Essentials Of Economics

by Sexton, Robert L.

• ISBN13: 9780324222098
• ISBN10: 0324222092
• Edition: 2nd
• Format: Paperback
• Copyright: 2005-02-07
• Publisher: Cengage Learning

Summary

Learn economics the easy way with ESSENTIALS OF ECONOMICS! Designed to take the intimidation out of economics, this economics text will help you master and retain the principles of economics. Short learning units, a built-in study guide, graphs, photos, and numerous study aids found throughout the text make learning easy by saving you valuable time. Xtra! provides you with the additional content practice and exam review materials you need to be successful in the course.

Table of Contents

Preface	xix
Acknowledgments	xxiii
The Role and Method of Economics	1	(20)
Economics: A Brief Introduction	3	(2)
Economics---A Word with Many Different Meanings	3	(1)
Economics Is All around Us	3	(1)
In the News: Americans Score Poorly on Economic Literacy	4	(1)
Economics as a Science	5	(1)
Economics Is a Social Science	5	(1)
Macroeconomics and Microeconomics	5	(1)
Economic Behavior	6	(2)
Self-Interest	6	(1)
In the News: On Courage	6	(1)
Using What You've Learned: The Benevolence of Self-Interest	7	(1)
What Is Rational Behavior?	7	(1)
Economic Theory	8	(2)
Economic Theories	8	(1)
Abstraction Is Important	8	(1)
Developing a Testable Proposition	9	(1)
The Ceteris Paribus assumption	10	(1)
Pitfalls to Avoid in Scientific Thinking	10	(2)
Confusing Correlation and Causation	10	(1)
In the News: Heavy Metal Music and Teen Suicide	11	(1)
The Fallacy of Composition	11	(1)
Positive Analysis and Normative Analysis	12	(9)
Positive Analysis	12	(1)
In the News: Economists Do Agree	13	(1)
Normative Analysis	13	(1)
Positive versus Normative Statements	13	(1)
Disagreement Is Common in Most Disciplines	14	(1)
Economists Do Agree	14	(1)
Summary	15	(1)
Key Terms and Concepts	15	(1)
Review Questions	15	(2)
Appendix: Working with Graphs	17	(1)
Graphs Are an Important Economic Tool	17	(1)
Using Graphs to Show the Relationship between Two Variables	17	(1)
The Graph of a Demand Curve	18	(1)
Using Graphs to Show the Relationship among Three Variables	18	(1)
Slope	19	(1)
Key Terms and Concepts	20	(1)
Chapter 1 Study Guide
The Economic Way of Thinking	21	(22)
Scarcity	23	(3)
Scarcity	23	(1)
Scarcity and Resources	23	(1)
Goods and Services	24	(1)
Are Those Who Want More Greedy?	24	(1)
Everyone Faces Scarcity	24	(1)
Even the Rich Face Scarcity	24	(1)
Scarcity and Growing Expectations	25	(1)
Opportunity Cost	26	(2)
Scarcity and Choices	26	(1)
To Choose Is to Lose	26	(1)
The Opportunity Cost of Going to College or Having a Child	27	(1)
Is That Really a Free Lunch, a Freeway, or a Free Beach?	27	(1)
Marginal Thinking	28	(3)
Choices Are Primarily Marginal---Not All or Nothing	28	(2)
Global Watch: Drunk Driving Draws Global Wrath	30	(1)
Incentives Matter	31	(3)
People Respond to Incentives	31	(1)
Positive and Negative Incentives	32	(1)
Using What You've Learned: Do Incentives Matter?	32	(1)
In the News: Cheating in School: Focusing on Integrity	33	(1)
Specialization and Trade	34	(2)
Why Do People Specialize?	34	(1)
We All Specialize	34	(1)
The Advantages of Specialization	34	(1)
Using What You've Learned: Comparative Advantage	35	(1)
Specialization and Trade Lead to Greater Wealth and Prosperity	35	(1)
Market Prices Coordinate Economic Activity	36	(7)
Private Property and the Market Economy	36	(1)
How Does the Market Work to Allocate Resources?	36	(1)
Market Prices Provide Important Information	36	(1)
In the News: Song Swapping on the Net	37	(1)
What Effect Do Price Controls Have on the Market System?	38	(1)
Market Failure	38	(1)
Summary	39	(1)
Key Terms and Concepts	40	(1)
Review Questions	40	(3)
Chapter 2 Study Guide
Scarcity, Trade--Offs, and Economic Growth	43	(18)
The Three Economic Questions Every Society Faces	44	(4)
Scarcity and the Allocation of Resources	44	(1)
What Goods and Services Will Be Produced?	45	(1)
How Will the Goods and Services Be Produced?	45	(1)
In the News: Robots Advancing on the Lawns of the World	46	(1)
Using What You've Learned: Market Signals	47	(1)
Who Will Get the Goods and Services?	47	(1)
The Circular Flow Model	48	(2)
Product Markets	49	(1)
Factor Markets	49	(1)
The Simple Circular Flow Model	49	(1)
The Production Possibilities Curve	50	(5)
The Production Possibilities Curve	50	(2)
Using What You've Learned: The Production Possibilities Curve	52	(1)
Using Resources Efficiently	53	(1)
Inefficiency and Efficiency	53	(1)
The Law of Increasing Opportunity Cost	53	(2)
Economic Growth and the Production Possibilities Curve	55	(6)
Generating Economic Growth	55	(1)
In the News: Tourism versus Ecosystems	56	(1)
Growth Does Not Eliminate Scarcity	56	(1)
Summing Up the Production Possibilities Curve	57	(1)
Summary	58	(1)
Key Terms and Concepts	59	(1)
Review Questions	59	(2)
Chapter 3 Study Guide
Supply and Demand	61	(22)
Markets	62	(2)
Defining a Market	62	(1)
Buyers and Sellers	63	(1)
Demand	64	(4)
The Law of Demand	64	(1)
Why Is There a Negative Relationship between Price and the Quantity Demanded?	64	(1)
Individual Demand	65	(1)
What Is a Market Demand Curve?	65	(3)
Shifts in the Demand Curve	68	(7)
A Change in Demand versus a Change in Quantity Demanded	68	(1)
Shifts in Demand	68	(1)
The Prices of Related Goods	68	(2)
Using What You've Learned: Substitute Goods	70	(1)
Using What You've Learned: Complementary Goods	70	(1)
Income	71	(1)
Number of Buyers	71	(1)
Tastes	71	(1)
Using What You've Learned: Normal and Inferior Goods	72	(1)
Expectations	72	(1)
Global Watch: El Nino Concerns Cause Buyers to Increase Current Demand	73	(1)
Changes in Demand versus Changes in Quantity Demanded---Revisited	73	(1)
Using What You've Learned: Changes in Demand versus Changes in Quantity Demanded	74	(1)
Supply	75	(2)
The Law of Supply	75	(1)
A Positive Relationship between Price and Quantity Supplied	75	(1)
An Individual Supply Curve	76	(1)
The Market Supply Curve	76	(1)
Shifts in the Supply Curve	77	(6)
A Change in Quantity Supplied versus a Change in Supply	77	(1)
Shifts in Supply	78	(1)
Change in Supply versus Change in Quantity Supplied---Revisited	79	(1)
Using What You've Learned: Change in Supply versus Change in Quantity Supplied	80	(1)
Summary	81	(1)
Key Terms and Concepts	81	(1)
Review Questions	82	(1)
Chapter 4 Study Guide
Bringing Supply and Demand Together	83	(18)
Market Equilibrium Price and Quantity	84	(4)
Equilibrium Price and Quantity	84	(1)
Shortages and Surpluses	85	(1)
Using What You've Learned: Shortages	86	(1)
In the News: Just the Ticket for Super Bowl Fans	87	(1)
Changes in Equilibrium Price and Quantity	88	(6)
A Change in Demand	88	(1)
A Change in Supply	88	(1)
Changes in Both Supply and Demand	88	(2)
Using What You've Learned: Change in Demand	90	(1)
The Combinations of Supply and Demand Shifts	91	(2)
Using What You've Learned: College Enrollment and the Price of Going to College	93	(1)
Price Controls	94	(7)
Price Controls	94	(1)
Price Ceilings: Rent Controls	94	(2)
Price Floors: The Minimum Wage	96	(1)
In the News: Rent Control: New York's Self-Destruction	97	(1)
Unintended Consequences	97	(1)
Summary	98	(1)
Key Terms and Concepts	98	(1)
Review Questions	99	(2)
Chapter 5 Study Guide
Elasticities	101	(18)
Price Elasticity of Demand	103	(4)
Is the Demand Curve Elastic or Inelastic?	103	(1)
Types of Demand Curves	103	(2)
The Determinants of the Price Elasticity of Demand	105	(2)
Total Revenue and the Price Elasticity of Demand	107	(3)
How Does the Price Elasticity of Demand Impact Total Revenue?	107	(1)
Using What You've Learned: Elasticities and Total Revenue	108	(1)
Price Elasticity Changes along a Linear Demand Curve	109	(1)
Price Elasticity of Supply	110	(9)
What Is the Price Elasticity of Supply?	110	(3)
Elasticities and Taxes: Combining Supply and Demand Elasticities	113	(1)
In the News: Drugs across the Border	114	(2)
In the News: Teen Smoking: Price Matters	116	(1)
Summary	117	(1)
Key Terms and Concepts	117	(1)
Review Questions	117	(2)
Chapter 6 Study Guide
Market Efficiency and Welfare	119	(16)
Consumer Surplus and Producer Surplus	120	(6)
Consumer Surplus	120	(1)
Marginal Willingness to Pay Falls as More Is Consumed	121	(1)
Price Changes and Changes in Consumer Surplus	122	(1)
Using What You've Learned: Consumer Surplus and Elasticity	122	(1)
Producer Surplus	123	(1)
Market Efficiency and Producer and Consumer Surplus	124	(1)
In the News: Is Santa a Deadweight Loss?	125	(1)
The Welfare Effects of Taxes, Subsidies, and Price Controls	126	(9)
Using Consumer and Producer Surplus to Find the Welfare Effects of a Tax	126	(2)
Elasticity and the Size of the Deadweight Loss	128	(1)
The Welfare Effects of Subsidies	129	(1)
Price Ceilings and Welfare Effects	129	(1)
Price Floors	130	(1)
The Welfare Effects of a Price Floor When the Government Buys the Surplus	130	(3)
Summary	133	(1)
Key Terms and Concepts	133	(1)
Review Questions	133	(2)
Chapter 7 Study Guide
Externalities and Public Goods	135	(10)
Market Failure and Externalities	137	(6)
Externalities	137	(1)
Negative Externalities	137	(1)
What Can the Government Do to Correct for Negative Externalities?	138	(1)
Positive Externalities	138	(1)
In the News: London Tolls Are a Taxing Problem for Drivers	139	(1)
In the News: Mum's the Word	140	(1)
What Can the Government Do to Correct for Positive Externalities?	141	(1)
Nongovernmental Solutions to Externalities	142	(1)
Public Goods	143	(2)
What Is a Public Good?	143	(1)
Public Goods and the Free-Rider Problem	143	(1)
Summary	144	(1)
Key Terms and Concepts	144	(1)
Review Questions	144	(1)
Chapter 8 Study Guide
Production and Costs	145	(20)
Profits: Total Revenues Minus Total Costs	146	(3)
Explicit Costs	146	(1)
Implicit Costs	147	(1)
Profits	147	(1)
Using What You've Learned: Explicit and Implicit Costs	147	(1)
Using What You've Learned: Accounting Profits and Economic Profits	148	(1)
Are Accounting Profits the Same as Economic Profits?	148	(1)
A Zero Economic Profit Is a Normal Profit	148	(1)
Sunk Costs	149	(1)
Production in the Short Run	149	(3)
The Short Run versus the Long Run	149	(1)
Production in the Short Run	150	(1)
Diminishing Marginal Product	150	(2)
Costs in the Short Run	152	(4)
Fixed Costs, Variable Costs, and Total Costs	152	(1)
Average Total Costs	153	(1)
Marginal Cost	153	(1)
Using What You've Learned: Marginal Cost versus Average Total Cost	153	(1)
How Are These Costs Related?	154	(2)
The Shape of the Short-Run Cost Curves	156	(4)
The Relationship between Marginal Costs and Marginal Product	156	(1)
The Relationship between Marginal and Average Amounts	156	(1)
Why Is the Average Total Cost Curve U-Shaped?	157	(1)
The Relationship between Marginal Costs and Average Variable and Average Total Costs	157	(1)
Using What You've Learned: Marginal versus Average Amounts	158	(1)
In the News: California's Three Strikes Law	159	(1)
Cost Curves: Short-Run versus Long-Run	160	(5)
Why Are Long-Run Cost Curves Different from Short-Run Cost Curves?	160	(1)
What Are Economies of Scale?	161	(1)
Why Do Economies and Diseconomies of Scale Occur?	161	(1)
In the News: The Cost Revolution	162	(1)
Summary	163	(1)
Key Terms and Concepts	164	(1)
Review Questions	164	(1)
Chapter 9 Study Guide
Perfect Competition	165	(24)
The Four Market Structures	167	(3)
Perfect Competition	167	(1)
Monopoly	167	(1)
Monopolistic Competition	167	(1)
Oligopoly	167	(1)
A Perfectly Competitive Market	168	(2)
An Individual Price Taker's Demand Curve	170	(2)
An Individual Firm's Demand Curve	170	(1)
A Change in Market Price and the Firm's Demand Curve	171	(1)
Profit Maximization	172	(2)
Revenues in a Perfectly Competitive Market	172	(1)
Total Revenue	172	(1)
Average Revenue and Marginal Revenue	172	(1)
How Do Firms Maximize Profits?	172	(1)
Equating Marginal Revenue and Marginal Cost	172	(2)
Short-Run Profits and Losses	174	(6)
The Three-Step Method	174	(1)
Evaluating Economic Losses in the Short Run	175	(2)
Deriving the Short-Run Market Supply Curve	177	(1)
Using What You've Learned: Evaluating Short-Run Economic Losses	178	(1)
Using What You've Learned: Reviewing the Short-Run Output Decision	179	(1)
Long-Run Equilibrium	180	(3)
Economic Profits and Losses Disappear in the Long Run	180	(1)
The Long-Run Equilibrium for the Competitive Firm	181	(1)
In the News: Super Bowl Betting Exposes Potential Woes for Nevada Casino Industry	182	(1)
Long-Run Supply	183	(6)
A Constant-Cost Industry	183	(1)
An Increasing-Cost Industry	183	(2)
Perfect Competition and Economic Efficiency	185	(1)
In the News: Internet Cuts Costs and Increases Competition	186	(1)
Summary	187	(1)
Key Terms and Concepts	187	(1)
Review Questions	187	(2)
Chapter 10 Study Guide
Monopoly	189	(24)
Monopoly: The Price Maker	190	(2)
What Is a Monopoly?	190	(1)
Pure Monopoly Is a Rarity	191	(1)
Barriers to Entry	191	(1)
Demand and Marginal Revenue in Monopoly	192	(4)
Using What You've Learned: Demand and Marginal Revenue	194	(1)
The Monopolist's Price in the Elastic Portion of the Demand Curve	195	(1)
The Monopolist's Equilibrium	196	(4)
How Does the Monopolist Determine the Profit-Maximizing Output?	196	(1)
Three-Step Method for Monopolist	196	(1)
Profits for a Monopolist	197	(1)
Losses for the Monopolist	197	(1)
Patents	198	(1)
In the News: The Best Little Monopoly in America	199	(1)
Monopoly and Welfare Loss	200	(2)
Does Monopoly Promote Inefficiency?	200	(1)
Does Monopoly Retard Innovation?	201	(1)
Monopoly Policy	202	(4)
Antitrust Policies	202	(1)
In the News: Is Microsoft a Monopoly?	203	(1)
Have Antitrust Policies Been Successful?	203	(1)
Government Regulation	203	(2)
Difficulties in Average Cost Pricing	205	(1)
Price Discrimination	206	(7)
Price Discrimination	206	(1)
Conditions for Price Discrimination	206	(1)
Why Does Price Discrimination Exist?	207	(1)
Examples of Price Discrimination	207	(2)
Using What You've Learned: Price Discrimination and Coupons	209	(1)
Summary	210	(1)
Key Terms and Concepts	210	(1)
Review Questions	210	(3)
Chapter 11 Study Guide
Monopolistic Competition and Oligopoly	213	(26)
Monopolistic Competition	214	(3)
What Is Monopolistic Competition?	214	(1)
In the News: Is a Beer a Beer?	215	(1)
The Three Basic Characteristics of Monopolistic Competition	215	(2)
Price and Output Determination in Monopolistic Competition	217	(2)
Determining Short-Run Equilibrium	217	(1)
Three-Step Method for Monopolistic Competition	217	(1)
Short-Run Profits and Losses in Monopolistic Competition	218	(1)
Determining Long-Run Equilibrium	218	(1)
Monopolistic Competition versus Perfect Competition	219	(3)
The Significance of Excess Capacity	219	(1)
Failing to Meet Allocative Efficiency, Too	220	(1)
What Are the Real Costs of Monopolistic Competition?	221	(1)
Are the Differences between Monopolistic Competition and Perfect Competition Exaggerated?	221	(1)
Advertising	222	(3)
Why Do Firms Advertise?	222	(1)
Advertising Can Change the Shape and Position of the Demand Curve	222	(1)
Is Advertising ``Good'' or ``Bad'' from Society's Perspective?	223	(1)
Using What You've Learned: Advertising	224	(1)
In the News: Pepsi Super Bowl Ad Raises Worldwide Pepsi Awareness 0.00000000001 Percent	224	(1)
Oligopoly	225	(4)
What Is Oligopoly?	225	(1)
Mutual Interdependence	225	(1)
Why Do Oligopolies Exist?	226	(1)
Measuring Industry Concentration	226	(1)
Economies of Scale as a Barrier to Entry	226	(1)
In the News: Big Business: Why the Sudden Rise in the Urge to Merge and Form Oligopolies?	227	(1)
Equilibrium Price and Quantity in Oligopoly	228	(1)
Collusion and Cartels	229	(3)
Uncertainty and Pricing Decisions	229	(1)
Collusion	229	(1)
Is Collusion like a Monopoly?	229	(1)
Joint Profit Maximization	229	(1)
In the News: The Crash of an Airline Collusion	230	(1)
Why Are Most Collusive Oligopolies Short Lived?	230	(1)
Global Watch: The Opec Cartel	231	(1)
Price Leadership and Deterring Entry	232	(7)
Price Leadership	232	(1)
What Happens in the Long Run If Entry Is Easy?	232	(1)
How Do Oligopolists Deter Market Entry?	233	(1)
Reviewing the Market Structures	233	(1)
Using What You've Learned: Mutual Interdependence in Oligopoly	234	(1)
Summary	235	(1)
Key Terms and Concepts	236	(1)
Review Questions	236	(3)
Chapter 12 Study Guide
Supply and Demand in Labor Markets	239	(132)
Labor Markets	240	(2)
Determining the Price of a Productive Factor: Derived Demand	240	(1)
In the News: Demand, Not Higher Salaries, Drives Up Baseball Ticket Prices	241	(1)
Supply and Demand in the Labor Market	242	(4)
Will Hiring That Input Add More to Revenue Than Costs?	242	(1)
The Demand Curve for Labor Slopes Downward	242	(1)
How Many Workers Will an Employer Hire?	243	(2)
The Market Labor Supply Curve	245	(1)
Labor Market Equilibrium	246	(5)
Determining Equilibrium in the Competitive Labor Market	246	(1)
Shifts in the Labor Demand Curve	246	(1)
Using What You've Learned: Labor Supply and Demand	247	(1)
Shifting the Labor Supply Curve	248	(1)
Global Watch: Cause, Consequence, and Cure of Child Labor	249	(2)
Labor Unions	251	(3)
Why Are There Labor Unions?	251	(1)
Where Are Labor Unions Found?	251	(1)
Union Impact on Labor Supply and Wages	252	(1)
Wage Differences for Similarly Skilled Workers	252	(1)
Can Unions Lead to Increased Productivity?	252	(1)
Global Watch: Union Wage Premiums in Selected Countries	253	(1)
Income Distribution	254	(5)
The Record Since 1935	254	(1)
Are We Overstating the Disparity in the Distribution of Income?	255	(1)
Using What You've Learned: Demographic Factors and Income Distribution	255	(1)
How Much Movement Is There on the Economic Ladder?	256	(1)
Why Do Some Earn More Than Others?	256	(1)
Income Distribution in Other Countries	257	(2)
Poverty	259	(4)
Defining Poverty	259	(1)
An Alternative Definition of Poverty	259	(2)
Income Redistribution	261	(2)
The Economics of Discrimination	263	(108)
Job-Entry Discrimination	263	(1)
Wage Discrimination	263	(1)
Discrimination or Differences in Productivity?	264	(1)
Why Do People Discriminate?	264	(1)
The Costs of Discrimination	265	(1)
Remedying Discrimination	265	(1)
Summary	266	(1)
Key Terms and Concepts	267	(1)
Review Questions	267	(104)
Chapter 13 Study Guide
Unemployment, Inflation, and Economic Fluctuations	371
Macroeconomic Goals	272	(1)
Three Major Macroeconomic Goals	272	(1)
What Other Goals Are Important?	272	(1)
How Do Value Judgments Affect Economic Goals?	273	(1)
Acknowledging Our Goals: The Employment Act of 1946	273	(1)
Employment and Unemployment	273	(5)
The Consequences of High Unemployment	273	(1)
What Is the Unemployment Rate?	274	(1)
The Worst Case of U.S. Unemployment	274	(1)
Variations in the Unemployment Rate	274	(1)
Are Unemployment Statistics Accurate Reflections of the Labor Market?	275	(1)
Who Are the Unemployed?	275	(1)
Categories of Unemployed Workers	276	(1)
How Much Unemployment?	276	(1)
The Average Duration of Unemployment	277	(1)
Labor Force Participation Rate	277	(1)
Types of Unemployment	278	(6)
Frictional Unemployment	279	(1)
Should We Worry about Frictional Unemployment?	279	(1)
Structural Unemployment	279	(1)
Some Unemployment Is Unavoidable	279	(1)
Cyclical Unemployment	280	(1)
The Natural Rate of Unemployment	280	(1)
Unemployment Insurance	280	(1)
Using What You've Learned: Cyclical Unemployment	281	(1)
Global Watch: Unemployment around the Globe, 2003	281	(1)
Does New Technology Lead to Greater Unemployment?	282	(1)
In the News: A Light That Never Goes Out	283	(1)
Inflation	284	(7)
Stable Price Level as a Desirable Goal	284	(1)
The Price Level over the Years	284	(1)
Who Loses with Inflation?	285	(1)
Unanticipated Inflation Distorts Price Signals	285	(1)
Menu and Shoe-Leather Costs	286	(1)
Inflation and Interest Rates	286	(1)
Global Watch: Average Annual Inflation Rates, Selected Countries, 2003	286	(1)
Using What You've Learned: Inflation	287	(1)
Anticipated Inflation and the Nominal Interest Rate	288	(1)
Do Creditors Always Lose during Inflation?	289	(1)
Protecting Ourselves from Inflation	289	(1)
Using What You've Learned: Anticipated Inflation and Interest Rates	290	(1)
Economic Fluctuations	291	(6)
Short-Term Fluctuations in Economic Growth	291	(1)
The Phases of a Business Cycle	291	(1)
How Long Does a Business Cycle Last?	292	(1)
Seasonal Fluctuations Affect Economic Activity	292	(1)
Political Business Cycles	292	(2)
Forecasting Cyclical Changes	294	(1)
Summary	295	(1)
Key Terms and Concepts	295	(1)
Review Questions	296	(1)
Chapter 14 Study Guide
Measuring a Nation's Production, Income, and Spending	297	(22)
National Income Accounting: A Standardized Way to Measure Economic Performance	298	(2)
What Is Gross Domestic Product?	298	(1)
Measuring Gross Domestic Product	299	(1)
The Expenditure Approach to Measuring GDP	300	(3)
The Expenditure Approach to Measuring GDP	300	(1)
Consumption (C)	300	(1)
Investment (I)	301	(1)
Government Purchases in GDP (G)	302	(1)
Exports (X -- M)	302	(1)
The Income Approach to Measuring GDP	303	(2)
The Income Approach to Measuring GDP	303	(1)
Factor Payments	303	(2)
Problems in Calculating an Accurate GDP	305	(8)
Problems in Calculating an Accurate GDP	305	(1)
How Do We Solve This Problem?	305	(1)
A Price-Level Index	305	(1)
The Consumer Price Index and the GDP Deflator	306	(1)
How Is a Price Index Created?	306	(1)
In the News: Top-Grossing Films of All Time in the United States	307	(1)
Real GDP	307	(1)
In the News: A Better CPI	308	(2)
Other Measures	310	(1)
GDP Deflator versus CPI	310	(1)
Is Real GDP Always Less Than Nominal GDP?	310	(1)
Real GDP per Capita	310	(1)
Why Is the Measure of per Capita GDP So Important?	310	(1)
Using What You've Learned: Babe Ruth's Salary Adjusted for Inflation	311	(2)
Problems with GDP as a Measure of Economic Welfare	313	(6)
Nonmarket Transactions	313	(1)
The Underground Economy	313	(1)
Measuring the Value of Leisure	314	(1)
Global Watch: Growing Underground	314	(1)
In the News: Time Well Spent	315	(1)
GDP and Externalities	315	(1)
Quality of Goods	316	(1)
Other Measures of Economic Well-Being	316	(1)
Summary	317	(1)
Key Terms and Concepts	317	(1)
Review Questions	317	(2)
Chapter 15 Study Guide
Economic Growth in the Global Economy	319	(18)
Economic Growth	320	(3)
Defining Economic Growth	320	(1)
The Rule of 70	321	(1)
Using What You've Learned	321	(1)
In the News: Productivity Boom	322	(1)
Determinants of Economic Growth	323	(2)
Factors That Contribute to Economic Growth	323	(2)
Raising the Level of Economic Growth	325	(12)
The Impact of Economic Growth	325	(1)
Saving Rates, Investment, Capital Stock, and Economic Growth	325	(1)
Research and Development	326	(1)
The Protection of Property Rights Impacts Economic Growth	326	(1)
Free Trade and Economic Growth	327	(1)
Education	327	(1)
Summary	328	(1)
Key Terms and Concepts	329	(1)
Review Questions	329	(1)
Appendix: Investment and Saving	330	(1)
Financial Markets	330	(1)
Investment Demand and Saving Supply	331	(4)
Key Terms and Concepts	335	(2)
Chapter 16 Study Guide
Aggregate Demand and Aggregate Supply	337	(24)
The Determinants of Aggregate Demand	338	(2)
What Is Aggregate Demand?	338	(1)
Consumption (C)	338	(1)
Investment (I)	338	(1)
Government Purchases (G)	339	(1)
Net Exports (X -- M)	339	(1)
The Aggregate Demand Curve	340	(2)
How Is the Quantity of Real GDP Demanded Affected by the Price Level?	340	(1)
Why Is the Aggregate Demand Curve Negatively Sloped?	340	(2)
Shifts in the Aggregate Demand Curve	342	(2)
Shifts versus Movements along the Aggregate Demand Curve	342	(1)
Aggregate Demand Curve Shifters	342	(1)
Using What You've Learned: Changes in Aggregate Demand	343	(1)
The Aggregate Supply Curve	344	(3)
What Is the Aggregate Supply Curve?	344	(1)
Why Is the Short-Run Aggregate Supply Curve Positively Sloped?	344	(1)
Why Is the Long-Run Aggregate Supply Curve Vertical?	345	(2)
Shifts in the Aggregate Supply Curve	347	(4)
Shifting Short-Run and Long-Run Supply Curves	347	(1)
What Factors Shift Short-Run Aggregate Supply Only?	348	(1)
Using What You've Learned: Shifts in the Short-Run Aggregate Supply Curve	349	(2)
Macroeconomic Equilibrium	351	(10)
Determining Macroeconomic Equilibrium	351	(1)
Recessionary and Inflationary Gaps	351	(1)
Demand-Pull Inflation	351	(1)
Cost-Push Inflation	352	(1)
What Helped the United States Recover in the 1980s?	353	(1)
A Decrease in Aggregate Demand and Recessions	353	(1)
Adjusting to a Recessionary Gap	354	(1)
Slow Adjustments to a Recessionary Gap	354	(1)
What Causes Wages and Prices to Be Sticky Downward?	354	(1)
In the News: Lipstick and Recession	355	(1)
Adjusting to an Inflationary Gap	355	(2)
How Precise Is the Aggregate Supply and Demand Model?	357	(1)
Summary	358	(1)
Key Terms and Concepts	358	(1)
Review Questions	359	(2)
Chapter 17 Study Guide
Fiscal Policy	361	(20)
Fiscal Policy	362	(1)
Fiscal Policy	362	(1)
Fiscal Stimulus Affects the Budget	362	(1)
The Multiplier Effect	363	(6)
Government Purchases, Taxes, and Aggregate Demand	363	(1)
The Multiplier Effect	364	(1)
The Multiplier Effect at Work	364	(1)
Changes in the MPC Affect the Multiplier Process	365	(1)
The Multiplier and the Aggregate Demand Curve	365	(1)
Tax Cuts and the Multiplier	365	(1)
Taxes and Investment Spending	366	(1)
Spending Cuts and Tax Increases	366	(1)
Time Lags, Saving, and Imports Reduce the Size of the Multiplier	366	(1)
In the News: Boeing Multiple-Use Fighter Jet Completes Flight: Developmental Aircraft in Race for Huge Contract	367	(1)
Using What You've Learned: The Broken Window Fallacy	368	(1)
Fiscal Policy and the AD/AS Model	369	(2)
Fiscal Policy and the AD/AS Model	369	(1)
Budget Deficits and Fiscal Policy	369	(1)
In the News: The 2003 Tax Cut	370	(1)
Contractionary Fiscal Policy	370	(1)
Automatic Stabilizers	371	(1)
Automatic Stabilizers	371	(1)
How Does the Tax System Stabilize the Economy?	371	(1)
Possible Obstacles to Effective Fiscal Policy	372	(3)
The Crowding-Out Effect	372	(1)
Time Lags in Fiscal Policy Implementation	373	(2)
Supply-Side Fiscal Policy	375	(6)
What Is Supply-Side Fiscal Policy?	375	(1)
Impact of Supply-Side Policies	375	(1)
The Laffer Curve	375	(1)
Research and Development and the Supply Side of the Economy	375	(1)
How Do Supply-Side Policies Affect Long-Run Aggregate Supply?	376	(1)
Critics of Supply-Side Economics	376	(1)
The Supply-Side and Demand-Side Effects of a Tax Cut	376	(2)
Summary	378	(1)
Key Terms and Concepts	379	(1)
Review Questions	379	(2)
Chapter 18 Study Guide
Public Sector	381	(16)
Government: Spending and Taxation	382	(6)
Growth in Government	382	(2)
Generating Government Revenue	384	(1)
Types of Taxation	384	(1)
Financing State and Local Government Activities	385	(1)
In the News: Social Security: A Ponzi Scheme?	386	(2)
The National Debt	388	(3)
How Government Finances the Debt	388	(1)
Why Run a Budget Deficit?	388	(2)
The Burden of Public Debt	390	(1)
Public Choice	391	(6)
What Is Public Choice Theory?	391	(1)
Is Scarcity Alive and Well in the Public Sector?	391	(1)
What Is an Individual-Consumption-Payment Link?	391	(1)
Majority Rule and the Median Voters	392	(1)
Voters and Special-Interest Groups	392	(2)
In the News: Wild Pitch	394	(1)
What Is the Best Way to Control Government?	395	(1)
Summary	396	(1)
Key Terms and Concepts	396	(1)
Review Questions	396	(1)
Chapter 19 Study Guide
Money and the Banking System	397	(20)
Money	398	(6)
Currency	398	(1)
Currency as Legal Tender	399	(1)
Demand Deposits and Other Checkable Deposits	399	(1)
The Popularity of Demand Deposits and Other Checkable Deposits	399	(1)
Credit Cards	400	(1)
Savings Accounts	400	(1)
Money Market Mutual Funds	401	(1)
Stocks and Bonds	401	(1)
Liquidity	401	(1)
The Money Supply	401	(1)
In the News: Tiny Micronesian Island Uses Giant Stones as Currency	402	(1)
How Was Money ``Backed''?	403	(1)
What Really Backs Our Money Now?	403	(1)
The Functions of Money	404	(2)
Money as a Medium of Exchange	404	(1)
Money as a Measure of Value	405	(1)
Money as a Store of Value	405	(1)
Money as a Means of Deferred Payment	406	(1)
How Banks Create Money	406	(5)
Financial Institutions	406	(1)
The Functions of Financial Institutions	407	(1)
How Do Banks Create Money?	407	(1)
How Do Banks Make Profits?	407	(1)
Reserve Requirements	407	(1)
Fractional Reserve System	407	(1)
A Balance Sheet	408	(1)
The Required Reserve Ratio	409	(1)
Loaning Excess Reserves	409	(1)
Is More Money More Wealth?	409	(2)
The Money Multiplier	411	(2)
The Multiple Expansion Effect	411	(1)
New Loans and Multiple Expansions	411	(1)
The Money Multiplier	411	(1)
Why Is It Only ``Potential'' Money Creation?	412	(1)
How Is Money Destroyed?	412	(1)
The Collapse of America's Banking System, 1920--1933	413	(4)
What Happened to the Banking Industry?	413	(1)
What Caused the Collapse?	414	(1)
Bank Failures Today	414	(1)
Summary	415	(1)
Key Terms and Concepts	415	(1)
Review Questions	416	(1)
Chapter 20 Study Guide
The Federal Reserve System and Monetary Policy	417	(34)
The Federal Reserve System	418	(3)
The Functions of a Central Bank	419	(1)
Location of the Federal Reserve System	419	(1)
The Fed's Relationship to the Federal Government	419	(1)
In the News: Independence and the Central Bank	420	(1)
The Fed's Ties to the Executive Branch	420	(1)
Fed Operations	420	(1)
The Equation of Exchange	421	(3)
The Equation of Exchange	421	(1)
Using the Equation of Exchange	422	(1)
How Volatile Is the Velocity of Money?	422	(1)
The Relationship between the Inflation Rate and the Growth in the Money Supply	422	(2)
Implementing Monetary Policy: Tools of the Fed	424	(4)
How Does the Fed Manipulate the Supply of Money?	424	(1)
Open Market Operations	424	(1)
Using What You've Learned: Open Market Operations	425	(1)
The Reserve Requirement	425	(1)
The Discount Rate	426	(1)
How the Fed Reduces the Money Supply	426	(1)
How the Fed Increases the Money Supply	427	(1)
How Else Can the Fed Influence Economic Activity?	427	(1)
Money, Interest Rates, and Aggregate Demand	428	(7)
The Money Market	428	(1)
The Demand for Money and the Nominal Interest Rate	428	(1)
Why Is the Supply of Money Relatively Inelastic?	429	(1)
Changes in Money Demand and Money Supply and the Nominal Interest Rate	430	(1)
The Fed Buys Bonds	430	(1)
The Fed Sells Bonds	430	(2)
Bond Prices and Interest Rates	432	(1)
Does the Fed Target the Money Supply or Interest Rates?	432	(1)
Which Interest Rate Does the Fed Target?	433	(1)
Does the Fed Influence the Real Interest Rate in the Short Run?	433	(2)
Expansionary and Contractionary Monetary Policy	435	(4)
Expansionary Monetary Policy in a Recessionary Gap	435	(1)
In the News: The U.S. Economy in the Wake of September 11	436	(1)
Contractionary Monetary Policy in an Inflationary Gap	436	(1)
Monetary Policy in the Open Economy	436	(1)
Using What You've Learned: Money and the AD/AS Model	437	(1)
In the News: The Science (and Art) of Monetary Policy	438	(1)
Problems in Implementing Monetary and Fiscal Policy	439	(5)
Problems in Conducting Monetary Policy	439	(1)
How Do Commercial Banks Implement the Fed's Monetary Policies?	439	(1)
Banks That Are Not Part of the Federal Reserve System and Policy Implementation	440	(1)
Fiscal and Monetary Coordination Problems	440	(1)
Alleviating Coordination Problems	440	(1)
Imperfect Information	441	(1)
The Shape of the Aggregate Supply Curve and Policy Implications	441	(1)
Overall Problems with Monetary and Fiscal Policy	442	(2)
Rational Expectations	444	(7)
Can Human Behavior Counteract Government Policy?	444	(1)
The Rational Expectations Theory	444	(1)
Rational Expectations and the Consequences of Government Macroeconomic Policies	445	(1)
Anticipation of an Expansionary Monetary Policy	445	(1)
Unanticipated Expansionary Policy	446	(1)
When an Anticipated Expansionary Policy Change Is Less Than the Actual Policy Change	446	(1)
Critics of Rational Expectations Theory	447	(1)
Summary	448	(1)
Key Terms and Concepts	448	(1)
Review Questions	449	(2)
Chapter 21 Study Guide
International Trade	451	(32)
The Growth in World Trade	452	(2)
Importance of International Trade	452	(1)
Trading Partners	453	(1)
Comparative Advantage and Gains from Trade	454	(5)
Economic Growth and Trade	454	(1)
The Principle of Comparative Advantage	454	(1)
Using What You've Learned: Comparative Advantage and Absolute Advantage	455	(1)
Comparative Advantage and the Production Possibilities Curve	455	(1)
Regional Comparative Advantage	456	(2)
Using What You've Learned: The Secret to Wealth	458	(1)
Supply and Demand in International Trade	459	(4)
The Importance of Trade: Producer and Consumer Surplus	459	(1)
Free Trade and Exports---Domestic Producers Gain More Than Domestic Consumers Lose	460	(1)
Global Watch: Big Gains for Mexico from Free Trade	461	(1)
Free Trade and Imports	462	(1)
Tariffs, Import Quotas, and Subsidies	463	(5)
Tariffs	463	(1)
The Domestic Economic Impact of Tariffs	463	(2)
Arguments for Tariffs	465	(1)
Import Quotas	466	(1)
The Domestic Economic Impact of an Import Quota	466	(1)
The Economic Impact of Subsidies	466	(2)
The Balance of Payments	468	(4)
Balance of Payments	468	(1)
The Current Account	468	(2)
The Capital Account	470	(2)
Exchange Rates	472	(4)
The Need for Foreign Currencies	472	(1)
The Exchange Rate	472	(1)
Changes in Exchange Rates Affect the Domestic Demand for Foreign Goods	473	(1)
The Demand for a Foreign Currency	473	(1)
The Supply of a Foreign Currency	473	(1)
Determining Exchange Rates	473	(1)
The Demand Curve for a Foreign Currency	473	(1)
Using What You've Learned: Exchange Rates	473	(1)
The Supply Curve for Foreign Currency	474	(1)
Equilibrium in the Foreign Exchange Market	474	(1)
In the News: Euro Beginning to Flex Its Economic Muscles	475	(1)
Equilibrium Changes in the Foreign Exchange Market	476	(7)
Determinants in the Foreign Exchange Market	476	(1)
Increased Tastes for Foreign Goods	476	(1)
Relative Income Increases or Reductions in U.S. Tariffs	477	(1)
European Incomes Increase, Reductions in European Tariffs, or Changes in European Tastes	477	(1)
How Do Changes in Relative Real Interest Rates Affect Exchange Rates?	477	(1)
Changes in the Relative Inflation Rate	478	(1)
Expectations and Speculation	479	(1)
Using What You've Learned: Determinants of Exchange Rates	479	(1)
Summary	480	(1)
Key Terms and Concepts	481	(1)
Review Questions	481	(2)
Chapter 22 Study Guide
Study Guide Answers	483	(14)
Section Check Answers	497	(24)
Glossary	521	(6)
Index	527