Macroeconomics A Contemporary Introduction (with InfoTrac)

by McEachern, William A.

• ISBN13: 9780324288742
• ISBN10: 0324288743
• Edition: 7th
• Format: Paperback
• Copyright: 2005-01-05
• Publisher: South-Western College Pub

Summary

This very successful textbook is distinguished by a superior writing style that draws upon common student experiences to introduce economic concepts, making economic theory more accessible and interesting. "Case Studies" and numerous examples take advantage of students' intuitive knowledge of economics, building upon real-life situations. A streamlined design places pedagogy and illustrations directly within the flow of the text, making them less distracting and more useful for students. A fully integrated program of technology enhancements sets this text apart by pairing the book with numerous online multimedia learning tools that have been developed to help the text better serve a wide range of learning styles. The text uniquely integrates classroom use of The Wall Street Journal by including a complimentary student subscription offer, as well as in-text pedagogy to help students learn to analyze the latest economic events as reported in the Journal.

Table of Contents

Part 1 Introduction to Economics
The Art and Science of Economic Analysis	1	(26)
The Economic Problem: Scarce Resources, Unlimited Wants	2	(4)
Resources	2	(1)
Goods and Services	3	(1)
Economic Decision Makers	4	(1)
A Simple Circular-Flow Model	4	(2)
The Art of Economic Analysis	6	(2)
Rational Self-Interest	6	(1)
Choice Requires Time and Information	6	(1)
Economic Analysis Is Marginal Analysis	7	(1)
Microeconomics and Macroeconomics	7	(1)
The Science of Economic Analysis	8	(12)
The Role of Theory	8	(1)
The Scientific Method	8	(2)
Normative Versus Positive	10	(1)
Economists Tell Stories	10	(1)
Case Study: A Yen for Vending Machines	11	(1)
Predicting Average Behavior	12	(1)
Some Pitfalls of Faulty Economic Analysis	12	(1)
If Economists Are So Smart, Why Aren't They Rich?	13	(1)
Case Study: College Major and Career Earnings	13	(7)
Appendix: Understanding Graphs	20	(7)
Drawing Graphs	21	(1)
The Slopes of Straight Lines	22	(1)
The Slope, Units of Measurement, and Marginal Analysis	22	(2)
The Slopes of Curved Lines	24	(1)
Line Shifts	25	(2)
Some Tools of Economic Analysis	27	(19)
Choice and Opportunity Cost	28	(3)
Opportunity Cost	28	(1)
Case Study: The Opportunity Cost of College	28	(1)
Opportunity Cost Is Subjective	29	(1)
Sunk Cost and Choice	30	(1)
Comparative Advantage, Specialization, and Exchange	31	(3)
The Law of Comparative Advantage	31	(1)
Absolute Advantage Versus Comparative Advantage	31	(1)
Specialization and Exchange	32	(1)
Division of Labor and Gains from Specialization	33	(1)
Case Study: Specialization Abound	33	(1)
The Economy's Production Possibilities	34	(5)
Efficiency and the Production Possibilities Frontier	34	(1)
Inefficient and Unattainable Production	35	(1)
The Shape of the Production Possibilities Frontier	35	(1)
What Can Shift the Production Possibilities Frontier?	36	(1)
What Can We Learn from the PPF?	37	(1)
Three Questions Every Economic System Must Answer	38	(1)
Economic Systems	39	(7)
Pure Capitalism	39	(1)
Pure Command System	40	(1)
Mixed and Transitional Economies	41	(1)
Economies Based on Custom or Religion	41	(5)
Economic Decision Makers	46	(18)
The Household	47	(2)
The Evolution of the Household	47	(1)
Households Maximize Utility	47	(1)
Households as Resource Suppliers	48	(1)
Households as Demanders of Goods and Services	49	(1)
The Firm	49	(4)
The Evolution of the Firm	49	(1)
Types of Firms	50	(2)
Nonprofit Institutions	52	(1)
Why Does Household Production Still Exist?	52	(1)
Case Study: The Electronic Cottage	53	(1)
The Government	53	(5)
The Role of Government	54	(1)
Government's Structure and Objectives	55	(1)
The Size and Growth of Government	56	(1)
Sources of Government Revenue	57	(1)
Tax Principles and Tax Incidence	57	(1)
The Rest of the World	58	(6)
International Trade	59	(1)
Exchange Rates	60	(1)
Trade Restrictions	60	(1)
Case Study: Wheels of Fortune	60	(4)
Demand and Supply Analysis	64	(25)
Demand	65	(5)
The Law of Demand	65	(1)
The Demand Schedule and Demand Curve	66	(2)
Shifts of the Demand Curve	68	(1)
Changes in Consumer Income	68	(1)
Changes in the Prices of Related Goods	68	(1)
Changes in Consumer Expectations	69	(1)
Changes in the Number or Composition of Consumers	70	(1)
Changes in Consumer Tastes	70	(1)
Supply	70	(6)
The Supply Schedule and Supply Curve	71	(1)
Shifts of the Supply Curve	72	(1)
Changes in Technology	72	(1)
Changes in the Prices of Relevant Resources	72	(1)
Changes in the Prices of Alternative Goods	72	(1)
Changes in Producer Expectations	73	(1)
Changes in the Number of Producers	73	(1)
Demand and Supply Create A Market	74	(1)
Markets	74	(1)
Market Equilibrium	74	(2)
Changes lin Equilibrium Price and Quantity	76	(5)
Shifts of the Demand Curve	76	(1)
Shifts of the Supply Curve	77	(2)
Simultaneous Shifts of Demand and Supply Curves	79	(1)
Case Study: The Market for Professional Basketball	80	(1)
Disequilibrium	81	(8)
Price Floors	81	(1)
Price Ceilings	81	(2)
Case Study: The Toy Business Is Not Child's Play	83	(6)
Part 2 Fundamentals of Macroeconomics
Introduction to Macroeconomics	89	(20)
The National Economy	90	(2)
What's Special About the National Economy?	90	(1)
The Human Body and the U.S. Economy	91	(1)
Knowledge and Performance	91	(1)
Economic Fluctuations and Growth	92	(4)
U.S. Economic Fluctuations	92	(2)
Case Study: The Global Economy	94	(2)
Leading Economic Indicators	96	(1)
Aggregate Demand and Aggregate Supply	96	(3)
Aggregate Output and the Price Level	96	(1)
The Aggregate Demand Curve	97	(1)
The Aggregate Supply Curve	98	(1)
Equilibrium	98	(1)
A Short History of the U.S. Economy	99	(10)
The Great Depression and Before	99	(1)
The Age of Keynes: After the Great Depression to the Early 1970s	100	(2)
The Great Stagflation: 1973 to 1980	102	(1)
Experience Since 1980	103	(1)
Case Study: Over Seven Decades of Real GDP and Price Levels	104	(5)
Productivity and Growth	109	(22)
Theory of Productivity and Growth	110	(5)
Growth and the Production Possibilities Frontier	110	(2)
What Is Productivity?	112	(1)
Labor Productivity	112	(1)
The Per-Worker Production Function	113	(1)
Technological Change	114	(1)
Rules of the Game	115	(1)
Productivity and Growth in Practice	115	(7)
Education and Economic Development	116	(1)
U.S. Labor Productivity	117	(1)
Slowdown and Rebound in Productivity Growth	118	(1)
Case Study: Computers and Productivity Growth	119	(1)
Output per Capita	120	(1)
International Comparisons	120	(2)
Other Issues of Technology and Growth	122	(9)
Does Technological Change Lead to Unemployment?	123	(1)
Research and Development	123	(2)
Do Economies Converge	125	(1)
Industrial Policy	126	(1)
Case Study: Picking Technological Winners	126	(5)
Measuring the Economy and the Circular Flow	131	(22)
The Product of a Nation	132	(3)
National Income Accounts	132	(1)
GDP Based on the Expenditure Approach	133	(1)
GDP Based on the Income Approach	134	(1)
The Circular Flow of Income and Expenditure	135	(3)
The Income Half of the Circular Flow	135	(2)
The Expenditure Half of the Circular Flow	137	(1)
Leakages Equal Injections	138	(1)
Limitations of National Income Accounting	138	(3)
Some Production Is Not Included in GDP	138	(1)
Leisure, Quality, and Variety	139	(1)
Case Study: Tracking a $12 Trillion Economy	139	(1)
What's Gross about Gross Domestic Product?	140	(1)
GDP Does Not Reflect All Costs	140	(1)
GDP and Economic Welfare	141	(1)
Accounting for Price Changes	141	(9)
Price Indexes	141	(1)
Consumer Price Index	142	(1)
Problems with the CPI	143	(1)
The GDP Price Index	144	(1)
Moving from Fixed Weights to Chain Weights	144	(1)
Case Study: Computer Prices and GDP Estimation	145	(5)
Appendix: National Income Accounts	150	(3)
National Income	150	(1)
Personal and Disposable Income	150	(1)
Summary of National Income Accounts	150	(1)
Summary Income Statement of the Economy	151	(2)
Unemployment and Inflation	153	(23)
Unemployment	154	(9)
Measuring Unemployment	154	(2)
Labor Force Participation Rate	156	(1)
Unemployment over Time	156	(1)
Unemployment in Various Groups	156	(1)
Unemployment Varies Across Regions	157	(3)
Sources of Unemployment	160	(1)
The Meaning of Full Employment	161	(1)
Unemployment Compensation	162	(1)
International Comparisons of Unemployment	162	(1)
Problems with Official Unemployment Figures	163	(1)
Inflation	163	(13)
Case Study: Hyperinflation in Brazil	164	(1)
Two Sources of Inflation	165	(1)
A Historical Look at Inflation and the Price Level	166	(1)
Anticipated Versus Unanticipated Inflation	167	(1)
The Transaction Costs of Variable Inflation	167	(1)
Inflation Obscures Relative Price Changes	168	(1)
Inflation Across Metropolitan Areas	168	(1)
Inflation Across Countries	168	(1)
Inflation and Interest Rates	169	(2)
Why Is Inflation Unpopular?	171
Case Study: Poor King Coal	164	(12)
Aggregate Expenditure Components	176	(22)
Consumption	177	(7)
A First Look at Consumption and Income	177	(2)
The Consumption Function	179	(1)
Marginal Propensities to Consume and to Save	179	(1)
MPC, MPS, and the Slope of the Consumption and Saving Functions	180	(1)
Nonincome Determinants of Consumption	181	(2)
Case Study: The Life-Cycle Hypothesis	183	(1)
Investment	184	(5)
The Demand for Investment	184	(2)
From Micro to Macro	186	(1)
Planned Investment and the Economy's Income	187	(1)
Nonincome Determinants of Planned Investment	187	(1)
Case Study: Investment Varies Much More than Consumption	188	(1)
Government	189	(1)
Government Purchase Function	190	(1)
Net Taxes	190	(1)
Net Exports	190	(1)
Net Exports and Income	190	(1)
Nonincome Determinants of Net Exports	191	(1)
Composition of Aggregate Expenditure	191	(5)
Appendix: Variable Net Exports	196	(2)
Net Exports and Income	196	(1)
Shifts of Net Exports	196	(2)
Aggregate Expenditure and Aggregate Demand	198	(22)
Aggregate Expenditure and Income	199	(4)
The Components of Aggregate Expenditure	199	(2)
Real GDP Demanded	201	(1)
What If Planned Spending Exceeds Real GDP?	202	(1)
What If Real GDP Exceeds Planned Spending?	202	(1)
The Simple Spending Multiplier	203	(4)
An Increase in Planned Spending	203	(2)
Using the Simple Spending Multiplier	205	(1)
Case Study: Fear of Flying	206	(1)
The Aggregate Demand Curve	207	(8)
A Higher Price Level	207	(2)
A Lower Price Level	209	(1)
The Multiplier and Shifts in Aggregate Demand	209	(2)
Case Study: Falling Consumption Triggers Japan's Recession	211	(4)
Appendix A: Variable Net Exports Revisited	215	(3)
Net Exports and the Spending Multiplier	216	(1)
A Change in Autonomous Spending	216	(2)
Appendix B: The Algebra of Income and Expenditure	218	(2)
The Aggregate Expenditure Line	218	(1)
A More General Form of Income and Expenditure	218	(1)
Varying Net Exports	219	(1)
Aggregate Supply	220	(20)
Aggregate Supply in the Short Run	221	(4)
Labor and Aggregate Supply	221	(1)
Potential Output and the Natural Rate of Unemployment	222	(1)
Actual Price Level Higher than Expected	222	(1)
Why Costs Rise When Output Exceeds Potential	223	(1)
An Actual Price Level Lower than Expected	224	(1)
The Short-Run Aggregate Supply Curve	224	(1)
From the Short Run to the Long Run	225	(7)
Closing an Expansionary Gap	225	(2)
Closing a Contractionary Gap	227	(2)
Tracing Potential Output	229	(1)
Wage Flexibility and Employment	229	(2)
Case Study: U.S. Output Gaps and Wage Flexibility	231	(1)
Changes in Aggregate Supply	232	(8)
Increases in Aggregate Supply	232	(2)
Decreases in Aggregate Supply	234	(1)
Case Study: Why Is Unemployment So High in Europe?	235	(5)
Part 3 Fiscal and Monetary Policy
Fiscal Policy	240	(21)
Theory of Fiscal Policy	241	(3)
Fiscal Policy Tools	241	(1)
Changes in Government Purchases	241	(1)
Changes in Net Taxes	242	(2)
Including Aggregate Supply	244	(3)
Discretionary Fiscal Policy to Close a Contractionary Gap	244	(2)
Discretionary Fiscal Policy to Close an Expansionary Gap	246	(1)
The Multiplier and the Time Horizon	247	(1)
The Evolution of Fiscal Policy	247	(11)
The Great Depression and World War II	247	(1)
Automatic Stabilizers	248	(1)
From the Golden Age to Stagflation	249	(1)
Fiscal Policy and the Natural Rate of Unemployment	250	(1)
Lags in Fiscal Policy	250	(1)
Discretionary Fiscal Policy and Permanent Income	251	(1)
The Feedback Effects of Fiscal Policy on Aggregate Supply	251	(1)
U.S. Budget Deficits of the 1980s and 1990s	252	(1)
Case Study: The Supply-Side Experiment	252	(1)
Case Study: Discretionary Fiscal Policy and Presidential Elections	253	(1)
Balancing the Federal Budget---Temporarily	254	(4)
Appendix: The Algebra of Demand-Side Equilibrium	258	(3)
Net Tax Multiplier	258	(1)
The Multiplier When Both G and NT Change	258	(1)
The Multiplier with a Proportional Income Tax	258	(1)
Including Variable Net Exports	259	(2)
Money and the Financial System	261	(23)
The Evolution of Money	262	(7)
Barter and the Double Coincidence of Wants	262	(1)
The Earliest Money and Its Functions	262	(2)
Desirable Qualities of Money	264	(1)
Coins	264	(1)
Money and Banking	265	(1)
Paper Money	266	(1)
The Value of Money	267	(1)
When Money Performs Poorly	267	(1)
Case Study: When Monetary Systems Break Down	268	(1)
Financial Institutions in the United States	269	(15)
Commercial Banks and Thrifts	269	(1)
The Birth of the Fed	269	(1)
Powers of the Federal Reserve System	270	(1)
Banking During the Great Depression	271	(1)
Roosevelt's Reforms	272	(2)
Banks Lost Deposits When Inflation Increased	274	(1)
Bank Deregulation	274	(1)
Savings Banks on the Ropes	275	(1)
Commercial Banks Were Also Failing	276	(1)
U.S. Banking Structure	277	(3)
Case Study: Banking Troubles in Japan	280	(4)
Banking and the Money Supply	284	(21)
Money Aggregates	285	(4)
The Narrow Definition of Money: MI	285	(1)
Case Study: Faking It	286	(1)
Broader Money Aggregates	287	(1)
Credit Cards and Debit Cards: What's the Difference?	288	(1)
How Banks Work	289	(3)
Banks Are Financial Intermediaries	289	(1)
Starting a Bank	290	(1)
Reserve Accounts	291	(1)
Liquidity Versus Profitability	291	(1)
How Banks Create Money	292	(6)
Creating Money Through Excess Reserves	292	(3)
A Summary of the Rounds	295	(1)
Reserve Requirements and Money Expansion	295	(1)
Limitations on Money Expansion	296	(1)
Multiple Contraction of the Money Supply	296	(1)
Case Study: Banking on the Net	297	(1)
The Fed's Tools of Monetary Control	298	(7)
Open-Market Operations and the Federal Funds Rate	299	(1)
The Discount Rate	299	(1)
Reserve Requirements	300	(1)
The Fed Is a Money Machine	300	(5)
Monetary Theory and Policy	305	(20)
The Demand and Supply of Money	306	(3)
The Demand for Money	306	(1)
Money Demand and Interest Rates	307	(1)
The Supply of Money and the Equilibrium Interest Rate	308	(1)
Money and Aggregate Demand in the Short Run	309	(5)
Interest Rates and Planned Investment	309	(1)
Adding Short-Run Aggregate Supply	310	(2)
Case Study: Targeting the Federal Funds Rate	312	(2)
Money and Aggregate Demand in the Long Run	314	(5)
The Equation of Exchange	314	(1)
The Quantity Theory of Money	315	(1)
What Determines the Velocity of Money?	316	(1)
How Stable Is Velocity?	316	(2)
Case Study: The Money Supply and Inflation Around the World	318	(1)
Targets for Monetary Policy	319	(6)
Contrasting Policies	319	(2)
Targets Before 1982	321	(1)
Targets After 1982	321	(4)
The Policy Debate: Active or Passive?	325	(23)
Active Policy Versus Passive Policy	326	(6)
Closing a Contractionary Gap	326	(2)
Closing an Expansionary Gap	328	(1)
Problems with Active Policy	328	(1)
The Problem of Lags	329	(2)
A Review of Policy Perspectives	331	(1)
Case Study: Active Versus Passive Presidential Candidates	331	(1)
The Role of Expectations	332	(5)
Monetary Policy and Expectations	333	(1)
Anticipating Monetary Policy	334	(1)
Policy Credibility	335	(1)
Case Study: Central Bank Independence and Price Stability	336	(1)
Policy Rules Versus Discretion	337	(2)
Limitations on Discretion	338	(1)
Rules and Rational Expectations	338	(1)
The Phillips Curve	339	(9)
The Short-Run Phillips Curve	341	(1)
The Long-Run Phillips Curve	341	(2)
The Natural Rate Hypothesis	343	(1)
Evidence of the Phillips Curve	343	(5)
Federal Budgets and Public Policy	348	(19)
The Federal Budget Process	349	(2)
The Presidential and Congressional Roles	350	(1)
Problems with the Federal Budget Process	350	(1)
Possible Budget Reforms	351	(1)
The Fiscal Impact of the Federal Budget	351	(7)
The Rationale for Deficits	352	(1)
Budget Philosophies and Deficits	352	(1)
Federal Deficits Since the Birth of the Nation	353	(1)
Why Have Deficits Persisted?	354	(1)
Deficits, Surpluses, Crowding Out, and Crowding In	354	(1)
The Twin Deficits	355	(1)
The Short-Lived Budget Surplus	355	(2)
Case Study: Reforming Social Security and Medicare	357	(1)
The Relative Size of the Public Sector in the United States	358	(1)
The National Debt	358	(9)
International Perspective on Public Debt	359	(1)
Interest on the National Debt	360	(1)
Who Bears the Burden of the Debt?	361	(1)
Crowding Out and Capital Formation	362	(1)
Case Study: An Intergenerational View of Deficits and Debt	363	(4)
Part 4 International Macroeconomics
International Finance	367	(18)
Balance of Payments	368	(5)
International Economic Transactions	368	(1)
The Merchandise Trade Balance	368	(2)
The Balance on Goods and Services	370	(1)
Unilateral Transfers	370	(1)
The Capital Account	371	(1)
Deficits and Surpluses	371	(2)
Foreign Exchange Rates and Markets	373	(6)
Foreign Exchange	373	(1)
The Demand for Foreign Exchange	374	(1)
The Supply of Foreign Exchange	374	(1)
Determining the Exchange Rate	375	(1)
Arbitrageurs and Speculators	375	(2)
Purchasing Power Parity	377	(1)
Case Study: The Big Mac Price Index	377	(2)
Flexible Exchange Rates	379	(1)
Fixed Exchange Rates	379	(1)
Development of the International Monetary System	379	(6)
The Bretton Woods Agreement	380	(1)
The Demise of the Bretton Woods System	380	(1)
The Current System: Managed Float	381	(1)
Case Study: The Asian Contagion	381	(4)
Glossary	385	(8)
Index	393