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9780393968545

Income, Employment, and Economic Growth

by ;
  • ISBN13:

    9780393968545

  • ISBN10:

    0393968545

  • Edition: 8th
  • Format: Hardcover
  • Copyright: 1996-02-17
  • Publisher: W. W. Norton & Company

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Summary

For more than thirty years, Wallace C. Peterson has stuck to his guns on two fronts: first that the best way to understand the macroeconomy is to master the Keynesian analytic framework and, second, that too much mathematics spoils the student's appreciation of basic macroeconomic concepts. Through the Keynesian framework, Professor Peterson has shown students how to interpret the macroeconomy and how to understand alternative economic perspectives.

Table of Contents

Preface xix
PART I Introduction and Measurement 1(70)
1 An Overview of Macroeconomics
3(27)
How Keynes Viewed the Economy's Behavior
4(1)
Measuring the Economy's Performance
5(1)
The National Output
6(4)
Nominal versus Real GDP
6(4)
Potential GDP
10(1)
The Price Level
10(5)
Index Numbers
11(2)
Patterns of Price Changes
13(2)
Employment and Unemployment
15(3)
Labor Force Participation Rate
16(1)
Fluctuations in Unemployment
16(2)
The Trade Balance
18(4)
The Trade Balance in Merchandise
19(3)
Origins of Contemporary Macroeconomics
22(6)
Say's Law of Markets
22(1)
Economics as a Science
23(1)
Quantity Theory of Money
24(1)
Keynesian Theory
24(2)
Monetarism: The Modern Quantity Theory
26(1)
New Classical Economics
26(1)
New Keynesian Economics
27(1)
Post Keynesian Economics
28(1)
Summary
28(2)
2 Measuring the Economy's Performance
30(41)
The Nature and Uses of National Income Accounting
30(2)
Income and Wealth
32(8)
The Concept of Income
32(1)
The Circular Nature of Economic Activity
33(2)
Using Models in Economics
35(1)
The Concept of Wealth
35(1)
The Capital Goods Component of Wealth
36(1)
The Concept of Human Capital
37(1)
Interactions between Income and Wealth
38(2)
Output and Income Measures
40(1)
Gross Domestic Product
40(9)
Ex Ante and Ex Post Values
40(2)
Simon Kuznets: Father of the GDP
42(1)
Consumption Goods and Services (C)
43(1)
Investment Goods (I)
43(1)
Government Purchases of Goods and Services (G)
44(2)
Transfer Expenditures (TR) and Taxes (TX)
46(1)
Net Exports (X - M) or (I(f))
46(1)
Final and Intermediate Goods and Services
47(1)
Monetary Transactions and Productive Activity
48(1)
Other Measures of Product and Income
49(2)
Net National Product
49(1)
National Income
50(1)
Personal Income
50(1)
Disposable Income
51(1)
Price Indexes and Comparisons Over Time
51(3)
Limitations Inherent in Aggregate Measures of Income and Product
54(4)
Economic versus Social Values
54(1)
Economic versus Social Costs
55(1)
The Value of Leisure
56(1)
Qualitative Changes in the National Output
56(1)
The Composition of Output
56(1)
Does GDP Measure Happiness?
57(1)
The Distribution of the National Output
58(1)
Income and Output per Capita
58(1)
Employment and Unemployment
58(6)
The Meaning of Maximum Employment
59(2)
Problems in Measuring Unemployment
61(3)
Employment and Output: The Production Function
64(2)
Summary
66(1)
Appendix
67(4)
PART II The Basic Theory of Income and Employment 71(138)
3 The Classical System
73(27)
Functional Relationships in Economics
73(2)
Classical Economics before Keynes
75(4)
Three Propositions
76(2)
Jean Baptiste Say
78(1)
The Formal Classical Model
79(8)
Some Microeconomic Foundations for Classical Analysis
79(1)
The Labor Market
80(3)
The Concept of Equilibrium
83(1)
Say's Law and the Classical Theory of Interest
84(1)
Saving, Investment, and the Rate of Interest
84(2)
The Theory of the Price Level
86(1)
The Complete Classical Model
87(10)
A Classical Aggregate Supply and Aggregate Demand Model
89(1)
The Classical Aggregate Supply Curve
90(2)
The Classical Aggregate Demand Curve
92(2)
The Complete Classical Model of Aggregate Supply and Demand
94(1)
Real and Nominal Shocks in the Classical Model
95(2)
Policy Implications of the Classical Theory
97(1)
Classical Economics and the Great Depression
98(1)
Summary
99(1)
4 The Keynesian System
100(42)
John Maynard Keynes: Architect of a Revolution
101(1)
The Essence of the Income-Employment Problem
102(1)
Keynesian Aggregate Supply
103(9)
Aggregate Supply: A Real-World Example
106(1)
The Ex Ante Aggregate Supply Curve
107(5)
Keynesian Aggregate Demand
112(7)
The Origin of Spending Decisions
112(2)
Consumption Spending
114(2)
Investment and Government Spending
116(1)
Constructing the Keynesian Aggregate Demand Curve
117(2)
The Equilibrium Level of Income and Employment
119(10)
A Numerical Example
122(1)
Characteristics of the Income Equilibrium
123(1)
Changes in Income and Employment
124(1)
The Keynesian Multiplier
125(3)
Statics and Dynamics
128(1)
The Keynesian Income-Expenditure Model Summarized
129(1)
Bringing Economic Policy into the Analysis
129(2)
A Keynesian-Classical Model
131(8)
The Keynesian-Classical Aggregate Demand Curve
131(1)
The Keynesian-Classical Aggregate Supply Curve
132(2)
The Money Illusion and Aggregate Supply
134(4)
Macroeconomic Equilibrium in a Keynesian-Classical Context
138(1)
Comparing the Keynesian-Classical and Classical Views of Aggregate Demand and Aggregate Supply
139(1)
Summary
140(2)
5 Money and Interest in the Keynesian System
142(32)
The Nature of Money
143(4)
From Gold to Electronic Blips: A Capsule History of Money
144(1)
The Functions of Money
145(1)
Neutral versus Nonneutral Money
146(1)
The Supply of Money
147(4)
Money and Its Creation
148(2)
Measuring the Nation's Money Supply
150(1)
How Interest Rates Are Determined
151(1)
The Loanable Funds Theory of Interest
151(7)
Bond Prices and Interest Rates
152(1)
The Supply Curve for Loanable Funds
153(2)
The Demand Curve for Loanable Funds
155(3)
The Liquidity Preference Theory of Interest
158(4)
The Significance of Keynesian Interest Theory
161(1)
Which Theory?
162(1)
Interest Rates and Aggregate Demand
163(9)
The Rate of Interest and Investment Spending
164(3)
Interest Rates and the Trade Balance
167(4)
Interest Rate Differentials and the Trade Balance
171(1)
Summary
172(2)
6 The IS-LM Model
174(35)
Constructing the IS-LM Model
175(1)
Sir John Hicks and the IS-LM Curves
176(11)
Equilibrium in the Goods Sphere
177(1)
The IS Curve
178(2)
Equilibrium in the Monetary Sphere
180(1)
The LM Curve
181(5)
General Equilibrium
186(1)
Expanding the IS-LM Model
187(4)
Changes in the Equilibrium Values of Income and Interest
191(3)
Shifts in the IS Curve
192(2)
Shifts in the LM Curve
194(1)
The Price Level and the IS-LM Model
194(11)
The Price Level as an Exogenous Variable
195(3)
The Keynes and Pigou Effects
198(3)
The Price Level as an Endogenous Variable
201(4)
Public Policy and the IS-LM Model
205(2)
Summary
207(2)
PART III Exploring the Foundations of Aggregate Demand and Aggregate Supply 209(294)
7 Consumption, Saving, and the Multiplier
211(49)
The Determinants of Consumption Expenditure
212(12)
The Keynesian Consumption Function
213(2)
Technical Attributes of the Consumption Function
215(2)
The Saving Function
217(2)
Are Americans Failing to Save Enough?
219(1)
Empirical Verification
220(4)
The Equilibrium Income Level
224(4)
The Identity of Saving and Investment
228(2)
The Theory of the Multiplier
230(11)
The Formal Multiplier Process
234(2)
Algebraic Statement of the Multiplier
236(3)
Summary Remarks on the Theory of the Multiplier
239(1)
Putting Theory into Practice: The 1964 Kennedy-Johnson Tax Cut
240(1)
Consumption and the Multiplier in the IS-LM Model
241(3)
Income, Consumption, and Saving in the Long Run
244(1)
Expanded Theories of Consumption
245(7)
The Relative Income Hypothesis
247(1)
The Permanent Income Hypothesis
248(1)
The Life-Cycle Income Hypothesis
249(2)
Which Hypothesis?
251(1)
Other Influences on Consumption
252(6)
Attitudes toward Thrift
252(1)
Asset Holdings by the Consumer
252(3)
The Distribution of Income
255(1)
The Rate of Interest
255(1)
Price Changes and Consumer Expectations
256(1)
Consumer Credit
257(1)
A Concluding Comment
258(1)
Summary
258(2)
8 Investment and Finance
260(45)
The Investment Decision
262(4)
Investment and Expected Income
263(1)
The Costs of Investment
264(2)
The Basic Framework of Investment Theory
266(13)
The Discount Formula
267(2)
The Marginal Efficiency of Capital
269(2)
Keynes's Investment Demand Schedule (Curve)
271(2)
Shifts in the Keynesian Investment Demand Schedule (Curve)
273(1)
The Shape of the Keynesian Investment Demand Schedule (Curve)
274(5)
Current Income and Investment Expenditure
279(5)
The Marginal Propensity to Invest and Equilibrium Income
281(1)
Induced Investment Expenditure and the Multiplier
282(2)
Investment and the IS-LM Model
284(1)
The Acceleration Principle
285(5)
A Practical Use for the Acceleration Principle
287(1)
Limitations of the Acceleration Principle
288(1)
The Flexible Accelerator Hypothesis
289(1)
Theory and Reality
290(2)
Financing Investment
292(8)
Financial Instruments and Real Capital Assets
292(1)
Pricing Financial Assets
293(2)
Boom Conditions, Asset Values, and Investment Spending
295(1)
Speculation versus Enterprise
296(2)
The Supply Curve for Finance
298(2)
Other Influences on the Investment Decision
300(3)
The Role of Government
300(1)
The Role of Technology
301(1)
The Role of Market Structure
302(1)
A Summary View
303(1)
Summary
304(1)
9 Public Expenditures, Taxes, and Finance
305(44)
Government Purchases of Goods and Services and the Income Level
305(7)
Government Expenditures and the Multiplier
309(3)
Transfer Expenditures and the Income Level
312(6)
Transfer Expenditures and the Multiplier
317(1)
Taxes and the Income Level
318(6)
Transfers, Taxes, and the Multiplier
321(3)
Government and the IS-LM Model
324(1)
The Federal Budget
325(12)
The Full-(High-)Employment Budget
326(4)
Structural and Cyclical Deficits
330(1)
Built-in Stabilizers
331(4)
The Balanced Budget Thesis
335(2)
The Debt and the Deficit in the 1980s and Beyond
337(4)
Gramm-Rudman-Hollings: A Balanced Budget by Fiat
339(2)
The Role of Finance
341(5)
Borrowing and the Crowding-out Phenomenon
342(1)
Monetizing the Debt
342(1)
The Checkered History of U.S. Income Taxes
343(1)
Government Borrowing and the IS-LM Model
344(1)
Budget Surpluses
345(1)
Summary
346(1)
Appendix
347(2)
10 The International Economy
349(51)
The Open Economy
351(3)
The Nature of a Nation's Foreign Balance
354(5)
The Structure of the Balance of Payments Statement
355(1)
The Current Account
355(2)
The Capital Account
357(1)
International Equilibrium and the Balance of Payments
358(1)
The Exchange Rate
359(3)
Determination of the Exchange Rate
362(8)
The Theory of Purchasing Power Parity
363(3)
Real Interest Rate Differentials
366(3)
Income Changes and Central Bank Intervention
369(1)
Exports, Imports, and the Structure of Aggregate Demand
370(2)
Income Equilibrium in an Open Economy
372(4)
Foreign Trade and the Multiplier
376(3)
Graphic Illustrations of the Multiplier in an Open Economy
379(2)
Income Changes and the Export-Import Balance
381(2)
Exchange Rates and the Export-Import Balance
383(2)
The Balance of Payments Curve
385(8)
Living beyond Our Means: Foreign Borrowing and the U.S. Economy
386(3)
The Slope and Position of the Balance of Payments Curve
389(1)
A General Equilibrium Model in an Open Economy
390(3)
Recent Developments in International Macroeconomics
393(4)
A Summary Comment on the Determination of Aggregate Demand
397(1)
Summary
398(2)
11 Money and Output
400(55)
The Role of Money in Keynesian Theory
401(1)
The Demand for Money
401(10)
The Reasons for Holding Money
402(2)
The Transactions and Precautionary Demands for Money
404(2)
The Asset Demand for Money
406(3)
The Total Demand for Money
409(2)
Modifications to the Keynesian Conception of Money Demand
411(3)
Some Empirical Findings
414(2)
The Supply of Money
416(8)
The Money Multiplier
417(3)
Calculation of the Money Multiplier
420(2)
The Money Supply: Exogenous or Endogenous?
422(2)
Monetary Equilibrium
424(1)
Money and Market Capitalism
425(2)
The Modern Quantity Theory Challenge to Keynesian Economics
427(1)
Origins of the Modern Quantity Theory
427(14)
Guru for the Conservatives: Milton Friedman
430(1)
The Basic Nature of the Monetarist Challenge
431(2)
The Structure of Monetarist Theory
433(2)
The Friedman Theory of the Demand for Money
435(6)
Policy Implications of the Modern Quantity Theory
441(2)
The Outcome of the Monetarist Challenge
443(9)
What Causes Short-Term Changes in Aggregate Demand?
444(2)
The Money Supply, Nominal GDP, and Inflation
446(3)
Stability of the Demand for Money Function
449(1)
The Interest Elasticity of the Demand for Money
450(1)
The Central Bank's Control of the Money Supply
451(1)
A Concluding Comment
452(1)
Summary
453(2)
12 Output, Employment, and Inflation
455(48)
A Short History of the Price Level in the United States
456(10)
The Rate of Inflation
459(2)
What Is Wrong with Inflation?
461(1)
Deflation and the Economy: A Mixed Blessing
462(4)
The Inflationary Process
466(6)
Demand-Pull Inflation
466(2)
Cost-Push Inflation
468(4)
Toward a Keynesian Theory of the Price Level
472(10)
Prices in the Short Run
472(6)
Prices in the Long Run
478(4)
Output and Prices: Some Empirical Findings
482(2)
The Phillips Curve
484(7)
Challenges to the Phillips Curve Analysis
487(4)
The Phillips Curve: Alternative Interpretations
491(4)
Incomes Policy in the 1960s
495(1)
Incomes Policy in the 1970s
496(2)
The Future of Incomes Policies
498(3)
Summary
501(2)
PART IV Growth, Fluctuations, and Public Policy 503(118)
13 Productivity and Growth
505(40)
The Nature of Economic Growth
506(1)
The Growth Record of the U.S. Economy
507(1)
Economic Growth and the Production Function
508(10)
Theoretical Sources of Economic Growth
511(1)
Sources of Growth in the U.S. Economy
512(2)
Measuring Potential Output
514(4)
The Productivity Crisis
518(5)
Why Has Productivity Growth Slowed?
520(3)
The Productivity Crisis: What Can Be Done?
523(2)
Theories of Economic Growth
525(11)
Are Things Going to Get Better?
526(1)
The Domar-Harrod Models
527(4)
The Required Rate of Income Growth
531(2)
Harrod's Approach to Economic Growth
533(3)
Concluding Observations on the Domar-Harrod Analysis of Economic Growth
536(1)
Neoclassical Growth Theory
537(3)
Endogenous Growth Theory
540(3)
Summary
543(2)
14 Business Cycles and Forecasting
545(31)
The Nature of the Business Cycle
547(1)
Measuring the Business Cycle
548(3)
Long Waves in Economic Life
551(2)
What Happens in a Typical Business Cycle
553(3)
Causes of the Business Cycle
556(6)
External Causes
558(2)
Internal Causes
560(2)
The General Theory
562(2)
The Political Business Cycle
564(1)
Economic Forecasting
564(2)
Methods of Forecasting
566(6)
Extrapolation
566(1)
The Consensus Approach
566(1)
The Use of Indicators
567(1)
The Baby Boomers Make Forecasting Easy
568(3)
Econometric Models
571(1)
The Effectiveness of Forecasting
572(1)
Summary
573(3)
15 Sixty-five Years of Macroeconomic Policy
576(45)
The Principles of Economic Policy
577(8)
Monetary Policy and Its Application
578(2)
Fiscal Policy and Its Application
580(2)
Theoretical Limits to Fiscal and Monetary Policies
582(3)
Stabilization Policy in Historical Perspective
585(29)
The Great Depression and World War II
585(1)
What Caused the Great Depression and Why Did It Last So Long?
585(2)
What Ended the Great Depression?
587(2)
The Truman-Eisenhower Years
589(1)
The Kennedy Era
590(6)
Vietnam and Its Aftermath
596(4)
The 1970s
600(3)
The Reagan Revolution
603(1)
A Critique of the Reagan Revolution
604(5)
Jobs and Presidential Politics
609(1)
The Bush and Clinton Administrations
610(4)
The "Republican Revolution" and the Future of Macroeconomic Policy
614(2)
Some General Observations on Macroeconomic Policy
616(2)
Summary
618(3)
PART V Alternative Perspectives on Macroeconomic Theory and Policy 621(72)
16 The Rebirth of Classical Economics
623(26)
The New Classical Economics: A Challenge to Keynes
623(23)
The Theory of Rational Expectations
626(3)
The Theory of Continuous Market Clearing
629(1)
The Policy Implications of the New Classical Economics
630(2)
Expectations in Keynes and in the New Classical Economics
632(2)
The New Classical Economics and the Business Cycle
634(3)
Real Business Cycles
637(2)
Some Critical Observations
639(3)
A Farewell to Armchair Economics
642(4)
Supply-Side Economics
646(1)
Summary
647(2)
17 The New Keynesian Macroeconomics
649(22)
New Keynesian Economics and the Aggregate Supply Curve
650(2)
The Micro Foundations of New Keynesian Economics
652(5)
A Contract-Based New Keynesian Model
652(3)
Sticky Prices: Markup Pricing and Menu Costs
655(2)
Efficiency Wage Theories of Involuntary Unemployment
657(8)
Explanations for Efficiency Wages
659(3)
The Empirical Evidence for Efficiency Wages
662(3)
Interdependence and Macroeconomic Externalities
665(1)
Credit Rationing and Aggregate Demand
666(1)
The Policy Implications of the New Keynesian Economics
667(1)
Summary
668(3)
18 Post Keynesian Economics
671(22)
Fundamental Concerns of the Post Keynesians
672(11)
Rejection of Walrasian General Equilibrium Theory
672(3)
The Economy and Historic Time
675(1)
Uncertainty and Expectations
676(3)
Institutions and the Economy
679(4)
Minsky's Financial Instability Hypothesis
683(8)
Essential Elements in How Market Capitalism Works
686(2)
The Sequence of Events
688(2)
Some Conclusions
690(1)
Summary
691(2)
A Glossary of Macroeconomic Terms 693(10)
Index 703

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