Macroeconomics

by Mankiw

• ISBN13: 9780716762133
• ISBN10: 0716762137
• Edition: 6th
• Format: Hardcover
• Copyright: 2006-05-12
• Publisher: Worth Publishers

Summary

This guide offers various ways for students to learn the material in the new edition and assess their understanding

Table of Contents

Preface	xxv
part I Introduction
The Science of Macroeconomics	2	(14)
What Macroeconomists Study	2	(4)
The Historical Performance of the U.S. Economy	3	(3)
How Economists Think	6	(8)
Theory as Model Building	6	(4)
FYI Using Functions to Express Relationships Among Variables	10	(1)
A Multitude of Models	11	(1)
Prices: Flexible Versus Sticky	11	(1)
Microeconomic Thinking and Macroeconomic Models	12	(1)
FYI Nobel Macroeconomists	13	(1)
How This Book Proceeds	14	(2)
The Data of Macroeconomics	16	(28)
Measuring the Value of Economic Activity: Gross Domestic Product	17	(13)
Income, Expenditure, and the Circular Flow	17	(2)
FYI Stocks and Flows	19	(1)
Rules for Computing GDP	19	(1)
Adding Apples and Oranges	20	(1)
Used Goods	20	(1)
The Treatment of Inventories	20	(1)
Intermediate Goods and Value Added	21	(1)
Housing Services and Other Imputations	21	(1)
Real GDP versus Nominal GDP	22	(1)
The GDP Deflator	23	(1)
Chain-Weighted Measures of Real GDP	24	(1)
FYI Two Arithmetic Tricks for Working With Percentage Changes	25	(1)
The Components of Expenditure	25	(1)
FYI What Is Investment?	26	(1)
GDP and Its Components	27	(1)
Other Measures of Income	28	(2)
Seasonal Adjustment	30	(1)
Measuring the Cost of Living: The Consumer Price Index	30	(4)
The Price of a Basket of Goods	31	(1)
The CPI versus the GDP Deflator	31	(2)
Does the CPI Overstate Inflation?	33	(1)
Measuring Joblessness: The Unemployment Rate	34	(5)
The Household Survey	35	(1)
Trends in Labor-Force Participation	36	(2)
The Establishment Survey	38	(1)
Conclusion: From Economic Statistics to Economic Models	39	(5)
part II Classical Theory: The Economy in the Long Run
National Income: Where It Comes From and Where It Goes	44	(32)
What Determines the Total Production of Goods and Services?	46	(2)
The Factors of Production	46	(1)
The Production Function	47	(1)
The Supply of Goods and Services	47	(1)
How Is National Income Distributed to the Factors of Production?	48	(11)
Factor Prices	48	(1)
The Decisions Facing the Competitive Firm	49	(1)
The Firm's Demand for Factors	50	(1)
The Marginal Product of Labor	50	(1)
From the Marginal Product of Labor to Labor Demand	51	(2)
The Marginal Product of Capital and Capital Demand	53	(1)
The Division of National Income	53	(1)
The Black Death and Factor Prices	54	(1)
The Cobb-Douglas Production Function	55	(3)
Labor Productivity as the Key Determinant of Real Wages	58	(1)
What Determines the Demand for Goods and Services?	59	(4)
Consumption	59	(2)
Investment	61	(1)
Government Purchases	62	(1)
FYI The Many Different Interest Rates	63	(1)
What Brings the Supply and Demand for Goods and Services Into Equilibrium?	63	(8)
Equilibrium in the Market for Goods and Services: The Supply and Demand for the Economy's Output	64	(1)
Equilibrium in the Financial Markets: The Supply and Demand for Loanable Funds	65	(2)
Changes in Saving: The Effects of Fiscal Policy	67	(1)
An Increase in Government Purchases	67	(1)
Wars and Interest Rates in the United Kingdom, 1730--1920	68	(1)
A Decrease in Taxes	69	(1)
Changes in Investment Demand	69	(2)
Conclusion	71	(5)
Money and Inflation	76	(39)
What Is Money?	77	(6)
The Functions of Money	77	(1)
The Types of Money	78	(1)
Money in a POW Camp	79	(1)
How Fiat Money Evolves	79	(1)
Money and Social Conventions on the Island of Yap	80	(1)
How the Quantity of Money Is Controlled	81	(1)
How the Quantity of Money Is Measured	81	(2)
FYI How Do Credit Cards and Debit Cards Fit into the Monetary System?	83	(1)
The Quantity Theory of Money	83	(6)
Transactions and the Quantity Equation	83	(1)
From Transactions to Income	84	(1)
The Money Demand Function and the Quantity Equation	85	(1)
The Assumption of Constant Velocity	86	(1)
Money, Prices, and Inflation	86	(1)
Inflation and Money Growth	87	(2)
Seigniorage: The Revenue From Printing Money	89	(2)
Paying for the American Revolution	90	(1)
Inflation and Interest Rates	91	(4)
Two Interest Rates: Real and Nominal	91	(1)
The Fisher Effect	91	(1)
Inflation and Nominal Interest Rates	92	(2)
Two Real Interest Rates: Ex Ante and Ex Post	94	(1)
Nominal Interest Rates in the Nineteenth Century	94	(1)
The Nominal Interest Rate and the Demand for Money	95	(2)
The Cost of Holding Money	95	(1)
Future Money and Current Prices	96	(1)
The Social Costs of Inflation	97	(6)
The Layman's View and the Classical Response	97	(1)
What Economists and the Public Say About Inflation	98	(1)
The Costs of Expected Inflation	99	(1)
The Costs of Unexpected Inflation	100	(1)
The Free Silver Movement, the Election of 1896, and the Wizard of Oz	101	(1)
One Benefit of Inflation	102	(1)
Hyperinflation	103	(5)
The Costs of Hyperinflation	103	(1)
Life During the Bolivian Hyperinflation	104	(1)
The Causes of Hyperinflation	105	(1)
Hyperinflation in Interwar Germany	106	(2)
Conclusion: The Classical Dichotomy	108	(7)
Appendix: The Cagan Model: How Current and Future Money Affect the Price Level	112	(3)
The Open Economy	115	(44)
The International Flows of Capital and Goods	116	(5)
The Role of Net Exports	116	(2)
International Capital Flows and the Trade Balance	118	(2)
International Flows of Goods and Capital: An Example	120	(1)
FYI The Irrelevance of Bilateral Trade Balances	120	(1)
Saving and Investment in a Small Open Economy	121	(10)
Capital Mobility and the World Interest Rate	121	(1)
Why Assume a Small Open Economy?	122	(1)
The Model	123	(1)
How Policies Influence the Trade Balance	124	(1)
Fiscal Policy at Home	124	(1)
Fiscal Policy Abroad	125	(1)
Shifts in Investment Demand	126	(1)
Evaluating Economic Policy	127	(1)
The U.S. Trade Deficit	127	(3)
Why Doesn't Capital Flow to Poor Countries?	130	(1)
Exchange Rates	131	(14)
Nominal and Real Exchange Rates	131	(1)
The Nominal Exchange Rate	131	(1)
FYI How Newspapers Report the Exchange Rate	132	(1)
The Real Exchange Rate	133	(1)
The Real Exchange Rate and the Trade Balance	134	(1)
The Determinants of the Real Exchange Rate	135	(1)
How Policies Influence the Real Exchange Rate	136	(1)
Fiscal Policy at Home	136	(1)
Fiscal Policy Abroad	136	(1)
Shifts in Investment Demand	137	(1)
The Effects of Trade Policies	138	(1)
The Determinants of the Nominal Exchange Rate	139	(1)
Inflation and Nominal Exchange Rates	140	(1)
The Special Case of Purchasing-Power Parity	141	(2)
The Big Mac Around the World	143	(2)
Conclusion: The United States as a Large Open Economy	145	(14)
Appendix: The Large Open Economy	149	(1)
Net Capital Outflow	149	(2)
The Model	151	(1)
The Market for Loanable Funds	151	(1)
The Market for Foreign Exchange	152	(1)
Policies in the Large Open Economy	153	(1)
Fiscal Policy at Home	153	(2)
Shifts in Investment Demand	155	(1)
Trade Policies	155	(1)
Shifts in Net Capital Outflow	156	(1)
Conclusion	157	(2)
Unemployment	159	(27)
Job Loss, Job Finding, and the Natural Rate of Unemployment	160	(2)
Job Search and Frictional Unemployment	162	(3)
Public Policy and Frictional Unemployment	163	(1)
Unemployment Insurance and the Rate of Job Finding	164	(1)
Real-Wage Rigidity and Structural Unemployment	165	(7)
Minimum-Wage Laws	166	(1)
The Characteristics of Minimum-Wage Workers	167	(1)
Unions and Collective Bargaining	168	(2)
Efficiency Wages	170	(1)
Henry Ford's $5 Workday	171	(1)
Labor Market Experience: The United States	172	(4)
The Duration of Unemployment	172	(1)
Variation in the Unemployment Rate Across Demographic Groups	173	(1)
Trends in Unemployment	174	(1)
Demographics	174	(1)
Sectoral Shifts	174	(1)
Productivity	174	(1)
Transitions Into and Out of the Labor Force	175	(1)
Labor Market Experience: Europe	176	(6)
The Rise in European Unemployment	176	(2)
Unemployment Variation within Europe	178	(1)
The Secrets to Happiness	179	(1)
The Rise of European Leisure	180	(2)
Conclusion	182	(4)
part III Growth Theory: The Economy in the Very Long Run
Economic Growth I: Capital Accumulation and Population Growth	186	(30)
The Accumulation of Capital	187	(11)
The Supply and Demand for Goods	187	(1)
The Supply of Goods and the Production Function	188	(1)
The Demand for Goods and the Consumption Function	188	(2)
Growth in the Capital Stock and the Steady State	190	(2)
Approaching the Steady State: A Numerical Example	192	(2)
The Miracle of Japanese and German Growth	194	(1)
How Saving Affects Growth	195	(1)
Saving and Investment Around the World	196	(2)
The Golden Rule Level of Capital	198	(8)
Comparing Steady States	198	(4)
Finding the Golden Rule Steady State: A Numerical Example	202	(1)
The Transition to the Golden Rule Steady State	203	(1)
Starting With Too Much Capital	204	(1)
Starting With Too Little Capital	205	(1)
Population Growth	206	(6)
The Steady State With Population Growth	206	(2)
The Effects of Population Growth	208	(1)
Population Growth Around the World	209	(1)
Alternative Perspectives on Population Growth	210	(1)
The Malthusian Model	211	(1)
The Kremerian Model	211	(1)
Conclusion	212	(4)
Economic Growth II: Technology, Empirics, and Policy	216	(36)
Technological Progress in the Solow Model	217	(3)
The Efficiency of Labor	217	(1)
The Steady State With Technological Progress	218	(1)
The Effects of Technological Progress	219	(1)
From Growth Theory to Growth Empirics	220	(4)
Balanced Growth	220	(1)
Convergence	221	(1)
Factor Accumulation Versus Production Efficiency	222	(1)
Is Free Trade Good for Economic Growth?	223	(1)
Policies to Promote Growth	224	(11)
Evaluating the Rate of Saving	225	(1)
Changing the Rate of Saving	226	(1)
Allocating the Economy's Investment	227	(2)
Establishing the Right Institutions	229	(1)
The Colonial Origins of Modern Institutions	229	(1)
Encouraging Technological Progress	230	(1)
The Worldwide Slowdown in Economic Growth: 1972--1995	231	(1)
Measurement Problems	232	(1)
Oil Prices	232	(1)
Worker Quality	232	(1)
The Depletion of Ideas	233	(1)
Information Technology and the New Economy: 1995--????	233	(2)
Beyond the Solow Model: Endogenous Growth Theory	235	(5)
The Basic Model	235	(1)
A Two-Sector Model	236	(1)
The Microeconomics of Research and Development	237	(2)
Economic Growth as a Process of Creative Destruction	239	(1)
Conclusion	240	(12)
Appendix: Accounting for the Sources of Economic Growth	244	(1)
Increases in the Factors of Production	244	(1)
Increases in Capital	245	(1)
Increases in Labor	245	(1)
Increases in Capital and Labor	245	(1)
Technological Progress	246	(2)
The Sources of Growth in the United States	248	(1)
Growth in the East Asian Tigers	248	(4)
part IV Business Cycle Theory: The Economy in the Short Run
Introduction to Economic Fluctuations	252	(26)
The Facts about the Business Cycle	253	(6)
GDP and Its Components	253	(2)
Unemployment and Okun's Law	255	(3)
Leading Economic Indicators	258	(1)
Time Horizons in Macroeconomics	259	(3)
How the Short Run and Long Run Differ	260	(1)
The Puzzle of Sticky Magazine Prices	260	(1)
The Model of Aggregate Supply and Aggregate Demand	261	(1)
Aggregate Demand	262	(3)
The Quantity Equation as Aggregate Demand	263	(1)
Why the Aggregate Demand Curve Slopes Downward	264	(1)
Shifts in the Aggregate Demand Curve	264	(1)
Aggregate Supply	265	(5)
The Long Run: The Vertical Aggregate Supply Curve	265	(2)
The Short Run: The Horizontal Aggregate Supply Curve	267	(1)
From the Short Run to the Long Run	268	(2)
Gold, Greenbacks, and the Contraction of the 1870s	270	(1)
Stabilization Policy	270	(6)
Shocks to Aggregate Demand	271	(1)
Shocks to Aggregate Supply	272	(2)
How OPEC Helped Cause Stagflation in the 1970s and Euphoria in the 1980s	274	(2)
Conclusion	276	(2)
Aggregate Demand I: Building the IS-LM Model	278	(25)
The Goods Market and the IS Curve	280	(12)
The Keynesian Cross	280	(1)
Planned Expenditure	280	(2)
The Economy in Equilibrium	282	(1)
Fiscal Policy and the Multiplier: Government Purchases	283	(2)
Fiscal Policy and the Multiplier: Taxes	285	(2)
Cutting Taxes to Stimulate the Economy: The Kennedy and Bush Tax Cuts	287	(1)
The Interest Rate, Investment, and the IS Curve	288	(1)
How Fiscal Policy Shifts the IS Curve	289	(1)
A Loanable-Funds Interpretation of the IS Curve	290	(2)
The Money Market and the LM Curve	292	(7)
The Theory of Liquidity Preference	292	(3)
Does a Monetary Tightening Raise or Lower Interest Rates?	295	(1)
Income, Money Demand, and the LM Curve	295	(2)
How Monetary Policy Shifts the LM Curve	297	(1)
A Quantity-Equation Interpretation of the LM Curve	298	(1)
Conclusion: The Short-Run Equilibrium	299	(4)
Aggregate Demand II: Applying the IS-LM Model	303	(31)
Explaining Fluctuations With the IS-LM Model	304	(9)
How Fiscal Policy Shifts the IS Curve and Changes the Short-Run Equilibrium	304	(1)
Changes in Government Purchases	304	(1)
Changes in Taxes	305	(1)
How Monetary Policy Shifts the LM Curve and Changes the Short-Run Equilibrium	306	(1)
The Interaction Between Monetary and Fiscal Policy	307	(2)
Policy Analysis With Macroeconometric Models	309	(1)
Shocks in the IS-LM Model	310	(1)
The U.S. Recession of 2001	311	(1)
What Is the Fed's Policy Instrument--The Money Supply or the Interest Rate?	312	(1)
IS-LM as a Theory of Aggregate Demand	313	(4)
From the IS-LM Model to the Aggregate Demand Curve	313	(2)
The IS-LM Model in the Short Run and Long Run	315	(2)
The Great Depression	317	(9)
The Spending Hypothesis: Shocks to the IS Curve	318	(2)
The Money Hypothesis: A Shock to the LM Curve	320	(1)
The Money Hypothesis Again: The Effects of Falling Prices	321	(1)
The Stabilizing Effects of Deflation	321	(1)
The Destabilizing Effects of Deflation	321	(2)
Could the Depression Happen Again?	323	(1)
The Japanese Slump of the 1990s	324	(1)
FYI The Liquidity Trap	325	(1)
Conclusion	326	(8)
Appendix: The Simple Algebra of the IS-LM Model and the Aggregate Demand Curve	329	(1)
The IS Curve	329	(1)
The LM Curve	330	(1)
The Aggregate Demand Curve	331	(1)
The Effectiveness of Monetary and Fiscal Policy	332	(2)
The Open Economy Revisited: The Mundell-Fleming Model and the Exchange-Rate Regime	334	(39)
The Mundell-Fleming Model	335	(5)
The Key Assumption: Small Open Economy With Perfect Capital Mobility	336	(1)
The Goods Market and the IS* Curve	336	(2)
The Money Market and the LM* Curve	338	(1)
Putting the Pieces Together	338	(2)
The Small Open Economy Under Floating Exchange Rates	340	(4)
Fiscal Policy	340	(2)
Monetary Policy	342	(1)
Trade Policy	343	(1)
The Small Open Economy Under Fixed Exchange Rates	344	(7)
How a Fixed-Exchange-Rate System Works	345	(1)
The International Gold Standard	346	(1)
Fiscal Policy	347	(1)
Monetary Policy	348	(1)
Devaluation and the Recovery From the Great Depression	349	(1)
Trade Policy	349	(1)
Policy in the Mundell-Fleming Model: A Summary	350	(1)
Interest-Rate Differentials	351	(5)
Country Risk and Exchange-Rate Expectations	351	(1)
Differentials in the Mundell-Fleming Model	352	(1)
International Financial Crisis: Mexico 1994--1995	353	(2)
International Financial Crisis: Asia 1997--1998	355	(1)
Should Exchange Rates Be Floating or Fixed?	356	(5)
Pros and Cons of Different Exchange-Rate Systems	356	(1)
Monetary Union in the United States and Europe	357	(1)
Speculative Attacks, Currency Boards, and Dollarization	358	(1)
The Impossible Trinity	359	(1)
The Chinese Currency Controversy	360	(1)
From the Short Run to the Long Run: The Mundell-Fleming Model With a Changing Price Level	361	(3)
A Concluding Reminder	364	(9)
Appendix: A Short-Run Model of the Large Open Economy	368	(1)
Fiscal Policy	369	(2)
Monetary Policy	371	(1)
A Rule of Thumb	372	(1)
Aggregate Supply and the Short-run Tradeoff Between Inflation and Unemployment	373	(33)
Three Models of Aggregate Supply	374	(11)
The Sticky-Price Model	375	(2)
The Sticky-Wage Model	377	(2)
The Cyclical Behavior of the Real Wage	379	(1)
The Imperfect-Information Model	380	(2)
International Differences in the Aggregate Supply Curve	382	(1)
Summary and Implications	383	(2)
Inflation, Unemployment, and the Phillips Curve	385	(12)
Deriving the Phillips Curve From the Aggregate Supply Curve	385	(2)
FYI The History of the Modern Phillips Curve	387	(1)
Adaptive Expectations and Inflation Inertia	387	(1)
Two Causes of Rising and Falling Inflation	388	(1)
Inflation and Unemployment in the United States	389	(1)
The Short-Run Tradeoff Between Inflation and Unemployment	390	(2)
FYI How Precise Are Estimates of the Natural Rate of Unemployment?	392	(1)
Disinflation and the Sacrifice Ratio	392	(1)
Rational Expectations and the Possibility of Painless Disinflation	393	(2)
The Sacrifice Ratio in Practice	395	(1)
Hysteresis and the Challenge to the Natural-Rate Hypothesis	396	(1)
Conclusion	397	(9)
Appendix: A Big, Comprehensive Model	401	(1)
Special Case 1: The Classical Closed Economy	401	(1)
Special Case 2: The Classical Small Open Economy	402	(1)
Special Case 3: The Basic Model of Aggregate Demand and Aggregate Supply	402	(1)
Special Case 4: The IS-LM Model	402	(1)
Special Case 5: The Mundell-Fleming Model With a Floating Exchange Rate	402	(1)
Special Case 6: The Mundell-Fleming Model With a Fixed Exchange Rate	402	(4)
part V Macroeconomic Policy Debates
Stabilization Policy	406	(25)
Should Policy Be Active or Passive?	407	(8)
Lags in the Implementation and Effects of Policies	407	(2)
The Difficult Job of Economic Forecasting	409	(1)
Mistakes in Forecasting	409	(2)
Ignorance, Expectations, and the Lucas Critique	411	(1)
The Historical Record	412	(1)
Is the Stabilization of the Economy a Figment of the Data?	413	(1)
The Remarkable Stability of the Modern Economy	413	(2)
Should Policy Be Conducted by Rule or by Discretion?	415	(10)
Distrust of Policymakers and the Political Process	416	(1)
The Time Inconsistency of Discretionary Policy	416	(2)
Alexander Hamilton Versus Time Inconsistency	418	(1)
Rules for Monetary Policy	419	(1)
Inflation Targeting: Rule or Constrained Discretion?	420	(1)
John Taylor's Rule for Monetary Policy	421	(2)
Central-Bank Independence	423	(2)
Conclusion: Making Policy in an Uncertain World	425	(6)
Appendix: Time Inconsistency and the Tradeoff Between Inflation and Unemployment	428	(3)
Government Debt	431	(25)
The Size of the Government Debt	432	(3)
The Troubling Outlook for Fiscal Policy	434	(1)
Problems in Measurement	435	(4)
Measurement Problem 1: Inflation	435	(1)
Measurement Problem 2: Capital Assets	436	(1)
Measurement Problem 3: Uncounted Liabilities	437	(1)
Measurement Problem 4: The Business Cycle	438	(1)
Summing Up	438	(1)
The Traditional View of Government Debt	439	(2)
FYI Taxes and Incentives	440	(1)
The Ricardian View of Government Debt	441	(7)
The Basic Logic of Ricardian Equivalence	442	(1)
Consumers and Future Taxes	443	(1)
Myopia	443	(1)
Borrowing Constraints	443	(1)
George Bush's Withholding Experiment	444	(1)
Future Generations	444	(2)
Why Do Parents Leave Bequests?	446	(1)
Making a Choice	446	(1)
FYI Ricardo on Ricardian Equivalence	447	(1)
Other Perspectives on Government Debt	448	(4)
Balanced Budgets Versus Optimal Fiscal Policy	448	(1)
Stabilization	448	(1)
Tax Smoothing	448	(1)
Intergenerational Redistribution	448	(1)
Fiscal Effects on Monetary Policy	449	(1)
Debt and the Political Process	449	(1)
International Dimensions	450	(1)
The Benefits of Indexed Bonds	451	(1)
Conclusion	452	(4)
part VI More on the Microeconomics Behind Macroeconomics
Consumption	456	(31)
John Maynard Keynes and the Consumption Function	457	(4)
Keynes's Conjectures	457	(1)
The Early Empirical Successes	458	(1)
Secular Stagnation, Simon Kuznets, and the Consumption Puzzle	459	(2)
Irving Fisher and Intertemporal Choice	461	(10)
The Intertemporal Budget Constraint	461	(2)
FYI Present Value, or Why a $1,000,000 Prize Is Worth Only $623,000	463	(1)
Consumer Preferences	464	(1)
Optimization	465	(1)
How Changes in Income Affect Consumption	466	(1)
How Changes in the Real Interest Rate Affect Consumption	467	(1)
Constraints on Borrowing	468	(2)
The High Japanese Saving Rate	470	(1)
Franco Modigliani and the Life-Cycle Hypothesis	471	(5)
The Hypothesis	472	(1)
Implications	472	(3)
The Consumption and Saving of the Elderly	475	(1)
Milton Friedman and the Permanent-Income Hypothesis	476	(2)
The Hypothesis	476	(1)
Implications	477	(1)
The 1964 Tax Cut and the 1968 Tax Surcharge	478	(1)
Robert Hall and the Random-Walk Hypothesis	478	(3)
The Hypothesis	479	(1)
Implications	479	(1)
Do Predictable Changes in Income Lead to Predictable Changes in Consumption?	480	(1)
David Laibson and the Pull of Instant Gratification	481	(2)
How to Get People to Save More	482	(1)
Conclusion	483	(4)
Investment	487	(23)
Business Fixed Investment	488	(13)
The Rental Price of Capital	489	(1)
The Cost of Capital	490	(2)
The Determinants of Investment	492	(2)
Taxes and Investment	494	(1)
The Stock Market and Tobin's q	495	(1)
The Stock Market as an Economic Indicator	496	(1)
Alternative Views of the Stock Market: The Efficient Markets Hypothesis Versus Keynes's Beauty Contest	497	(2)
Financing Constraints	499	(1)
Banking Crises and Credit Crunches	500	(1)
Residential Investment	501	(3)
The Stock Equilibrium and the Flow Supply	501	(1)
Changes in Housing Demand	502	(1)
FYI What Price House Can You Afford?	503	(1)
The Tax Treatment of Housing	504	(1)
Inventory Investment	504	(3)
Reasons for Holding Inventories	504	(1)
The Accelerator Model of Inventories	505	(2)
Inventories and the Real Interest Rate	507	(1)
Conclusion	507	(3)
Money Supply and Money Demand	510	(18)
Money Supply	510	(8)
100-Percent-Reserve Banking	511	(1)
Fractional-Reserve Banking	512	(2)
A Model of the Money Supply	514	(1)
The Three Instruments of Monetary Policy	515	(1)
Bank Failures and the Money Supply in the 1930s	516	(2)
Money Demand	518	(7)
Portfolio Theories of Money Demand	518	(1)
Currency and the Underground Economy	519	(1)
Transactions Theories of Money Demand	520	(1)
The Baumol-Tobin Model of Cash Management	520	(3)
Empirical Studies of Money Demand	523	(1)
Financial Innovation, Near Money, and the Demise of the Monetary Aggregates	524	(1)
Conclusion	525	(3)
Advances in Business Cycle Theory	528	(19)
The Theory of Real Business Cycles	529	(8)
The Economics of Robinson Crusoe	529	(2)
The Interpretation of the Labor Market	531	(1)
Looking for Intertemporal Substitution	532	(1)
The Importance of Technology Shocks	533	(1)
The Solow Residual and the Business Cycle	534	(1)
The Neutrality of Money	535	(1)
Testing for Monetary Neutrality	536	(1)
The Flexibility of Wages and Prices	537	(1)
New Keynesian Economics	537	(7)
Small Menu Costs and Aggregate-Demand Externalities	538	(1)
How Large Are Menu Costs?	539	(1)
Recessions as Coordination Failure	539	(2)
The Staggering of Wages and Prices	541	(1)
If You Want to Know Why Firms Have Sticky Prices, Ask Them	542	(2)
Conclusion	544	(3)
Epilogue: What We Know, What WeDon't	547	(8)
The Four Most Important Lessons of Macroeconomics	547	(3)
Lesson 1: In the long run, a country's capacity to produce goods and services determines the standard of living of its citizens.	548	(1)
Lesson 2: In the short run, aggregate demand influences the amount of goods and services that a country produces.	548	(1)
Lesson 3: In the long run, the rate of money growth determines the rate of inflation, but it does not affect the rate of unemployment.	549	(1)
Lesson 4: In the short run, policymakers who control monetary and fiscal policy face a tradeoff between inflation and unemployment.	549	(1)
The Four Most Important Unresolved Questions of Macroeconomics	550	(4)
Question 1: How should policymakers try to promote growth in the economy's natural level of output?	550	(1)
Question 2: Should policymakers try to stabilize the economy?	551	(1)
Question 3: How costly is inflation, and how costly is reducing inflation?	552	(1)
Question 4: How big a problem are government budget deficits?	553	(1)
Conclusion	554	(1)
Glossary	555	(10)
Index	565