government Purchases (G), Net Taxes (T), andDisposable Income (Yd)......Page 199
   The Determination of Equilibrium Output (Income)......Page 201
  Fiscal Policy at Work: Multiplier Effects......Page 203
   The Government Spending Multiplier......Page 204
   The Tax Multiplier......Page 206
   The Balanced-Budget Multiplier......Page 207
   The Budget in 2014......Page 209
   Fiscal Policy since 1993: The Clinton, Bush, and Obama Administrations......Page 210
   The Federal Government Debt......Page 212
   Automatic Stabilizers and Destabilizers......Page 213
   Full-Employment Budget......Page 214
  Summary......Page 215
  Problems......Page 216
  Appendix A......Page 218
  Appendix B......Page 219
 Chapter 10 Money, the Federal Reserve, and the Interest Rate......Page 223
   What Is Money?......Page 224
   Commodity and Fiat Monies......Page 225
   Measuring the Supply of Money in the United States......Page 226
   A Historical Perspective: Goldsmiths......Page 228
  Economics in Practice A Run on the Bank: George Bailey, Mary Poppins, Wyatt Earp......Page 229
   The Modern Banking System......Page 230
   The Creation of Money......Page 231
   The Money Multiplier......Page 233
  The Federal Reserve System......Page 234
   Functions of the Federal Reserve......Page 235
  The Demand for Money......Page 236
  Interest Rates and Security Prices......Page 237
  Economics in Practice Professor Serebryakov Makes an Economic Error......Page 238
   Tools Prior to 2008......Page 239
   Expanded Fed Activities Beginning in 2008......Page 240
   The Federal Reserve Balance Sheet......Page 241
   Tools After 2008......Page 242
  Summary......Page 243
  Problems......Page 244
  Appendix......Page 247
 Chapter 11 The Determination of Aggregate Output, the Price Level, and the Interest Rate......Page 250
   Aggregate Supply in the Short Run......Page 251
   Shifts of the Short-Run Aggregate Supply Curve......Page 253
   Planned Aggregate Expenditure and the Interest Rate......Page 254
   The Behavior of the Fed......Page 255
  Economics in Practice Central Bankers: DoesPersonality Matter?......Page 257
   Deriving the AD Curve......Page 258
  Economics in Practice Central Banks andPrice Stability: What Prices to Look At?......Page 259
   Curve......Page 260
   Potential GDP......Page 261
  Economics in Practice The Simple “Keynesian” Aggregate Supply Curve......Page 263
  Problems......Page 264
 Chapter 12 Policy Effects and Cost Shocks in the AS/AD Model......Page 267
  Fiscal Policy Effects......Page 268
   Fiscal Policy Effects in the Long Run......Page 269
   The Fed’s Response to the Z Factors......Page 270
   What Happens When There Is a Zero Interest Rate Bound?......Page 271
   Cost Shocks......Page 273
   Demand-Side Shocks......Page 274
  Monetary Policy since 1970......Page 275
  Summary......Page 277
  Problems......Page 278
 Chapter 13 The Labor Market in the Macroeconomy......Page 281
  The Classical View of the Labor Market......Page 282
   The Classical Labor Market and the Aggregate Supply Curve......Page 283
   Efficiency Wage Theory......Page 284
   Minimum Wage Laws......Page 285
   Sticky Wages......Page 286
  Economics in Practice The Longer You AreUnemployed, the Harder It Is to Get a Job......Page 287
  The Short-Run Relationship Between the Unemployment Rate and Inflation......Page 288
   The Phillips Curve: A Historical Perspective......Page 289
   Aggregate Supply and Aggregate Demand Analysis and the Phillips Curve......Page 290
   Expectations and the Phillips Curve......Page 292
  The Long-Run Aggregate Supply Curve, Potential Output, and the Natural Rate of Unemployment......Page 293
   The Nonaccelerating Inflation Rate of Unemployment (NAIRU)......Page 294
  Looking Ahead......Page 295
  Review Terms and Concepts......Page 296
  Problems......Page 297
 Chapter 14 Financial Crises, Stabilization, and Deficits......Page 300
   Determining the Price of a Stock......Page 301
   The Stock Market Since 1948......Page 302
   Housing Prices Since 1952......Page 304
   Financial Crises and the 2008 Bailout......Page 305
  Economics in Practice Predicting Recessions......Page 306
  Time Lags Regarding Monetary and Fiscal Policy......Page 307
   Recognition Lags......Page 308
   Response Lags......Page 309
  Government Deficit issues......Page 310
   Deficit targeting......Page 311
  Review Terms and Concepts......Page 313
  Problems......Page 314
 Chapter 15 Household and Firm Behavior in the Macroeconomy: A Further Look*......Page 316
   The Life-Cycle Theory of Consumption......Page 317
   The Labor Supply Decision......Page 318
   Government Effects on Consumption and Labor Supply: Taxes and Transfers......Page 320
   A Possible Employment Constraint on Households......Page 321
   The Household Sector Since 1970......Page 322
  Economics in Practice Sentiment and Climate......Page 323
   Expectations and Animal Spirits......Page 325
   Excess Labor and Excess Capital Effects......Page 326
   Inventory Investment......Page 327
   The Firm Sector Since 1970......Page 328
  Productivity and the Business Cycle......Page 330
  The Short-Run Relationship Between Output and Unemployment......Page 331
  The Size of the Multiplier......Page 332
  Summary......Page 333
  Problems......Page 334
 Chapter 16 Long-Run Growth......Page 337
  The Growth Process: From Agriculture to Industry......Page 338
   Increase in Labor Supply......Page 339
  Economics in Practice Government Strategyfor Growth......Page 340
   Increase in Physical Capital......Page 341
   Increase in the Quality of the Labor Supply (Human Capital)......Page 342
   Increase in the Quality of Capital (Embodied Technical Change)......Page 343
   Disembodied Technical Change......Page 344
   U.S. Labor Productivity: 1952 I–2014 IV......Page 345
  Growth and the Environment and Issues of Sustainability......Page 346
  Summary......Page 349
  Problems......Page 350
 Chapter 17 Alternative Views in Macroeconomics......Page 353
   The Velocity of Money......Page 354
   The Quantity Theory of Money......Page 355
  Supply-Side Economics......Page 357
   Evaluating Supply-Side Economics......Page 358
   The Development of New Classical Macroeconomics......Page 359
   Rational Expectations......Page 360
  Economics in Practice How Are ExpectationsFormed?......Page 361
   Evaluating the Rational Expectations Assumption......Page 363
  Testing Alternative Macroeconomic Models......Page 364
  Summary......Page 365
  Problems......Page 366
 Chapter 18 International Trade, Comparative Advantage, and Protectionism......Page 368
   Absolute Advantage versus Comparative Advantage......Page 369
   Exchange Rates......Page 374
   Other Explanations for Observed Trade Flows......Page 377
  Trade Barriers: Tariffs, export Subsidies, and Quotas......Page 378
   U.S. Trade Policies, GATT, and the WTO......Page 379
  Economics in Practice What Happens When We Lift a Quota?......Page 380
    The Case for Free Trade......Page 382
    The Case for Protection......Page 383
  Economics in Practice A Petition......Page 385
  An economic consensus......Page 387
  Summary......Page 388
  Problems......Page 389
 Chapter 19 Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates......Page 392
   The Current Account......Page 393
   The Capital Account......Page 395
   The International Sector and Planned Aggregate Expenditure......Page 396
   Import and Export Prices and the Price Feedback Effect......Page 399
  The Open Economy with Flexible Exchange Rates......Page 400
   The Market for Foreign Exchange......Page 401
   Factors That Affect Exchange Rates......Page 403
   The Effects of Exchange Rates on the Economy......Page 405
  Summary......Page 409
  Problems......Page 410
  Appendix......Page 412
 Chapter 20 Economic Growth in Developing Economies......Page 418
  Life in the Developing Nations: Population and Poverty......Page 419
  Economic Development: Sources and Strategies......Page 420
   The Sources of Economic Development......Page 421
  Economics in PracticE Corruptio......Page 423
   Strategies for Economic Development......Page 424
  Economics in Practice Who You Marry MayDepend on the Rain......Page 426
   Two Examples of Development: China and India......Page 428
   Development Interventions......Page 429
    Education Ideas......Page 430
    Health Improvements......Page 431
  Summary......Page 432
  Problems......Page 433
 Chapter 21 Critical Thinking about Research......Page 435
  Selection Bias......Page 436
   Correlation versus Causation......Page 437
   Random experiments......Page 438
   Regression discontinuity......Page 439
  Economics in Practice Moving to Opportunity......Page 440
  Economics in Practice Control group and Experimental economics......Page 441
   Difference-in-Differences......Page 442
  Economics in Practice Using Difference-in-Differences to Study the Minimum Wage......Page 443
   Statistical Significance......Page 444
   Regression Analysis......Page 445
  Summary......Page 447
  Problems......Page 448
Glossary......Page 450
Index......Page 460
Photo Credits......Page 476