Macroeconomics

by Gordon, Robert J.

• ISBN13: 9780321052292
• ISBN10: 0321052293
• Edition: 8th
• Format: Hardcover
• Copyright: 1999-09-01
• Publisher: Addison-Wesley

Summary

In the Eighth Edition of Macroeconomics, Robert Gordon provides an authoritative explanation of the performance of the U.S. economy in the 1990s, while focusing on real-world applications of the core theory. In this new revision, the author retains and refines the pedagogical features that have helped a whole generation of students to learn macroeconomics. Hallmarks of the Gordon text, such as its strong international focus, emphasis on real-world applications, and early, unified treatment of the IS-LM model have earned it extensive praise from instructors and students alike. The Eighth Edition includes coverage of the most current domestic and international issues, including the "Goldilocks" American economy of the 1990s (not "too hot" or "too cold" but "just right"), the federal government budget surplus, the Asian financial crisis, and the euro, making this one of the most current texts available.

Table of Contents

Preface: To the Instructor	xvii
Preface: To the Student	xxvi
PART ONE INTRODUCTION AND MEASUREMENT	1	(62)
What Is Macroeconomics?	3	(24)
How Macroeconomics Affects Our Everyday Lives	3	(2)
Defining Macroeconomics	5	(1)
Business Cycles, Inflation, and ``Natural Real GDP''	6	(5)
A Century of Business Cycles	11	(2)
Macroeconomics in the Short Run and Long Run	13	(2)
The Six Macroeconomic Puzzles	15	(7)
Taming Business Cycles: Stabilization Policy	22	(1)
The ``Internationalization'' of Macroeconomics	23	(4)
How Does U.S. Economic Performance Rank?	24	(3)
The Measurement of Income, Prices, and Unemployment	27	(36)
Why We Care About Income	27	(1)
The Circular Flow of Income and Expenditure	28	(1)
What Transactions Should Be Included in Income and Expenditure?	29	(2)
Components of Expenditure	31	(8)
Where to Find the Numbers: A Guide to the Data	32	(7)
A Summary of Types of Spending	39	(2)
How Much Income Flows from Business Firms to Households?	41	(2)
Nominal GDP, Real GDP, and the GDP Deflator	43	(5)
Saving, Investment, and Government Budgets Around the World	44	(4)
How Nominal GDP Is Split Between Inflation and Changes in Real GDP	48	(4)
How to Calculate Inflation, Real GDP Growth, or Any Other Growth Rate	51	(1)
Measuring Unemployment	52	(3)
Unemployment and the Output Ratio	55	(8)
PART TWO INCOME, INTEREST RATES, POLICY, AND THE OPEN ECONOMY	63	(138)
The Simple Keynesian Theory of Income Determination	65	(28)
Business Cycles, Unemployment, and Income Determination	65	(1)
Planned Expenditure	66	(4)
Why Did U.S. Saving Almost Vanish in 1998?	70	(2)
The Economy In and Out of Equilibrium	72	(6)
The Multiplier Effect	78	(2)
Recessions and Fiscal Policy	80	(4)
Tax Changes and the Multiplier	84	(3)
International Trade, Net Exports, and the Multiplier	87	(6)
How the Asian Crisis Worsened U.S. Net Exports	88	(5)
The IS-LM Model	93	(31)
Introduction	93	(1)
Interest Rates and Rates of Return	94	(1)
The Relation of Autonomous Planned Spending to the Interest Rate	95	(6)
How Interest Rates Affect House Sales	100	(1)
The IS Curve	101	(5)
Learning About Diagrams: The IS Curve	103	(3)
Why People Use Money	106	(1)
Income, the Interest Rate, and the Demand for Money	107	(3)
The LM Curve	110	(4)
Learning About Diagrams: The LM Curve	113	(1)
The IS Curve Meets the LM Curve	114	(1)
Monetary Policy in Action	115	(2)
How Fiscal Expansion Can ``Crowd Out'' Investment	117	(7)
How Japan Uses Fiscal Policy	118	(6)
Monetary Policy, Fiscal Policy, and the Government Budget	124	(34)
Introduction	124	(1)
Strong and Weak Effects of Monetary Policy	125	(3)
Strong and Weak Effects of Fiscal Policy	128	(2)
Using Fiscal and Monetary Policy Together	130	(4)
Japan's Encounter with Dorothy, Snow White, and a Twin-Turbo Jet	134	(1)
Japanese Policy Paralysis: Similarities to and Differences from the U.S. Great Depression	134	(4)
The Pervasive Effects of the Government Budget	138	(2)
The U.S. Government Budget Deficit in Historical Perspective	140	(2)
The Structural and Cyclical Budget Surplus and Deficit	142	(4)
National Saving and the Consequences of the Government Budget	146	(5)
Budget Deficits and National Saving Around the World	149	(2)
Conclusion: The Role of Monetary and Fiscal Policy	151	(7)
The Elementary Algebra of the IS-LM Model	155	(3)
International Trade, Exchange Rates, and Macroeconomic Policy	158	(43)
Introduction	158	(2)
Foreign Trade, the Balance of Payments, and International Indebtedness	160	(4)
Exchange Rates	164	(1)
The Market for Foreign Exchange	165	(4)
Nominal and Real Exchange Rates in the Long Run	169	(5)
Big Mac Meets PPP	172	(2)
Exchange Rate Systems	174	(3)
The East Asian Crisis of 1997--98	177	(4)
Determinants of Net Exports	181	(4)
The Real Exchange Rate and Interest Rate	185	(3)
The IS-LM Model in a Small Open Economy	188	(5)
Capital Mobility and Exchange Rates in a Large Open Economy	193	(2)
Summary of Monetary and Policy Effects in Open Economies	194	(1)
Conclusion: Economic Policy in the Open Economy	195	(6)
PART THREE AGGREGATE DEMAND, AGGREGATE SUPPLY, AND INFLATION	201	(82)
Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy	203	(34)
The Role of Aggregate Demand and Supply	203	(1)
Flexible Prices and the AD Curve	204	(2)
Shifting the Aggregate Demand Curve with Monetary and Fiscal Policy	206	(3)
Learning About Diagrams: The AD Curve	207	(2)
Alternative Shapes of the Short-Run Aggregate Supply Curve	209	(2)
The Aggregate Supply Curve When the Nominal Wage Rate Is Constant	211	(2)
How the Wage Rate Is Set	213	(4)
Learning About Diagrams: The SAS Curve	214	(3)
Fiscal and Monetary Expansion in the Short and Long Run	217	(5)
How Do Labor Markets Differ in the United States and Japan?	218	(3)
Summary of the Economy's Adjustment to an Increase in Aggregate Demand	221	(1)
Classical Macroeconomics: The Quantity Theory of Money and the Self-Correcting Economy	222	(2)
The Keynesian Revolution: The Failure of Self-Correction	224	(6)
What Caused the Great Depression?	230	(7)
Inflation: Its Causes and Cures	237	(46)
Introduction	237	(1)
Real GDP, the Inflation Rate, and the Short-Run Phillips Curve	238	(3)
The Adjustment of Expectations	241	(3)
Learning About Diagrams: The Short-Run (SP) and Long-Run (LP) Phillips Curves	243	(1)
Nominal GDP Growth and Inflation	244	(2)
Effects of an Acceleration in Nominal GDP Growth	246	(2)
Expectations and the Inflation Cycle	248	(3)
Recession as a Cure for Inflation	251	(2)
How Large Is the Sacrifice Ratio?	253	(3)
Did Disinflation in Europe Differ from That in the United States?	254	(2)
The Importance of Supply Disturbances	256	(3)
The Response of Inflation and Real GDP to a Supply Shock	259	(4)
The Goldilocks Economy---Why Inflation Was So Low in the 1990s	263	(6)
Inflation and Output Fluctuations: Recapitulation of Causes and Cures	269	(14)
The Elementary Algebra of the SP-DG Model	275	(8)
PART FOUR MACROECONOMICS IN THE LONG RUN: GROWTH AND THE PUBLIC DEBT	283	(92)
The Theory of Economic Growth	285	(32)
The Importance of Economic Growth	285	(2)
Standards of Living as the Consequence of Economic Growth	287	(3)
The Growth Experience of Seven Countries over the Last Century	288	(2)
The Production Function and Economic Growth	290	(4)
Solow's Theory of Economic Growth	294	(4)
Technology in Theory and Practice	298	(2)
Puzzles That Solow's Theory Cannot Explain	300	(4)
Endogenous Growth Theory	304	(3)
The Economic Miracle and Malaise of the Four Tigers	307	(3)
Conclusion: Are There Secrets of Growth?	310	(7)
General Functional Forms and the Production Function	315	(2)
Explanations of Slow Growth in Productivity and Real Wages	317	(32)
America's Greatest Economic Problem?	317	(1)
Concepts of Productivity and the Real Wage	318	(2)
Behavior of Real Wages and Productivity in the United States	320	(6)
Does Slow Productivity Growth Cause Slow Real Wage Growth, or Vice Versa?	326	(3)
Sources of Adverse Productivity Shocks	329	(5)
Can Labor Supply Shifts Contribute an Explanation?	334	(3)
Is the U.S. Productivity Slowdown Unique?	336	(1)
The Role of Growing Inequality	337	(5)
Is Real Wage Stagnation a Figment of Measurement Error?	342	(3)
Bias in Price Indexes and Implications of Recent Improvements	344	(1)
Conclusion: What Policies Are Available to Boost Growth?	345	(4)
The Government Budget and the Public Debt	349	(26)
Introduction: The Debate Over the U.S. Government Budget	349	(1)
Long-Run Effects of Fiscal Policy on Economic Growth and Welfare	350	(2)
The Future Burden of the Government Debt	352	(3)
Will the Government Remain Solvent?	355	(3)
The Debt-GDP Ratio: How Does the United States Compare?	357	(1)
Historical Behavior of the Debt-GDP Ratio Since 1790	358	(2)
How the Budget Deficit Grew and Disappeared	360	(3)
Alternative Views of Fiscal Policy: Supply-Side Economics	363	(2)
Alternative Views of Fiscal Policy: The Barro-Ricardo Equivalence Theorem	365	(2)
How Should Social Security Be ``Saved''?	367	(4)
The Budget Surplus Recasts the Debate	371	(4)
PART FIVE STABILIZATION POLICY IN AN OPEN ECONOMY	375	(110)
The Goals of Stabilization Policy: Low Inflation and Low Unemployment	377	(41)
The Costs and Causes of Inflation	377	(2)
Money and Inflation	379	(4)
Money Growth and Inflation	381	(2)
Interest Rates and Inflation	383	(3)
The Government Budget Constraint and the Inflation Tax	386	(4)
Starting and Stopping a Hyperinflation	390	(3)
Costs of a Fully Anticipated Inflation: Creeping Inflation versus Hyperinflation	393	(4)
The Wizard of Oz as a Monetary Allegory	394	(3)
Indexation and Other Reforms to Reduce the Costs of Inflation	397	(2)
The Indexed Bond Has Arrived	398	(1)
Why the Unemployment Rate Cannot Be Reduced to Zero	399	(1)
Sources of Mismatch Unemployment	400	(3)
Turnover Unemployment and Job Search	403	(3)
Theories to Explain High European Unemployment	406	(7)
The Divergence of Unemployment Rates in the United States and Europe	408	(5)
Conclusion: Solutions to the Inflation and Unemployment Dilemma	413	(5)
Money and Financial Markets	418	(34)
Money in a World of Many Financial Assets and Liabilities	418	(1)
Financial Institutions, Markets, and Instruments	419	(4)
Definitions of Money	423	(4)
Smart Cards, E-Money, and the Money Supply	426	(1)
High-Powered Money and Determinants of the Money Supply	427	(4)
The Fed's Three Tools for Changing the Money Supply	431	(4)
Theories of the Demand for Money	435	(4)
How Financial Deregulation and Innovation Steepened the IS and LM Curves	439	(4)
Why the Federal Reserve ``Sets'' Interest Rates	443	(9)
Where in the World Is All the U.S. Currency?	446	(6)
Stabilization Policy in the Closed and Open Economy	452	(33)
The Central Role of Demand Shocks	452	(2)
Stabilization Targets and Instruments in the Activists' Paradise	454	(4)
Rules vs. Activism in a Nutshell: The Optimism-Pessimism Grid	457	(1)
Policy Rules	458	(2)
Policy Pitfalls: Lags and Uncertain Multipliers	460	(6)
Was the Fed Responsible for Economic Stability in the 1990s?	466	(5)
Time Inconsistency, Credibility, and Reputation	471	(3)
Should Monetary Policy Target the Exchange Rate?	474	(1)
Rules versus Discretion: An Assessment	475	(10)
The Euro Arrives, but Should It?	476	(9)
PART SIX SOURCES OF INSTABILITY IN THE PRIVATE ECONOMY	485	(60)
Instability in the Private Economy: Consumption Behavior	487	(30)
Consumption and Economic Stability	487	(1)
Main Features of U.S. Consumption Data	488	(2)
Background: The Conflict Between the Time-Series and Cross-Section Evidence	490	(3)
Forward-Looking Behavior: The Permanent-Income Hypothesis	493	(4)
Forward-Looking Behavior: The Life-Cycle Hypothesis	497	(4)
Rational Expectations and Other Amendments to the Simple Forward-Looking Theories	501	(6)
Why Do Some Countries Save So Much?	504	(3)
Bequests and Uncertainty	507	(2)
Did the Stock Market Cause the Collapse in the Household Saving Rate?	509	(5)
Conclusion: Consumption and the Case For and Against Activism	514	(3)
Instability in the Private Economy: Investment	517	(28)
Investment and Economic Stability	517	(1)
The Historical Instability of Investment	518	(2)
The Accelerator Hypothesis of Net Investment	520	(3)
The Simple Accelerator and the Postwar U.S. Economy	523	(3)
The Flexible Accelerator	526	(1)
The Neoclassical Theory of Investment Behavior	527	(3)
User Cost and the Role of Monetary and Fiscal Policy	530	(4)
Tobin's q: Does It Explain Investment Better Than the Accelerator or Neoclassical Theories?	532	(2)
Business Confidence, Speculation, and Overbuilding	534	(2)
The Level and Variability of Investment Around the World	536	(1)
Booms and Busts in Commercial Real Estate Construction	536	(3)
Investment as a Source of Instability of Output and Interest Rates	539	(1)
Conclusion: Investment and the Case For and Against Activism	540	(5)
PART SEVEN DEBATES AT THE MACROECONOMIC FRONTIER	545	(2)
New Classical Macro Confronts New Keynesian Macro	547	(1)
Introduction: Classical and Keynesian Economics, Old and New	547	(1)
Imperfect Information and the ``Fooling Model''	548	(3)
The Lucas Model and the Policy Ineffectiveness Proposition	551	(4)
The Real Business Cycle Model	555	(1)
Productivity Fluctuations in the United States and Japan	556	(5)
New Classical Macroeconomics: Limitations and Positive Contributions	561	(3)
Essential Features of the New Keynesian Economics	564	(2)
Why Small Nominal Rigidities Have Large Macroeconomic Effects	566	(4)
Coordination Failures and Indexation	570	(1)
Long-Term Labor Contracts as a Source of the Business Cycle	571	(2)
``Real'' Sources of Wage Stickiness	573	(2)
Assessment of the New Keynesian Model	575	(5)
Conclusion: Where We Stand	580	(1)
The Evolution of Events and Ideas	580	(1)
The Reaction of Ideas to Events, 1923--47	581	(3)
The Reaction of Ideas to Events, 1947--69	584	(4)
The Reaction of Ideas to Events, 1970--99	588	(6)
The Reaction of Ideas to Events in the World Economy	594	(2)
How Does Macroeconomics Differ in the United States and Europe?	596	(1)
What We Know About the Six Puzzles	597	(2)
Macro Mysteries: Unsettled Issues and Debates	599
Appendixes
A: Time Series Data for the U.S. Economy: 1875--1999	A1
B: International Annual Time Series Data for Selected Countries: 1960--1997	A8
C Data Sources and Methods	A14
Glossary	G1
Index	I1