Economics Principles and Applications (with InfoTrac)

by Hall, Robert E.; Lieberman, Marc

• ISBN13: 9780324260342
• ISBN10: 0324260342
• Edition: 3rd
• Format: Hardcover
• Copyright: 2004-01-07
• Publisher: South-Western College Pub

Summary

Economics: Principles and Applications is a straightforward, no-nonsense Principles book that emphasizes economic theory and applications. This textbook is a study tool for students, and the pedagogical approach and in-text features were chosen to reinforce this theme.

Table of Contents

PART I: PRELIMINARIES
What Is Economics?	1	(20)
Economics, Scarcity, and Choice	1	(4)
Scarcity and Individual Choice	2	(1)
Scarcity and Social Choice	3	(1)
Scarcity and Economics	4	(1)
The World of Economics	5	(1)
Microeconomics and Macroeconomics	5	(1)
Positive and Normative Economics	5	(1)
Why Study Economics?	6	(2)
To Understand the World Better	7	(1)
To Gain Self-confidence	7	(1)
To Achieve Social Change	7	(1)
To Help Prepare for Other Careers	7	(1)
To Become an Economist	8	(1)
The Methods of Economics	8	(3)
The Art of Building Economic Models	9	(1)
Assumptions and Conclusions	9	(1)
The Three-Step Process	10	(1)
Math, Jargon, and Other Concerns	10	(1)
How to Study Economics	11	(3)
Appendix: Graphs and Other Useful Tools	14	(7)
Tables and Graphs	14	(2)
Linear Equations	16	(2)
How Straight Lines and Curves Shift	18	(2)
Solving Equations	20	(1)
Scarcity, Choice, and Economic Systems	21	(31)
The Concept of Opportunity Cost	21	(13)
Opportunity Cost for Individuals	22	(4)
Opportunity Cost and Society	26	(1)
Production Possibilities Frontiers	26	(3)
The Search for a Free Lunch	29	(5)
Economic Systems	34	(12)
Specialization and Exchange	34	(5)
Resource Allocation	39	(4)
Resource Ownership	43	(1)
Types of Economic Systems	44	(2)
Using the Theory: Are We Saving Lives Efficiently?	46	(6)
Supply and Demand	52	(37)
Markets	53	(4)
How Broadly Should We Define the Market?	53	(1)
Buyers and Sellers	54	(1)
Competition in Markets	55	(1)
Using Supply and Demand	56	(1)
Demand	57	(8)
The Law of Demand	58	(1)
The Demand Schedule and the Demand Curve	59	(1)
Shifts vs. Movements Along the Demand Curve	59	(2)
Factors That Shift the Demand Curve	61	(4)
Supply	65	(8)
The Law of Supply	66	(1)
The Supply Schedule and the Supply Curve	67	(1)
Shifts vs. Movements Along the Supply Curve	68	(1)
Factors That Shift the Supply Curve	69	(4)
Putting Supply and Demand Together	73	(3)
What Happens When Things Change?	76	(4)
Income Rises, Causing an Increase in Demand	76	(1)
An Ice Storm Causes a Decrease in Supply	77	(1)
Handheld PCs in 2003: Both Curves Shift	78	(2)
The Three-Step Process	80	(2)
Using the Theory: College Administrators Make a Costly Mistake	82	(6)
Appendix: Solving for Equilibrium Algebraically	88	(1)
Working with Supply and Demand	89	(43)
Government Intervention in Markets	89	(5)
Price Ceilings	90	(2)
Price Floors	92	(2)
Price Elasticity of Demand	94	(16)
The Problem with Rate of Change	95	(1)
The Elasticity Approach	95	(1)
Calculating Price Elasticity of Demand	96	(2)
Elasticity and Straight-Line Demand Curves	98	(1)
Categorizing Goods by Elasticity	99	(2)
Elasticity and Total Revenue	101	(2)
Determinants of Elasticity	103	(4)
Using Price Elasticity of Demand	107	(3)
Other Elasticities	110	(7)
Income Elasticity of Demand	110	(3)
Cross-Price Elasticity of Demand	113	(2)
Price Elasticity of Supply	115	(2)
Taxes and Market Equilibrium	117	(6)
Example: The Tax on Airline Travel	117	(3)
Tax Incidence and Demand Elasticity	120	(1)
Tax Incidence and Supply Elasticity	121	(2)
Using the Theory: The Story of Two Markets	123	(9)
The Market for Food	123	(3)
Health Insurance and the Market for Health Care	126	(6)
PART II: MICROECONOMIC DECISION MAKERS
Consumer Choice	132	(40)
The Budget Constraint	133	(4)
Changes in the Budget Line	135	(2)
Preferences	137	(2)
Rationality	137	(1)
More Is Better	137	(2)
Consumer Decisions: The Marginal Utility Approach	139	(10)
Utility and Marginal Utility	139	(2)
Combining the Budget Constraint and Preferences	141	(3)
What Happens When Things Change?	144	(5)
The Individual's Demand Curve	149	(1)
Income and Substitution Effects	149	(3)
The Substitution Effect	149	(1)
The Income Effect	150	(1)
Combining Substitution and Income Effects	150	(2)
Consumers in Markets	152	(1)
Consumer Theory in Perspective	153	(3)
Extensions of the Model	154	(1)
Challenges to the Model	154	(2)
Using the Theory: Improving Education	156	(8)
Appendix: The Indifference Curve Approach	164	(8)
An Indifference Curve	164	(2)
The Indifference Map	166	(1)
Consumer Decision Making	167	(1)
What Happens When Things Change?	168	(4)
Production and Cost	172	(38)
The Nature of the Firm	173	(5)
Types of Business Firms	174	(2)
Why Employees?	176	(1)
The Limits to the Firm	177	(1)
Thinking About Production	178	(1)
The Short Run and the Long Run	178	(1)
Production in the Short Run	179	(3)
Marginal Returns to Labor	181	(1)
Thinking About Costs	182	(3)
The Irrelevance of Sunk Costs	183	(1)
Explicit Versus Implicit Costs	184	(1)
Costs in the Short Run	185	(7)
Measuring Short-Run Costs	185	(4)
Explaining the Shape of the Marginal Cost Curve	189	(1)
The Relationship Between Average and Marginal Costs	190	(2)
Production and Cost in the Long Run	192	(9)
The Relationship Between Long-Run and Short-Run Costs	194	(3)
Explaining the Shape of the LRATC Curve	197	(4)
Using the Theory: Long-Run Costs, Market Structure, and Mergers	201	(9)
LRATC and the Size of Firms	201	(3)
The Urge to Merge	204	(6)
How Firms Make Decisions: Profit Maximization	210	(24)
The Goal of Profit Maximization	211	(1)
Understanding Profit	212	(2)
Two Definitions of Profit	212	(2)
Why Are There Profits?	214	(1)
The Firm's Constraints	214	(3)
The Demand Constraint	215	(1)
The Cost Constraint	216	(1)
The Profit-Maximizing Output Level	217	(8)
The Total Revenue and Total Cost Approach	217	(1)
The Marginal Revenue and Marginal Cost Approach	218	(2)
Profit Maximization Using Graphs	220	(3)
What About Average Costs?	223	(2)
The Marginal Approach to Profit	225	(1)
Dealing with Losses	225	(3)
The Short Run and the Shutdown Rule	225	(3)
The Long Run: The Exit Decision	228	(1)
Using the Theory: Getting It Wrong and Getting It Right	228	(6)
Getting It Wrong: The Failure of Franklin National Bank	228	(2)
Getting It Right: The Success of Continental Airlines	230	(4)
PART III: PRODUCT MARKETS
Perfect Competition	234	(35)
What Is Perfect Competition?	235	(3)
The Three Requirements of Perfect Competition	236	(1)
Is Perfect Competition Realistic?	237	(1)
The Perfectly Competitive Firm	238	(9)
Goals and Constraints of the Competitive Firm	239	(1)
Cost and Revenue Data for a Competitive Firm	240	(2)
Finding the Profit-Maximizing Output Level	242	(1)
Measuring Total Profit	243	(2)
The Firm's Short-Run Supply Curve	245	(2)
Competitive Markets in the Short Run	247	(4)
The (Short-Run) Market Supply Curve	247	(1)
Short-Run Equilibrium	248	(3)
Competitive Markets in the Long Run	251	(6)
Profit and Loss and the Long Run	251	(1)
Long-Run Equilibrium	252	(3)
The Notion of Zero Profit in Perfect Competition	255	(1)
Perfect Competition and Plant Size	255	(1)
A Summary of the Competitive Firm in the Long Run	256	(1)
What Happens When Things Change?	257	(5)
A Change in Demand	257	(4)
Market Signals and the Economy	261	(1)
Using the Theory: Changes in Technology	262	(7)
Monopoly	269	(36)
What Is a Monopoly?	270	(1)
The Sources of Monopoly	271	(5)
Economies of Scale	271	(2)
Legal Barriers	273	(2)
Network Externalities	275	(1)
Monopoly Goals and Constraints	276	(1)
Monopoly Price or Output Decision	277	(5)
Profit and Loss	280	(2)
Equilibrium in Monopoly Markets	282	(5)
Short-Run Equilibrium	282	(1)
Long-Run Equilibrium	282	(1)
Comparing Monopoly to Perfect Competition	283	(3)
Why Monopolies Often Earn Zero Economic Profit	286	(1)
What Happens When Things Change?	287	(4)
An Increase in Demand	288	(1)
A Cost-Saving Technological Advance	288	(3)
Price Discrimination	291	(7)
Requirements for Price Discrimination	291	(2)
Effects of Price Discrimination	293	(5)
The Decline of Monopoly?	298	(1)
Using the Theory: Price Discrimination at Colleges and Universities	299	(6)
Monopolistic Competition and Oligopoly	305	(35)
The Concept of Imperfect Competition	306	(1)
Monopolistic Competition	306	(8)
Monopolistic Competition in the Short Run	309	(1)
Monopolistic Competition in the Long Run	310	(1)
Excess Capacity Under Monopolistic Competition	311	(2)
Nonprice Competition	313	(1)
Oligopoly	314	(15)
Oligopoly in the Real World	314	(2)
Why Oligopolies Exist	316	(1)
Oligopoly Versus Other Market Structures	317	(1)
The Game Theory Approach	318	(4)
Cooperative Behavior in Oligopoly	322	(5)
The Future of Oligopoly	327	(2)
Using the Theory: Advertising in Monopolistic Competition and Oligopoly	329	(5)
Advertising and Market Equilibrium Under Monopolistic Competition	329	(3)
Advertising and Collusion in Oligopoly	332	(2)
The Four Market Structures: A Postscript	334	(6)
PART IV: LABOR, CAPITAL, AND FINANCIAL MARKETS
The Labor Market	340	(44)
Factor Markets in General	341	(1)
Labor Markets in Particular	342	(3)
Defining a Labor Market	343	(1)
Competitive Labor Markets	344	(1)
Firms in Labor Markets	345	(1)
Demand for Labor by a Single Firm	345	(9)
Labor as a Derived Demand	345	(1)
Resource Demand: A General Rule	346	(1)
The Firm's Employment Decision When Only Labor Is Variable	347	(5)
The Firm's Employment Decision When Several Inputs Are Variable	352	(2)
The Market Demand for Labor	354	(5)
Shifts in the Market Labor Demand Curve	355	(4)
Labor Supply	359	(9)
Individual Labor Supply	359	(2)
Market Labor Supply	361	(1)
Shifts in the Market Labor Supply Curve	361	(4)
Short-run Versus Long-run Labor Supply	365	(3)
Labor Market Equilibrium	368	(1)
What Happens When Things Change?	369	(5)
A Change in Labor Demand	369	(2)
A Change in Labor Supply	371	(1)
Labor Shortages and Surpluses	372	(2)
Using the Theory: Understanding the Market for College-Educated Labor	374	(6)
Appendix: Monopsony	380	(4)
Spotless Car Wash as a Monopsony	380	(2)
The Profit-Maximizing Employment Level	382	(1)
Comparative Monopsony to Perfectly Competitive Labor Markets	382	(2)
Income Inequality	384	(44)
Why Do Wages Differ?	385	(16)
An Imaginary World	387	(1)
Compensating Differentials	388	(3)
Differences in Ability	391	(3)
Barriers to Entry	394	(7)
Discrimination and Wages	401	(6)
Employer Prejudice	402	(1)
Employee and Customer Prejudice	403	(1)
Statistical Discrimination	403	(1)
Dealing with Discrimination	404	(1)
Discrimination and Wage Differentials	404	(3)
Income Inequality	407	(8)
The Poverty Rate	407	(1)
The Lorenz Curve	408	(2)
Growing Income in Equality	410	(2)
Problems with Inequality Measures	412	(3)
Economic Inequality and Fairness	415	(2)
Using the Theory: CEOs in the 1990s and 2000s	417	(8)
Appendix: The Minimum Wage and Union Bargaining Under Monopsony	425	(3)
Monopsony and the Minimum Wage	425	(1)
Monopsony and Union Bargining	426	(2)
Capital and Financial Markets	428	(36)
Physical Capital and the Firm's Investment Decision	429	(9)
A First, Simple Approach	429	(2)
The Value of Future Dollars	431	(4)
The Firm's Demand for Capital	435	(1)
What Happens When Things Change: The Investment Curve	436	(2)
Investment in Human Capital	438	(3)
General Versus Specific Human Capital	439	(1)
The Decision to Invest in General Human Capital	440	(1)
Financial Markets	441	(15)
The Bond Market	442	(4)
The Stock Market	446	(7)
The Economic Role of Financial Markets	453	(3)
Using the Theory: Can Anyone Predict Stock Prices?	456	(8)
Predicting Stock Prices: Fundamental Analysis	456	(1)
Predicting Stock Prices: Technical Analysis	456	(1)
The Economist's View: Efficient Markets Theory	457	(7)
PART V: EFFICIENCY, GOVERNMENT, AND THE GLOBAL ECONOMY
Economic Efficiency and the Role of Government	464	(49)
The Meaning of Efficiency	465	(1)
Pareto Improvements	466	(2)
Side Payments and Pareto Improvements	467	(1)
Markets and Economic Efficiency	468	(5)
Reinterpreting the Demand Curve	468	(1)
Reinterpreting the Supply Curve	469	(1)
The Efficient Quantity of a Good	470	(2)
Perfect Competition and Efficiency	472	(1)
Measuring Market Gains	473	(8)
Consumer Surplus	473	(2)
Producer Surplus	475	(2)
Total Net Benefits in a Market	477	(1)
Perfect Competition and Efficiency: The Total Benefits View	477	(1)
A Price Ceiling	478	(2)
A Price Floor	480	(1)
The Efficiency Role of Government	481	(1)
The Institutional Infrastructure of a Market Economy	482	(6)
The Legal System	483	(3)
Regulation	486	(1)
Law and Regulation in Perspective	487	(1)
Market Failures	488	(1)
Monopoly and Monopoly Power	488	(5)
Antitrust Law as a Remedy	490	(1)
The Special Case of Natural Monopoly	490	(2)
Regulation of Natural Monopoly	492	(1)
Externalities	493	(8)
The Private Solution to a Negative Externality	494	(2)
Market Externalities and Government Solutions	496	(5)
Public Goods	501	(5)
Mixed Goods	504	(2)
Efficiency and Government in Perspective	506	(2)
Using the Theory: Traffic as a Market Failure	508	(5)
Comparative Advantage and the Gains from International Trade	513	(32)
The Logic of Free Trade	514	(1)
The Theory of Comparative Advantage	515	(5)
Opportunity Cost and Comparative Advantage	516	(1)
Specialization and World Production	517	(1)
How Each Nation Gains from International Trade	518	(1)
The Terms of Trade	519	(1)
How Potential Gains Turn into Actual Gains	520	(5)
Some Important Provisos	523	(2)
The Sources of Comparative Advantage	525	(2)
Why Some People Object to Free Trade	527	(5)
The Impact of Trade in the Exporting Country	528	(1)
The Impact of Trade in the Importing Country	529	(1)
Attitudes and Influence on Trade Policy	529	(3)
How Free Trade Is Restricted	532	(2)
Tariffs	532	(1)
Quotas	533	(1)
Protectionism	534	(5)
Myths About International Trade	534	(2)
Sophisticated Arguments for Protection	536	(1)
Protectionism in the United States	537	(2)
Using the Theory: The U.S. Sugar Quota	539	(6)
USING ALL THE THEORY: THE MICROECONOMICS OF DOMESTIC SECURITY	545	(416)
The Opportunity Cost of Domestic Security	547	(6)
The Ongoing Cost of Domestic Security: The Narrow (Optimistic) Approach	549	(2)
The Ongoing Cost of Domestic Security: The Broad (Pessimistic) Approach	551	(2)
Using the Three-Step Process	553	(1)
Changes in Product Markets	554	(7)
Changes in Demand	554	(3)
Changes in Supply	557	(2)
Air Travel: A Special Case	559	(2)
Changes in Labor Markets	561	(3)
An Example: Strategic Language Speakers	561	(3)
Financial and Capital Markets	564	(5)
An Example: The Defense Industry and the Stock Market	565	(4)
Public Goods and Government Involvement	569	(2)
International Trade and Domestic Security	571	(6)
PART VI: MACROECONOMICS: BASIC CONCEPTS
What Macroeconomics Tries to Explain	577	(14)
Macroeconomic Goals	577	(7)
Economic Growth	578	(2)
High Employment (or Low Unemployment)	580	(3)
Stable Prices	583	(1)
The Macroeconomic Approach	584	(2)
Aggregation in Macroeconomics	585	(1)
Macroeconomic Controversies	586	(1)
As You Study Macroeconomics...	587	(4)
Production, Income, and Employment	591	(34)
Production and Gross Domestic Product	592	(16)
GDP: A Definition	592	(3)
The Expenditure Approach to GDP	595	(6)
Other Approaches to GDP	601	(3)
Measuring GDP: A Summary	604	(1)
Real Versus Nominal GDP	604	(1)
How GDP Is Used	605	(1)
Problems with GDP	606	(2)
Employment and Unemployment	608	(9)
Types of Unemployment	608	(3)
The Costs of Unemployment	611	(3)
How Unemployment Is Measured	614	(1)
Problems in Measuring Unemployment	615	(2)
Using the Theory: GDP After September 11	617	(8)
The Direct Impact on GDP	618	(1)
Indirect Impacts on GDP	618	(7)
The Monetary System, Prices, and Inflation	625	(26)
The Monetary System	626	(2)
History of the Dollar	626	(1)
Why Paper Currency Is Accepted as a Means of Payment	627	(1)
Measuring the Price Level and Inflation	628	(5)
Index Numbers	628	(1)
The Consumer Price Index	629	(1)
How the CPI Has Behaved	630	(1)
From Price Index to Inflation Rate	630	(1)
How the CPI Is Used	630	(1)
Real Variables and Adjustment for Inflation	631	(2)
Inflation and the Measurement of Real GDP	633	(1)
The Costs of Inflation	633	(6)
The Inflation Myth	634	(1)
The Redistributive Cost of Inflation	635	(3)
The Resource Cost of Inflation	638	(1)
A Preliminary Word About Deflation	639	(1)
Is the CPI Accurate?	639	(3)
Sources of Bias in the CPI	640	(2)
Using the Theory: The Use and Misuse of an Imperfect CPI	642	(7)
Indexing	642	(1)
Long-Run Comparisons	643	(1)
The Bigger, Conceptual Problem	644	(1)
What the CPI Does Well	645	(4)
Appendix: Calculating the Consumer Price Index	649	(2)
PART VII: LONG-RUN MACROECONOMICS
The Classical Long-Run Model	651	(30)
Macroeconomic Models: Classical Versus Keynesian	652	(3)
Assumptions of the Classical Model	654	(1)
How Much Output Will We Produce?	655	(4)
The Labor Market	655	(2)
Determining the Economy's Output	657	(2)
The Role of Spending	659	(7)
Total Spending in a Very Simple Economy	660	(2)
Total Spending in a More Realistic Economy	662	(4)
The Loanable Funds Market	666	(6)
The Supply of Funds Curve	667	(1)
The Demand for Funds Curve	668	(1)
Equilibrium in the Loanable Funds Market	669	(1)
The Loanable Funds Market and Say's Law	670	(2)
The Classical Model: A Summary	672	(1)
Using the Theory: Fiscal Policy in the Classical Model	673	(8)
Fiscal Policy with a Budget Deficit	674	(2)
Fiscal Policy with a Budget Surplus	676	(5)
Economic Growth and Rising Living Standards	681	(35)
The Importance of Growth	682	(2)
What Makes Economies Grow?	684	(3)
Economic Growth and Living Standards	686	(1)
Growth in the Labor Force Participation Rate (LFPR)	687	(5)
How to Increase Employment	690	(2)
Growth in Productivity	692	(9)
Growth in the Capital Stock	692	(2)
Investment and the Capital Stock	694	(1)
How to Increase Investment	694	(6)
Human Capital and Economic Growth	700	(1)
Technological Change	701	(2)
Growth Policies: A Summary	703	(1)
The Cost of Economic Growth	703	(5)
Budgetary Costs	705	(1)
Consumption Costs	706	(1)
Opportunity Costs of Workers' Time	707	(1)
Sacrifice of Other Social Goals	708	(1)
Using the Theory: Economic Growth in the Less-Developed Countries	708	(8)
PART VIII: SHORT-RUN MACROECONOMICS
Economic Fluctuations	716	(12)
Can the Classical Model Explain Economic Fluctuations?	718	(4)
Shifts in Labor Demand	719	(1)
Shifts in Labor Supply	720	(1)
Verdict: The Classical Model Cannot Explain Economic Fluctuation	721	(1)
What Triggers Economic Fluctuations?	722	(3)
A Very Simple Economy	722	(1)
The Real-World Economy	723	(1)
Shocks That Push the Economy Away from Equilibrium	724	(1)
Where Do We Go from Here?	725	(3)
The Short-Run Macro Model	728	(43)
Consumption Spending	730	(9)
Consumption and Disposable Income	732	(3)
Consumption and Income	735	(1)
Shifts in the Consumption-Income Line	736	(3)
Getting to Total Spending	739	(4)
Investment Spending	739	(1)
Government Purchases	740	(1)
Net Exports	740	(1)
Summing Up: Aggregate Expenditure	741	(1)
Income and Aggregate Expenditure	742	(1)
Finding Equilibrium GDP	743	(8)
Inventories and Equilibrium GDP	744	(1)
Finding Equilibrium GDP with a Graph	745	(4)
Equilibrium GDP and Employment	749	(2)
What Happens When Things Change?	751	(8)
A Change in Investment Spending	751	(2)
The Expenditure Multiplier	753	(2)
The Multiplier in Reverse	755	(1)
Other Spending Shocks	755	(1)
A Graphical View of the Multiplier	756	(1)
Automatic Stabilizers and the Multiplier	757	(2)
Comparing Models: Long Run and Short Run	759	(2)
The Role of Saving	760	(1)
The Effect of Fiscal Policy	760	(1)
Using the Theory: The Recession of 2001	761	(7)
Appendix 1: Finding Equilibrium GDP Algebraically	768	(1)
Appendix 2: The Special Case of the Tax Multiplier	769	(2)
PART IX: MONEY, PRICES, AND THE MACROECONOMY
The Banking System and the Money Supply	771	(29)
What Counts as Money	771	(1)
Measuring the Money Supply	772	(4)
Assets and Their Liquidity	773	(1)
M1 and M2	774	(2)
The Banking System	776	(3)
Financial Intermediaries	776	(1)
Commercial Banks	777	(1)
A Bank's Balance Sheet	778	(1)
The Federal Reserve System	779	(4)
The Structure of the Fed	780	(2)
The Federal Open Market Committee	782	(1)
The Functions of the Federal Reserve	782	(1)
The Fed and the Money Supply	783	(11)
How the Fed Increases the Money Supply	783	(3)
The Demand Deposit Multiplier	786	(2)
The Fed's Influence on the Banking System as a Whole	788	(1)
How the Fed Decreases the Money Supply	789	(2)
Some Important Provisos About the Demand Deposit Multiplier	791	(1)
Other Tools for Controlling the Money Supply	792	(2)
Using the Theory: Bank Failures and Banking Panics	794	(6)
The Money Market and the Interest Rate	800	(27)
The Demand for Money	800	(4)
An Individual's Demand for Money	801	(1)
The Economy-Wide Demand for Money	802	(2)
The Supply of Money	804	(1)
Equilibrium in the Money Market	805	(5)
How the Money Market Reaches Equilibrium	807	(3)
What Happens When Things Change?	810	(8)
How the Fed Changes the Interest Rate	810	(1)
How Do Interest Rate Changes Affect the Economy?	811	(1)
Monetary Policy and the Economy	812	(3)
Fiscal Policy (and Other Spending Changes) Revisited	815	(3)
Are There Two Theories of the Interest Rate?	818	(1)
Expectations and the Money Market	819	(2)
Using the Theory: The Fed and the Recession of 2001	821	(6)
Aggregate Demand and Aggregate Supply	827	(36)
The Aggregate Demand Curve	828	(6)
Deriving the Aggregate Demand Curve	830	(1)
Understanding the AD Curve	830	(1)
Movements Along the AD Curve	831	(1)
Shifts of the AD Curve	831	(3)
The Aggregate Supply Curve	834	(7)
Costs and Prices	835	(1)
GDP, Costs, and the Price Level	836	(2)
Deriving the Aggregate Supply Curve	838	(1)
Movements Along the AS Curve	839	(1)
Shifts of the AS Curve	839	(2)
AD and AS Together: Short-Run Equilibrium	841	(2)
What Happens When Things Change?	843	(10)
Demand Shocks in the Short Run	843	(4)
Demand Shocks: Adjusting to the Long Run	847	(3)
The Long-Run Aggregate Supply Curve	850	(1)
Supply Shocks	851	(2)
Some Important Provisos About the AS Curve	853	(1)
Using the Theory: The Story of Two Recessions and ``Jobless'' Expansions	854	(9)
The Recession of 1990--91	854	(1)
The Recession of 2001	855	(2)
Jobless Expansions	857	(6)
PART X: MACROECONOMIC POLICY
Inflation and Monetary Policy	863	(29)
The Objectives of Monetary Policy	864	(2)
Low, Stable Inflation	864	(1)
Full Employment	864	(2)
The Fed's Performance	866	(1)
Federal Reserve Policy: Theory and Practice	867	(8)
Responding to Changes in Money Demand	868	(2)
Responding to Other Demand Shocks	870	(3)
Responding to Supply Shocks	873	(2)
Expectations and Ongoing Inflation	875	(7)
How Ongoing Inflation Arises	876	(3)
Ongoing Inflation and the Phillips Curve	879	(2)
Why the Fed Allows Ongoing Inflation	881	(1)
Using the Theory: Challenges for Monetary Policy	882	(10)
Information Problems	883	(1)
The Natural Rate of Unemployment	884	(1)
Rules Versus Discretion and the ``Taylor Rule''	885	(1)
Deflation	886	(6)
Fiscal Policy: Taxes, Spending, and the Federal Budget	892	(33)
Thinking About Spending, Taxes, and the Budget	893	(1)
Spending, Taxes, and the Budget: Some Background	894	(12)
Government Outlays	894	(6)
Federal Tax Revenues	900	(4)
The Federal Budget and the National Debt	904	(2)
The Effects of Fiscal Changes in the Short Run	906	(5)
How Economic Fluctuations Affect the Federal Budget	907	(1)
How the Budget Affects Economic Fluctuations	908	(1)
Countercyclical Fiscal Policy	909	(2)
The Effects of Fiscal Changes in the Long Run	911	(5)
The National Debt	912	(4)
Using the Theory: The Bush Tax Cuts of 2001 and 2003	916	(9)
The Short Run: Countercyclical Fiscal Policy?	916	(1)
The Long Run: The Tax Cuts and the National Debt	917	(8)
Exchange Rates and Macroeconomic Policy	925	(36)
Foreign Exchange Markets and Exchange Rates	926	(2)
Dollars per Pound or Pounds per Dollar?	926	(2)
The Demand for British Pounds	928	(2)
The Demand for Pounds Curve	928	(1)
Shifts in the Demand for Pounds Curve	929	(1)
The Supply of British Pounds	930	(3)
The Supply of Pounds Curve	931	(1)
Shifts in the Supply of Pounds Curve	932	(1)
The Equilibrium Exchange Rate	933	(1)
What Happens When Things Change?	934	(6)
How Exchange Rates Change Over Time	935	(1)
The Very Short Run: ``Hot Money''	936	(1)
The Short Run: Macroeconomic Fluctuations	937	(1)
The Long Run: Purchasing Power Parity	938	(2)
Government Intervention and Foreign Exchange Markets	940	(7)
Managed Float	940	(1)
Fixed Exchange Rates	941	(2)
Foreign Currency Crises, the IMF, and Moral Hazard	943	(2)
The Euro	945	(2)
Exchange Rates and the Macroeconomy	947	(2)
Exchange Rates and Demand Shocks	947	(1)
Exchange Rates and Monetary Policy	947	(2)
Using the Theory: The Stubborn U.S. Trade Deficit	949	(12)
From a Financial Inflow to a Trade Deficit	951	(3)
The Growing Trade Deficit with China	954	(7)
USING ALL THE THEORY: THE STOCK MARKET AND THE MACROECONOMY	961	(1)
Basic Background	962	(3)
Why Do People Hold Stock?	963	(1)
Tracking the Stock Market	963	(2)
Explaining Stock Prices	965	(4)
Step 1: Characterize the Market	965	(1)
Step 2: Find the Equilibrium	965	(2)
Step 3: What Happens When Things Change?	967	(2)
The Stock Market and the Macroeconomy	969	(4)
How the Stock Market Affects the Economy	969	(3)
How the Economy Affects the Stock Market	972	(1)
What Happens When Things Change?	973	(1)
A Shock to the Economy	974	(1)
A Shock to the Economy and the Stock Market: The High-Tech Boom of the 1990s	975	(1)
A Shock to the Economy and the Market: The High-Tech Bust of 2000 and 2001	976	(1)
The Fed and the Stock Market	977
Glossary	1	(1)
Index	1