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9780131442344

Principles of Macroeconomics

by ;
  • ISBN13:

    9780131442344

  • ISBN10:

    0131442341

  • Edition: 7th
  • Format: Paperback
  • Copyright: 2004-01-01
  • Publisher: Pearson College Div
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Summary

These two highly-respected authors have revised this best-selling book to include more current, modern subject matter and events, while maintaining those features that have contributed to its great success. It continues to use stories, graphs, and equations and a unified and logical organization that make economic concepts easy-to-understand and relevant to all readers. Users of this book see the connection between growth, trade, comparative advantage the production possibilities frontier. Recent changes in the economy are highlighted so that readers can understand how these events actually affect investment decisions and policy. The 90s boom and the recent bust are examined.New issues such as the movements for and against globalization, trade agreements and barriers, the World Trade Organization, the enviroment, child labor, sovereignty, the impact of AIDs on developing economics are all explored in this new edition. This book continues to provide an excellent foundation in the scope and method of economics; demand, supply, and market equilibrium; measuring national output and national income; long-run and short-run concerns; aggregate expenditure and equilibrium output; the government and fiscal policy; the money supply and the Federal Reserve system; interest rates and output; inflation; the labor market and unemployment; macroeconomic issues and policy; the stock market and the economy; long-run growth; and open-economy macroeconomics.An excellent reference resource for those involved in fiscal decision-making policies, whether in government or in large, international firms.

Table of Contents

Preface xvii
Introduction
PART I Introduction to Economics
1(82)
The Scope and Method of Economics
1(22)
Why Study Economics?
2(4)
To Learn a Way of Thinking
2(2)
To Understand Society
4(1)
To Understand Global Affairs
4(1)
To Be an Informed Voter
5(1)
The Scope of Economics
6(1)
Microeconomics and Macroeconomics
6(1)
The Diverse Fields of Economics
7(1)
The Method of Economics
7(1)
Further Exploration The Fields of Economics
8(6)
Theories and Models
9(3)
Economic Policy
12(2)
News Analysis An Economic Recovery for the United States in 2003?
14(1)
An Invitation
15(1)
Summary
15(1)
Review Terms And Concepts
15(1)
Problem Set
16(1)
Appendix: How To Read And Understand Graphs
16(7)
The Economic Problem: Scarcity and Choice
23(20)
Scarcity, Choice, and Opportunity Cost
24(12)
Scarcity and Choice in a One-Person Economy
24(1)
Scarcity and Choice in an Economy of Two or More
25(3)
The Production Possibility Frontier
28(5)
Comparative Advantage and the Gains from Trade
33(2)
The Economic Problem
35(1)
Economic Systems
36(2)
Command Economies
36(1)
Laissez-Paire Economies: The Free Market
36(2)
News Analysis Investing in Central and Eastern Europe
38(1)
Mixed Systems, Markets, and Governments
38(1)
Looking Ahead
39(1)
Summary
39(1)
Review Terms And Concepts
40(1)
Problem Set
40(3)
Demand, Supply, and Market Equilibrium
43(28)
Firms and Households: The Basic Decision-Making Units
43(1)
Input Markets and Output Markets: The Circular Flow
44(2)
Demand in Product/Output Markets
46(9)
Changes in Quantity Demanded versus Changes in Demand
46(1)
Price and Quantity Demanded: The Law of Demand
47(2)
Other Determinants of Household Demand
49(2)
Shift of Demand versus Movement Along a Demand Curve
51(3)
From Household Demand to Market Demand
54(1)
Supply in Product/Output Markets
55(5)
Price and Quantity Supplied: The Law of Supply
55(2)
Other Determinants of Supply
57(1)
Shift of Supply versus Movement Along a Supply Curve
57(2)
From Individual Supply to Market Supply
59(1)
Market Equilibrium
60(5)
Excess Demand
60(2)
Excess Supply
62(1)
Change in Equilibrium
63(2)
Demand and Supply in Product Markets: A Review
65(1)
Looking Ahead: Markets and the Allocation of Resources
65(1)
News Analysis Supply and Demand in the News: 2003
66(1)
Summary
67(1)
Review Terms And Concepts
68(1)
Problem Set
68(3)
Demand and Supply Applications
71(12)
The Price System: Rationing and Allocating Resources
71(4)
Price Rationing
71(2)
Constraints on the Market and Alternative Rationing Mechanisms
73(2)
News Analysis Oil Prices in 2003 Hit $40
75(3)
Prices and the Allocation of Resources
77(1)
Price Floors
78(1)
Supply and Demand Analysis: An Oil Import Fee
78(2)
Further Exploration The Drug Wars: A Matter of Supply and Demand
80(1)
Looking Ahead
81(1)
Summary
81(1)
Review Terms And Concepts
81(1)
Problem Set
81(2)
MACROECONOMICS
PART II Concepts and Problems in Macroeconomics
83(56)
Introduction to Macroeconomics
83(16)
The Roots of Macroeconomics
84(1)
The Great Depression
84(1)
Recent Macroeconomic History
84(1)
Further Exploration The Great Depression and John Maynard Keynes
85(1)
Macroeconomic Concerns
86(2)
Inflation and Deflation
87(1)
Output Growth: Short Run and Long Run
87(1)
Unemployment
88(1)
Government in the Macroeconomy
88(1)
Fiscal Policy
88(1)
Monetary Policy
88(1)
Growth Policies
89(1)
The Components of the Macroeconomy
89(3)
The Circular Flow Diagram
89(2)
The Three Market Arenas
91(1)
The Methodology of Macroeconomics
92(1)
Connections to Microeconomics
92(1)
Aggregate Demand and Aggregate Supply
92(1)
The U.S. Economy in the Twentieth Century: Trends and Cycles
93(4)
Expansion and Contraction: The Business Cycle
94(1)
The U.S. Economy Since 1970
95(2)
Summary
97(1)
Review Terms And Concepts
98(1)
Problem Set
98(1)
Measuring National Output and National Income
99(20)
Gross Domestic Product
99(2)
Final Goods and Services
100(1)
Exclusion of Used Goods and Paper Transactions
100(1)
Exclusion of Output Produced Abroad by Domestically Owned Factors of Production
101(1)
Calculating GDP
101(3)
The Expenditure Approach
102(2)
Further Exploration GDP: One of the Great Inventions of the 20th Century---Survey of Current Business
104(3)
The Income Approach
106(1)
From GDP to Disposable Personal Income
107(2)
Nominal versus Real GDP
109(3)
Calculating Real GDP
110(1)
Calculating the GDP Deflator
111(1)
The Problems of Fixed Weights
112(1)
Limitations of the GDP Concept
112(2)
GDP and Social Welfare
113(1)
The Underground Economy
113(1)
Gross National Income per Capita
114(1)
Looking Ahead
114(1)
Summary
115(1)
Review Terms And Concepts
115(1)
Problem Set
116(3)
Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation
119(20)
Long-Run Output and Productivity Growth
119(3)
Recessions, Depressions, and Unemployment
122(5)
Defining and Measuring Unemployment
122(2)
Components of the Unemployment Rate
124(2)
The Costs of Unemployment
126(1)
News Analysis Rising Unemployment in 2003
127(3)
The Benefits of Recessions
129(1)
Inflation
130(3)
Defining Inflation
130(1)
Price Indexes
131(2)
Further Exploration World Economy in Transition: Bias in the US Consumer Price Index: Why It Could Be Important
133(2)
The Costs of Inflation
133(2)
Inflation: Public Enemy Number One?
135(1)
Looking Ahead
135(1)
Summary
135(1)
Review Terms And Concepts
136(1)
Problem Set
136(3)
PART III The Goods and Money Markets
139(84)
Aggregate Expenditure and Equilibrium Output
139(22)
Aggregate Output and Aggregate Income (Y)
140(8)
Income, Consumption, and Saving (Y, C, and S)
141(1)
Explaining Spending Behavior
141(4)
Planned Investment (I)
145(3)
Planned Aggregate Expenditure (AE)
148(1)
Equilibrium Aggregate Output (Income)
148(3)
The Saving/Investment Approach to Equilibrium
150(1)
News Analysis Inventories Rise and the Economy Slows in 2005
151(2)
Adjustment to Equilibrium
151(2)
The Multiplier
153(3)
The Multiplier Equation
155(1)
Further Exploration The Paradox of Thrift
156(2)
The Size of the Multiplier in the Real World
157(1)
The Multiplier in Action: Recovering from the Great Depression
157(1)
Looking Ahead
158(1)
Summary
158(1)
Review Terms And Concepts
159(1)
Problem Set
159(1)
Appendix: Deriving The Multiplier Algebraically
160(1)
The Government and Fiscal Policy
161(22)
Government in the Economy
162(4)
Government Purchases (G), Net Taxes (T), and Disposable Income (Y<sub>2)
162(2)
Equilibrium Output: Y=C+ I+G
164(2)
Fiscal Policy at Work: Multiplier Effects
166(6)
The Government Spending Multiplier
167(2)
The Tax Multiplier
169(1)
The Balanced-Budget Multiplier
170(2)
The Federal Budget
172(3)
The Budget
172(3)
News Analysis Debate: Tax Cuts and the Deficit in 2003
175
The Surplus or Deficit
173(1)
The Debt
174(1)
The Economy's Influence on the Government Budget
174(2)
Tax Revenues Depend on the State of the Economy
175(1)
Some Government Expenditures Depend on the State of the Economy
175(1)
Automatic Stabilizers
175(1)
Fiscal Drag
175(1)
Full-Employment Budget
176(1)
Looking Ahead
176(1)
Summary
176(1)
Review Terms And Concepts
177(1)
Problem Set
177(1)
APPENDIX A: DERIVING THE FISCAL POLICY MULTIPLIERS
178(1)
APPENDIX B: THE CASE IN WHICH TAX REVENUES DEPEND ON INCOME
179(4)
The Money Supply and the Federal Reserve System
183(24)
An Overview of Money
183(4)
What Is Money?
183(2)
Commodity and Fiat Monies
185(1)
Measuring the Supply of Money in the United States
185(2)
The Private Banking System
187(1)
How Banks Create Money
187(1)
A Historical Perspective: Goldsmiths
187(1)
News Analysis A Cashless Society in Russia, 1997
188(5)
The Modern Banking System
189
The Creation of Money
19(174)
The Money Multiplier
193(1)
The Federal Reserve System
193(3)
Functions of the Federal Reserve
195(1)
News Analysis Central Banks Worry about Inflation and Deflation in 2003
196(1)
The Federal Reserve Balance Sheet
196(1)
How the Federal Reserve Controls the Money Supply
197(6)
The Required Reserve Ratio
198(1)
The Discount Rate
199(1)
Open Market Operations
200(3)
The Supply Curve for Money
203(1)
Looking Ahead
203(1)
Summary
203(1)
Review Terms And Concepts
204(1)
Problem Set
204(3)
Money Demand, the Equilibrium Interest Rate, and Monetary Policy
207(16)
The Demand for Money
207(5)
The Transaction Motive
208(1)
Money Management and the Optimal Balance
208(3)
The Speculation Motive
211(1)
The Total Demand for Money
211(1)
Further Exploration The Bond Market, the Money Market and the Speculation Motive
212(2)
Transactions Volume and the Price Level
212(1)
The Determinants of Money Demand: Review
213(1)
The Equilibrium Interest Rate
214(3)
Supply and Demand in the Money Market
214(2)
Changing the Money Supply to Affect the Interest Rate
216(1)
Increases in Y and Shifts in the Money Demand Curve
216(1)
Looking Ahead: The Federal Reserve and Monetary Policy
217(1)
Summary
218(1)
Review Terms And Concepts
218(1)
Problem Set
218(1)
Appendix A: The Various Interest Rates In The U.S. Economy
219(2)
Appendix B: The Demand For Money: A Numerical Example
221(2)
PART IV Macroeconomic Analysis
223(150)
Money, Interest Rate, and Output: Analysis and Policy
223(18)
The Links between the Goods Market and the Money Market
223(4)
Investment, the Interest Rate, and the Goods Market
224(2)
Money Demand, Aggregate Output (Income), and the Money Market
226(1)
Combining the Goods Market and the Money Market
227(23)
Expansionary Policy Effects
228(22)
News Analysis Lower Interest Rates Increase Activity in the Housing Market in 2003
250
Contractionary Policy Effects
232(1)
The Macroeconomic Policy Mix
233(1)
Other Determinants of Planned Investment
234(1)
Looking Ahead: The Price Level
234(1)
Summary
235(1)
Review Terms And Concepts
235(1)
Problem Set
236(1)
Appendix: The Is-lm Diagram
237(4)
Aggregate Demand, Aggregate Supply, and Inflation
241(24)
The Aggregate Demand Curve
241(5)
Deriving the Aggregate Demand Curve
242(1)
The Aggregate Demand Curve: A Warning
243(1)
Other Reasons for a Downward-Sloping Aggregate Demand Curve
244(1)
Aggregate Expenditure and Aggregate Demand
245(1)
Shifts of the Aggregate Demand Curve
245(1)
The Aggregate Supply Curve
246(6)
The Aggregate Supply Curve: A Warning
247(1)
Aggregate Supply in the Short Run
247(3)
Shifts of the Short-Run Aggregate Supply Curve
250(2)
The Equilibrium Price Level
252(1)
The Long-Run Aggregate Supply Curve
253(1)
Potential GDP
253(1)
Aggregate Demand, Aggregate Supply, and Monetary and Fiscal Policy
254(2)
Long-Run Aggregate Supply and Policy Effects
256(1)
News Analysis Increase in Government Spending without Fear of Inflation: 2003
256(1)
Further Exploration The Simple ``Keynesiun'' Aggregate Supply Curve
257(1)
Causes of Inflation
258
Inflation versus Sustained Inflation: A Reminder
258(1)
Demand-Pull Inflation
258(1)
Cost-Push, or Supply-Side, Inflation
258(1)
Expectations and Inflation
259(1)
Money and Inflation
260(1)
Sustained Inflation as a Purely Monetary Phenomenon
261
Looking Ahead
26(236)
Summary
262(1)
Review Terms And Concepts
263(1)
Problem Set
263(2)
The Labor Market, Unemployment, and Inflation
265(20)
The Labor Market: Basic Concepts
265(1)
The Classical View of the Labor Market
266(1)
News Analysis Employment and Unemployment in 2003
267(2)
The Classical Labor Market and the Aggregate Supply Curve
268(1)
The Unemployment Rate and the Classical View
268(1)
Explaining the Existence of Unemployment
269(3)
Sticky Wages
269(1)
Efficiency Wage Theory
270(1)
Imperfect Information
271(1)
Minimum Wage Laws
271(1)
An Open Question
271(1)
The Short-Run Relationship between the Unemployment Rate and Inflation
272(5)
The Phillips Curve: A Historical Perspective
274(1)
Aggregate Supply and Aggregate Demand Analysis and the Phillips Curve
275(1)
Expectations and the Phillips Curve
276(1)
Is There a Short-Run Trade-Off between Inflation and Unemployment?
277(1)
The Long-Run Aggregate Supply Curve, Potential GDP, and the Natural Rate of Unemployment
277(2)
The Nonaccelerating Inflation Rate of Unemployment (NAIRU)
278(1)
Looking Ahead
279(1)
Summary
280(1)
Review Terms And Concepts
280(1)
Problem Set
281(4)
Macroeconomic Issues and Policy
285(16)
Time Lags Regarding Monetary and Fiscal Policy
283(4)
Stabilization: ``The Fool in the Shower''
283(2)
Recognition Lags
285(1)
Implementation Lags
285(1)
Response Lags
285(2)
Monetary Policy
287(5)
Targeting the Interest Rate
287(1)
The Fed's Response to the State of the Economy
288(1)
Policy Since 1990
289(3)
Fiscal Policy: Deficit Targeting
292(1)
News Analysis Bush Fiscal Policy and the Deficit 2003
293(4)
The Effects of Spending Cuts on the Deficit
294(1)
Economic Stability and Deficit Reduction
295(1)
Summary
296(1)
Fiscal Policy Since 1990
297(2)
Summary
299(1)
Review Terms And Concepts
300(1)
Problem Set
300(1)
The Stock Market and the Economy
301(14)
Stocks and Bonds
301(2)
Bonds
301(1)
Stocks
302(1)
Further Exploration Reading a Bond Table
303(201)
Determining the Price of a Stock
303(201)
Further Exploration Reading the Stock Pages
504
The Stock Market Since 1948
305(3)
Stock Market Effects on the Economy
308(5)
The Crash of October 1987
308(1)
The Boom of 1995-2000
308(4)
Fed Policy and the Stock Market
312(1)
Summary
313(1)
Key Terms and Concepts
313(1)
Problem Set
313(2)
Household and Firm Behavior in the Macroeconomy: A Further Look
315(24)
Households: Consumption and Labor Supply Decision
315(6)
The Keynesian Theory of Consumption: A Review
315(1)
The Life-Cycle Theory of Consumption
316(2)
The Labor Supply Decision
318(2)
Interest Rate Effects on Consumption
320(1)
Government Effects on Consumption and Labor Supply: Taxes and Transfers
320(1)
A Possible Employment Constraint on Households
320(1)
News Analysis Falling Interest Rates Designed to Stimulate Spending in 2003
321(4)
A Summary of Household Behavior
322(1)
The Household Sector Since 1970
323(2)
Firms: Investment and Employment Decisions
325(7)
Expectations and Animal Spirits
326(2)
Excess Labor and Excess Capital Effects
328(1)
Inventory Investment
328(2)
A Summary of Firm Behavior
330(1)
The Firm Sector Since 1970
330(2)
Productivity and the Business Cycle
332(1)
The Relationship between Output and Unemployment
333(1)
The Size of the Multiplier
334(1)
Summary
335(1)
Review Terms And Concepts
336(1)
Problem set
337(2)
Long-Bun Growth
339(18)
The Growth Process: from Agriculture to Industry
339(2)
The Sources of Economic Growth
341(4)
An Increase in Labor Supply
341(1)
Increases in Physical Capital
342(1)
Increases in Human Capital
343(1)
Increases in Productivity
344(1)
Growth and Productivity in the United States
345(2)
Sources of Growth in the U.S. Economy: 1929-1982
346(1)
Labor Productivity: 1952 I-2003 II
346(1)
Economic Growth and Public Policy
347(1)
News Analysis Productivity and Growth in the United States and Europe
348(1)
Suggested Public Policies
348(1)
Further Exploration Can We Really Measure Productivity Changes?
349(2)
Growth Policy: A Long-Run Proposition
351(1)
The Pros and Cons of Growth
351(3)
The Progrowth Argument
351(1)
The Antigrowth Argument
352(2)
Summary
354(1)
Review Terms And Concepts
355(1)
Problem set
355(2)
Debates in Macroeconomics: Monetarism, New Classical Theory, and Supply-Side Economics
357(16)
Keynesian Economics
357(1)
Monetarism
358(4)
The Velocity of Money
358(1)
The Quantity Theory of Money
359(1)
Inflation as a Purely Monetary Phenomenon
360(1)
The Keynesian/Monetarist Debate
361(1)
News Analysis Inflation and Money Supply Growth in Brazil: 2000
362(1)
New Classical Macroeconomics
362(4)
The Development of New Classical Macroeconomics
362(1)
Rational Expectations
363(1)
The Lucas Supply Function
364(1)
Evaluating Rational-Expectations Theory
365(1)
Real Business Cycle Theory
366(1)
Supply-Side Economics
366(2)
Evaluating Supply-Side Economics
368(1)
Testing Alternative Macroeconomic Models
368(1)
Summary
369(1)
Review Terms and Concepts
370(1)
Problem Set
370(3)
INTERNATIONAL ECONOMICS
PART V The World Economy
373
International Trade, Comparative Advantage, and Protectionism
375(20)
Trade Surpluses and Deficits
374(1)
The Economic Basis for Trade: Comparative Advantage
375(8)
Absolute Advantage versus Comparative Advantage
375(5)
Terms of Trade
380(1)
Exchange Rates
380(3)
The Sources of Comparative Advantage
383(1)
The Heckscher-Ohlin Theorem
383(1)
Other Explanations for Observed Trade Flows
384(1)
Trade Barriers: Tariffs, Export Subsidies, and Quotas
384(2)
News Analysis Trade Games
386(1)
Free Trade or Protection?
387(3)
The Case for Free Trade
387(1)
The Case for Protection
388(2)
Further Exploration A Petition
390(1)
An Economic Consensus
391(1)
Summary
392(1)
Review Terms And Concepts
393(1)
Problem Set
393(2)
Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates
395(26)
The Balance of Payments
396(3)
The Current Account
397(1)
The Capital Account
398(1)
The United States as a Debtor Nation
399(1)
Equilibrium Output (Income) in an Open Economy
399(5)
The International Sector and Planned Aggregate Expenditure
400(2)
Imports and Exports and the Trade Feedback Effect
402(1)
Import and Export Prices and the Price Feedback Effect
403(1)
The Open Economy with Flexible Exchange Rates
404(5)
The Market for Foreign Exchange
404(3)
Factors that Affect Exchange Rates
407(1)
The Effects of Exchange Rates on the Economy
408(1)
News Analysis The Weak U.S. Dollar and Canadian Economy in 2003
409(4)
An Interdependent World Economy
413(1)
Summary
413(1)
Review Terms and Concepts
414(1)
Problem Set
414(1)
Appendix: World Monetary Systems Since 1900
415(6)
Globalization
421(16)
The Global Circular Flow
421(2)
A Brief History of Economic Globalization
423(1)
The Benefits and Costs of Globalization
424(2)
The Free-Trade Debate Revisited
424(2)
News Analysis Farm Subsidies and Fair Trade in 2003
426(5)
Trade, Growth, and Poverty
427(1)
The Globalization of Labor Markets: The Economics of Immigration
427(3)
Capital Mobility
430(1)
Public Policy and Globalization
431(2)
Global Externalities and Public Goods
431(1)
Nongovernmental Organizations and International Economics: The Washington Consensus
432(1)
Globalization, Capitalism, and Democracy
433(1)
A Final Word
433(1)
Summary
434(1)
Review Terms and Concepts
434(1)
Problem Set
434(3)
Economic Growth in Developing and Transitional Economies
437
Life in the Developing Nations: Population and Poverty
438(1)
Economic Development: Sources and Strategies
439(5)
The Sources of Economic Development
439(2)
Strategies for Economic Development
441(3)
News Analysis Trade and Development in Africa-2003
444(2)
Growth versus Development: The Policy Cycle
445(1)
Issues in Economic Development
446(3)
Population Growth
446(2)
Developing-Country Debt Burdens
448(1)
Economies in Transition
449(3)
Political Systems and Economic Systems: Socialism, Capitalism, and Communism
450(1)
Central Planning versus the Market
451(1)
The End of the Soviet Union
452(1)
The Transition to a Market Economy
452(1)
Six Basic Requirements for Successful Transition
452(1)
News Analysis Economic Conditions in Russia in 2003
453(3)
Summary
456(1)
Review Terms and Concepts
457(1)
Problem Set
457
Glossary 1(1)
Index 1(1)
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