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Brief Principles of Macroeconomics

by
Edition:
3rd
ISBN13:

9780324171907

ISBN10:
0324171900
Format:
Paperback
Pub. Date:
2/21/2003
Publisher(s):
South-Western College Pub
List Price: $145.66

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Summary

When the Mankiw text was first published, The Economist wrote, "Mr. Mankiw's book sets a new standard of clarity and liveliness." USA Today called it "a grand success." Since then, the book has been translated into more than a dozen languages and has been used at hundreds of schools to introduce economics to hundreds of thousands of students around the world. South-Western is now pleased to bring you this third edition. To help you in your study, South-Western has prepared a variety of student resources to accompany the book. These supplements test your understanding and provide you with opportunities for practice and research in economics. Book jacket.

Table of Contents

Preface: To the Instructor v
Preface: To the Student xxii
PART 1 INTRODUCTION
1(60)
Ten Principles of Economics
3(16)
How People Make Decisions
4(4)
Principle #1: People Face Tradeoffs
4(1)
Principle #2: The Cost of Something Is What You Give Up to Get It
5(1)
Principle #3: Rational People Think at the Margin
6(1)
Principle #4: People Respond to Incentives
7(1)
How People Interact
8(3)
Principle #5: Trade Can Make Everyone Better Off
8(1)
Principle #6: Markets Are Usually a Good Way to Organize Economic Activity
9(1)
FYI: Adam Smith and the Invisible Hand
Principle #7: Governments Can Sometimes Improve Market Outcomes
10(1)
How the Economy as a Whole Works
11(4)
Principle #8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services
11(1)
Principle #9: Prices Rise When the Government Prints Too Much Money
12(1)
Principle #10: Society Faces a Short-Run Tradeoff between Inflation and Unemployment
13(2)
FYI: How to Read This Book
Conclusion
15(1)
Summary
15(1)
Key Concepts
16(1)
Questions for Review
16(1)
Problems and Applications
16(3)
Thinking Like an Economist
19(26)
The Economist as Scientist
20(8)
The Scientific Method: Observation, Theory, and More Observation
21(1)
The Role of Assumptions
21(1)
Economic Models
22(1)
Our First Model: The Circular-Flow Diagram
23(1)
Our Second Model: The Production Possibilities Frontier
24(2)
Microeconomics and Macroeconomics
26(2)
The Economist as Policy Adviser
28(2)
Positive versus Normative Analysis
28(1)
Economists in Washington
29(1)
Why Economists Disagree
30(2)
Differences in Scientific Judgments
30(1)
Differences in Values
31(1)
Perception versus Reality
31(1)
Let's Get Going
32(1)
Summary
33(1)
Key Concepts
33(1)
Questions for Review
33(1)
Problems and Applications
34(2)
Appendix Graphing: A Brief Review
36(9)
Graphs of a Single Variable
36(1)
Graphs of Two Variables: The Coordinate System
36(1)
Curves in the Coordinate System
37(4)
Slope
41(1)
Cause and Effect
42(3)
Interdependence and the Gains from Trade
45(16)
A Parable for the Modern Economy
46(4)
Production Possibilities
46(2)
Specialization and Trade
48(2)
The Principle of Comparative Advantage
50(4)
Absolute Advantage
51(1)
Opportunity Cost and Comparative Advantage
51(1)
Comparative Advantage and Trade
52(2)
FYI: The Legacy of Adam Smith and David Ricardo
Applications of Comparative Advantage
54(2)
Should Tiger Woods Mow His Own Lawn?
54(2)
Should the United States Trade with Other Countries?
56(1)
In the News: Who Has a Comparative Advantage in Producing Lamb?
Conclusion
56(1)
Summary
57(1)
Key Concepts
57(1)
Questions for Review
57(1)
Problems and Applications
57(4)
PART 2 SUPPLY AND DEMAND I: HOW MARKETS WORK
61(28)
The Market Forces of Supply and Demand
63(26)
Markets and Competition
64(1)
Competitive Markets
64(1)
Competition: Perfect and Otherwise
64(1)
Demand
65(6)
The Demand Curve: The Relationship between Price and Quantity Demanded
65(1)
Market Demand versus Individual Demand
66(1)
Shifts in the Demand Curve
67(4)
Case Study: Two Ways to Reduce the Quantity of Smoking Demanded
Supply
71(4)
The Supply Curve: The Relationship between Price and Quantity Supplied
71(1)
Market Supply versus Individual Supply
72(1)
Shifts in the Supply Curve
73(2)
Supply and Demand Together
75(8)
Equilibrium
75(2)
Three Steps to Analyzing Changes in Equilibrium
77(6)
In the News: Mother Nature Shifts the Supply Curve
Conclusion: How Prices Allocate Resources
83(1)
Summary
84(1)
Key Concepts
85(1)
Questions for Review
85(1)
Problems and Applications
86(3)
PART 3 THE DATA OF MACROECONOMICS
89(38)
Measuring a Nation's Income
91(20)
The Economy's Income and Expenditure
92(2)
The Measurement of Gross Domestic Product
94(3)
``GDP Is the Market Value . . .''
94(1)
``. . . Of All . . .''
94(1)
``. . . Final . . .''
95(1)
``. . . Goods and Services . . .''
95(1)
``. . . Produced . . .''
95(1)
``. . . Within a Country . . .''
95(1)
``. . . In a Given Period of Time''
95(2)
FYI: Other Measures of Income
The Components of GDP
97(2)
Consumption
97(1)
Investment
97(1)
Government Purchases
98(1)
Net Exports
98(1)
Case Study: The Components of U.S. GDP
Real versus Nominal GDP
99(5)
A Numerical Example
100(1)
The GDP Deflator
101(3)
Case Study: Real GDP over Recent History
In the News: GDP Lightens Up
GDP and Economic Well-Being
104(3)
Case Study: International Differences in GDP and the Quality of Life
Case Study: Who Wins at the Olympics?
Conclusion
107(1)
Summary
107(1)
Key Concepts
108(1)
Questions for Review
108(1)
Problems and Applications
108(3)
Measuring the Cost of Living
111(16)
The Consumer Price Index
112(7)
How the Consumer Price Index Is Calculated
112(3)
FYI: What Is in the CPI's Basket?
In the News: Shopping for the CPI
Problems in Measuring the Cost of Living
115(3)
The GDP Deflator versus the Consumer Price Index
118(1)
Correcting Economic Variables for the Effects of Inflation
119(4)
Dollar Figures from Different Times
119(1)
Case Study: Mr. Index Goes to Hollywood
Indexation
120(1)
Real and Nominal Interest Rates
121(2)
Conclusion
123(1)
Summary
123(1)
Key Concepts
124(1)
Questions for Review
124(1)
Problems and Applications
124(3)
PART 4 THE REAL ECONOMY IN THE LONG RUN
127(90)
Production and Growth
129(24)
Economic Growth around the World
130(2)
FYI: Are You Richer Than the Richest American?
Productivity: Its Role and Determinants
132(5)
Why Productivity Is So Important
132(1)
How Productivity Is Determined
133(4)
FYI: The Production Function
Case Study: Are Natural Resources a Limit to Growth?
Economic Growth and Public Policy
137(13)
The Importance of Saving and Investment
137(1)
Diminishing Returns and the Catch-Up Effect
138(1)
Investment from Abroad
139(2)
Education
141(1)
In the News: Promoting Human Capital
Property Rights and Political Stability
142(1)
Free Trade
143(1)
Research and Development
144(2)
Case Study: The Productivity Slowdown and Speedup
Population Growth
146(4)
In the News: A Solution to Africa's Problems
Conclusion: The Importance of Long-Run Growth
150(1)
Summary
150(1)
Key Concepts
150(1)
Questions for Review
151(1)
Problems and Applications
151(2)
Saving, Investment, and the Financial System
153(22)
Financial Institutions in the U.S. Economy
154(6)
Financial Markets
154(2)
FYI: How to Read the Newspaper's Stock Tables Financial Intermediaries
156(3)
Summing Up
159(1)
In the News: Finance in China
Saving and Investment in the National Income Accounts
160(2)
Some Important Identities
160(2)
The Meaning of Saving and Investment
162(1)
The Market for Loanable Funds
162(9)
Supply and Demand for Loanable Funds
163(2)
Policy 1: Saving Incentives
165(1)
Policy 2: Investment Incentives
166(1)
Policy 3: Government Budget Deficits and Surpluses
167(4)
Case Study: The History of U.S. Government Debt
Conclusion
171(1)
Summary
172(1)
Key Concepts
172(1)
Questions for Review
172(1)
Problems and Applications
173(2)
The Basic Tools of Finance
175(16)
Present Value: Measuring the Time Value of Money
176(2)
FYI: The Magic of Compounding and the Rule of 70
Managing Risk
178(5)
Risk Aversion
178(1)
The Markets for Insurance
179(1)
Diversification of Idiosyncratic Risk
180(2)
The Tradeoff between Risk and Return
182(1)
Asset Valuation
183(4)
Fundamental Analysis
183(1)
The Efficient Markets Hypothesis
184(1)
Case Study: Random Walks and Index Funds Market Irrationality
185(2)
In the News: Some Lessons from Enron
Conclusion
187(1)
Summary
188(1)
Key Concepts
188(1)
Questions for Review
189(1)
Problems and Applications
189(2)
Unemployment and Its Natural Rate
191(26)
Identifying Unemployment
192(7)
How Is Unemployment Measured?
192(5)
Case Study: Labor-Force Participation of Men and Women in the U.S. Economy
Does the Unemployment Rate Measure What We Want It To?
197(1)
How Long Are the Unemployed without Work?
197(2)
Why Are There Always Some People Unemployed?
199(1)
Job Search
199(4)
Why Some Frictional Unemployment Is Inevitable
200(1)
Public Policy and Job Search
200(1)
Unemployment Insurance
201(2)
In the News: German Unemployment
Minimum-Wage Laws
203(2)
Unions and Collective Bargaining
205(3)
The Economics of Unions
205(1)
Are Unions Good or Bad for the Economy?
206(2)
In the News: Should You Join a Union?
The Theory of Efficiency Wages
208(4)
Worker Health
209(1)
Worker Turnover
209(1)
Worker Effort
209(1)
Worker Quality
210(2)
Case Study: Henry Ford and the Very Generous $5-a-Day Wage
Conclusion
212(1)
Summary
212(1)
Key Concepts
213(1)
Questions for Review
213(1)
Problems and Applications
213(4)
PART 5 MONEY AND PRICES IN THE LONG RUN
217(48)
The Monetary System
219(18)
The Meaning of Money
220(6)
The Functions of Money
220(1)
The Kinds of Money
221(2)
In the News: Money on the Island of Yap
Money in the U.S. Economy
223(3)
FYI: Credit Cards, Debit Cards, and Money
Case Study: Where Is All the Currency?
The Federal Reserve System
226(1)
The Fed's Organization
226(1)
The Federal Open Market Committee
226(1)
Banks and the Money Supply
227(7)
The Simple Case of 100-Percent-Reserve Banking
228(1)
Money Creation with Fractional-Reserve Banking
228(1)
The Money Multiplier
229(2)
The Fed's Tools of Monetary Control
231(1)
Problems in Controlling the Money Supply
232(2)
Case Study: Bank Runs and the Money Supply
Conclusion
234(1)
Summary
234(1)
Key Concepts
235(1)
Questions for Review
235(1)
Problems and Applications
235(2)
Money Growth and Inflation
237(28)
The Classical Theory of Inflation
238(13)
The Level of Prices and the Value of Money
239(1)
Money Supply, Money Demand, and Monetary Equilibrium
239(2)
The Effects of a Monetary Injection
241(1)
A Brief Look at the Adjustment Process
242(1)
The Classical Dichotomy and Monetary Neutrality
243(2)
Velocity and the Quantity Equation
245(3)
Case Study: Money and Prices during Four Hyperinflations
The Inflation Tax
248(1)
In the News: Russia Turns to the Inflation Tax
The Fisher Effect
249(2)
The Costs of Inflation
251(10)
A Fall in Purchasing Power? The Inflation Fallacy
251(1)
Shoeleather Costs
252(1)
Menu Costs
253(1)
Relative-Price Variability and the Misallocation of Resources
253(1)
Inflation-Induced Tax Distortions
254(1)
Confusion and Inconvenience
255(1)
In the News: The Hyperinflation in Serbia
A Special Cost of Unexpected Inflation: Arbitrary Redistributions of Wealth
256(5)
Case Study: The Wizard of Oz and the Free-Silver Debate
In the News: How to Protect Your Savings from Inflation
Conclusion
261(1)
Summary
261(1)
Key Concepts
262(1)
Questions for Review
262(1)
Problems and Applications
262(3)
PART 6 THE MACROECONOMICS OF OPEN ECONOMIES
265(48)
Open-Economy Macroeconomics: Basic Concepts
267(22)
The International Flows of Goods and Capital
268(9)
The Flow of Goods: Exports, Imports, and Net Exports
268(2)
Case Study: The Increasing Openness of the U.S. Economy
The Flow of Financial Resources: Net Capital Outflow
270(1)
In the News: How the Chinese Help American Home Buyers
The Equality of Net Exports and Net Capital Outflow
271(2)
Saving, Investment, and Their Relationship to the International Flows
273(1)
Summing Up
274(3)
Case Study: Is the U.S. Trade Deficit a National Problem?
The Prices for International Transactions: Real and Nominal Exchange Rates
277(3)
Nominal Exchange Rates
277(1)
Real Exchange Rates
278(2)
FYI: The Euro
A First Theory of Exchange-Rate Determination: Purchasing-Power Parity
280(5)
The Basic Logic of Purchasing-Power Parity
281(1)
Implications of Purchasing-Power Parity
281(3)
Case Study: The Nominal Exchange Rate during a Hyperinflation
Limitations of Purchasing-Power Parity
284(1)
Case Study: The Hamburger Standard
Conclusion
285(1)
Summary
286(1)
Key Concepts
286(1)
Questions for Review
286(1)
Problems and Applications
286(3)
A Macroeconomic Theory of the Open Economy
289(24)
Supply and Demand for Loanable Funds and for Foreign-Currency Exchange
290(5)
The Market for Loanable Funds
290(2)
The Market for Foreign-Currency Exchange
292(3)
FYI: Purchasing-Power Parity as a Special Case
Equilibrium in the Open Economy
295(3)
Net Capital Outflow: The Link between the Two Markets
295(1)
Simultaneous Equilibrium in Two Markets
296(2)
How Policies and Events Affect an Open Economy
298(9)
Government Budget Deficits
298(2)
Trade Policy
300(4)
Political Instability and Capital Flight
304(3)
In the News: The U.S. Trade Deficit
Conclusion
307(1)
Summary
307(1)
Key Concepts
308(1)
Questions for Review
308(1)
Problems and Applications
309(4)
PART 7 SHORT-RUN ECONOMIC FLUCTUATIONS
313(88)
Aggregate Demand and Aggregate Supply
315(32)
Three Key Facts about Economic Fluctuations
316(3)
Fact 1: Economic Fluctuations Are Irregular and Unpredictable
316(1)
Fact 2: Most Macroeconomic Quantities Fluctuate Together
316(3)
Fact 3: As Output Falls, Unemployment Rises
319(1)
In the News: The Trash Indicator
Explaining Short-Run Economic Fluctuations
319(2)
How the Short Run Differs from the Long Run
319(1)
The Basic Model of Economic Fluctuations
320(1)
The Aggregate-Demand Curve
321(5)
Why the Aggregate-Demand Curve Slopes Downward
321(2)
Why the Aggregate-Demand Curve Might Shift
323(3)
The Aggregate-Supply Curve
326(8)
Why the Aggregate-Supply Curve Is Vertical in the Long Run
326(1)
Why the Long-Run Aggregate-Supply Curve Might Shift
327(2)
A New Way to Depict Long-Run Growth and Inflation
329(1)
Why the Aggregate-Supply Curve Slopes Upward in the Short Run
330(2)
Why the Short-Run Aggregate-Supply Curve Might Shift
332(2)
Two Causes of Economic Fluctuations
334(9)
The Effects of a Shift in Aggregate Demand
334(5)
Case Study: Two Big Shifts in Aggregate Demand: The Great Depression and World War II
Case Study: The Recession of 2001
The Effects of a Shift in Aggregate Supply
339(4)
Case Study: Oil and the Economy
FYI: The Origins of Aggregate Demand and Aggregate Supply
Conclusion
343(1)
Summary
343(1)
Key Concepts
344(1)
Questions for Review
344(1)
Problems and Applications
345(2)
The Influence of Monetary and Fiscal Policy on Aggregate Demand
347(26)
How Monetary Policy Influences Aggregate Demand
348(9)
The Theory of Liquidity Preference
349(3)
FYI: Interest Rates in the Long Run and the Short Run
The Downward Slope of the Aggregate-Demand Curve
352(1)
Changes in the Money Supply
353(2)
The Role of Interest-Rate Targets in Fed Policy
355(2)
Case Study: Why the Fed Watches the Stock Market (and Vice Versa)
How Fiscal Policy Influences Aggregate Demand
357(6)
Changes in Government Purchases
357(1)
The Multiplier Effect
357(1)
A Formula for the Spending Multiplier
358(2)
Other Applications of the Multiplier Effect
360(1)
The Crowding-Out Effect
360(1)
Changes in Taxes
361(2)
FYI: How Fiscal Policy Might Affect Aggregate Supply
Using Policy to Stabilize the Economy
363(5)
The Case for Active Stabilization Policy
363(2)
Case Study: Keynesians in the White House
The Case against Active Stabilization Policy
365(1)
Automatic Stabilizers
366(2)
In the News: The Independence of the Federal Reserve
Conclusion
368(1)
Summary
369(1)
Key Concepts
369(1)
Questions for Review
369(1)
Problems and Applications
370(3)
The Short-Run Tradeoff between Inflation and Unemployment
373(28)
The Phillips Curve
374(3)
Origins of the Phillips Curve
374(1)
Aggregate Demand, Aggregate Supply, and the Phillips Curve
375(2)
Shifts in the Phillips Curve: The Role of Expectations
377(7)
The Long-Run Phillips Curve
377(3)
Expectations and the Short-Run Phillips Curve
380(2)
The Natural Experiment for the Natural-Rate Hypothesis
382(2)
In the News: The Benefits of Low Expected Inflation
Shifts in the Phillips Curve: The Role of Supply Shocks
384(4)
The Cost of Reducing Inflation
388(8)
The Sacrifice Ratio
388(1)
Rational Expectations and the Possibility of Costless Disinflation
389(1)
The Volcker Disinflation
390(2)
The Greenspan Era
392(4)
Case Study: Why Were Inflation and Unemployment So Low at the End of the 1990s?
In the News: The Case for Inflation Targeting
Conclusion
396(1)
Summary
396(1)
Key Concepts
397(1)
Questions for Review
397(1)
Problems and Applications
397(4)
PART 8 FINAL THOUGHTS
401(20)
Five Debates Over Macroeconomic Policy
403(18)
Should Monetary and Fiscal Policymakers Try to Stabilize the Economy?
404(2)
Pro: Policymakers Should Try to Stabilize the Economy
404(1)
Con: Policymakers Should Not Try to Stabilize the Economy
404(2)
Should Monetary Policy Be Made by Rule Rather Than by Discretion?
406(3)
Pro: Monetary Policy Should Be Made by Rule
406(2)
In the News: Alan Greenspan versus the PC
Con: Monetary Policy Should Not Be Made by Rule
408(1)
Should the Central Bank Aim for Zero Inflation?
409(3)
Pro: The Central Bank Should Aim for Zero Inflation
409(1)
Con: The Central Bank Should Not Aim for Zero Inflation
410(2)
Should the Government Balance Its Budget?
412(2)
Pro: The Government Should Balance Its Budget
412(1)
Con: The Government Should Not Balance Its Budget
413(1)
Should the Tax Laws Be Reformed to Encourage Saving?
414(3)
Pro: The Tax Laws Should Be Reformed to Encourage Saving
415(1)
Con: The Tax Laws Should Not Be Reformed to Encourage Saving
416(1)
Conclusion
417(1)
Summary
417(1)
Questions for Review
418(1)
Problems and Applications
419(2)
Glossary 421(3)
Index 424


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