Macroeconomics Demystified offers students of all levels unique and easy-to-understand explanations of macroeconomic principles. Macroeconomics Demystified teaches the material in a college-level course in a friendly, informal manner. While covering the whole breadth of the topic, it is not meant to be a textbook, but rather serve as a self-teach companion guide to textbooks. It does not assume any previous knowledge of macroeconomics, microeconomics, or mathematics. Macroeconomics Demystified offers a clear presentation of concepts, applications, and examples, with the right mix of text and graphics.

August Swanenberg is the founder of a strategic marketing consulting firm, and has worked with clients such as Whirlpool, Nestle, Philips Electronics, IBM, and Lotus Software. He holds a Masters of Science degrees in Applied Mathematics and Econometrics and an MBA

Preface/Acknowledgments

xiii

Getting Started: Using Charts in Economics

xvii

Macroeconomics: A Quick Self-Test

xxix

PART 1 SETTING THE STAGE

1

(38)

Introduction to Economics

3

(17)

Scarcity

3

(1)

Economic Systems

4

(2)

Economic Models

6

(1)

Opportunity Cost

6

(1)

Production Possibilities Curve

7

(2)

Comparative Advantage

9

(2)

Hints

11

(9)

Quiz and Answers

13

(7)

Microeconomics

20

(19)

Markets

20

(1)

Demand Curve

21

(3)

Supply Curve

24

(3)

Market Equilibrium

27

(5)

Hints

32

(7)

Quiz and Answers

33

(6)

PART 2 THE BASICS OF MACROECONOMICS

39

(76)

Introduction to Macroeconomics

41

(17)

The Circular Flow Model

41

(2)

Macroeconomic Goals

43

(1)

Gross Domestic Product

44

(2)

Economic Growth

46

(2)

Price Stability

48

(2)

Full Employment

50

(1)

Economic Policy

51

(1)

Hints

51

(7)

Quiz and Answers

53

(5)

Aggregate Supply and Aggregate Demand

58

(14)

Introduction

58

(1)

Aggregate Supply: The Long Run and the Short Run

59

(2)

Aggregate Demand

61

(1)

Macroeconomic Equilibrium

62

(2)

The AS/AD Model

64

(1)

The ``Bathtub'' Theorem

65

(1)

The Financing of Flows

65

(1)

Hints

66

(6)

Quiz and Answers

67

(5)

Money and the Federal Reserve System

72

(15)

Introduction

72

(1)

The Supply of Money

73

(1)

Banks

74

(2)

The Federal Reserve System: Organization

76

(2)

The Federal Reserve's Central Banking Role

78

(3)

Hints

81

(6)

Quiz and Answers

82

(5)

The Money Market

87

(13)

The Demand for Money

87

(2)

The Supply of Money

89

(1)

The Money Market and the Equilibrium Rate of Interest

90

(2)

The Impact of Money

92

(2)

The Quantity Theory of Money

94

(1)

Hints

94

(6)

Quiz and Answers

95

(5)

Global Economics

100

(15)

Introduction

100

(2)

Barriers to Trade

102

(2)

The Balance of Payments

104

(1)

Foreign Exchange Rates

105

(2)

Global Interdependence

107

(3)

Hints

110

(5)

Quiz and Answers

110

(5)

PART 3 THE GOALS OF MACROECONOMICS

115

(26)

Economic Growth

117

(13)

Introduction

117

(3)

The Foundation for Economic Growth

120

(1)

Labor Productivity

121

(3)

Technology and Economic Growth

124

(1)

Global Economics and Economic Growth

124

(1)

Hints

125

(5)

Quiz and Answers

126

(4)

Price Stability

130

(11)

Introduction

130

(1)

The Price Level

131

(1)

Major Types of Inflation

132

(2)

The Impact of Inflation

134

(1)

The Phillips Curve

135

(1)

Global Economics and Price Stability

136

(1)

Hints

137

(4)

Quiz and Answers

137

(4)

PART 4 MACROECONOMIC MODELS

141

(46)

The Classical Model

143

(14)

The Classical Equilibrium

143

(2)

The Factor Market for Labor

145

(4)

The Factor Market for Capital

149

(1)

Labor Productivity

150

(1)

Hints

151

(6)

Quiz and Answers

152

(5)

The Keynesian Model

157

(16)

Introduction

157

(2)

The Consumption Function

159

(2)

The Multiplier Process

161

(1)

The Keynesian Equilibrium

161

(2)

The Keynesian Model and the AS/AD Model

163

(2)

The U.S. Unemployment Rate, 1990--2004

165

(1)

Hints

166

(7)

Quiz and Answers

169

(4)

The Business Cycle

173

(14)

Introduction

173

(2)

Consumer and Producer Expectations

175

(1)

Classical Models

176

(1)

Keynesian Models

177

(2)

The Impact of Technology

179

(1)

The Great Depression and Institutional Reform

180

(1)

Hints

181

(6)

Quiz and Answers

183

(4)

PART 5 MACROECONOMIC POLICY

187

(30)

Fiscal Policy

189

(13)

Introduction

189

(1)

The Role of Government Budgeting

190

(1)

Fiscal Policy and Macroeconomic Goals

191

(2)

The Long-Range Impact of Fiscal Policy

193

(1)

Discretionary Fiscal Policy

193

(1)

Automatic Fiscal Policy

194

(2)

Global Economics and Fiscal Policy

196

(1)

Hints

197

(5)

Quiz and Answers

198

(4)

Monetary Policy

202

(15)

Introduction

202

(1)

The Goals of Monetary Policy

203

(1)

Monetary Policy Rules

204

(1)

Effective Policy

205

(1)

The Mix of Monetary and Fiscal Policy

206

(2)

Global Economics and Monetary Policy

208

(3)

Hints

211

(6)

Quiz and Answers

212

(5)

APPENDIX 1 The Elasticity of Supply and Demand

217

(5)

APPENDIX 2 Measuring GDP, the Expenditure and the Income Methods

222

(2)

APPENDIX 3 A Brief History of Economic Models

224

(61)

Final Test 1 Questions

231

(16)

Final Test 1 Answers

247

(12)

Final Test 2 Questions

259

(15)

Final Test 2 Answers

274

(11)

Sources

285

(2)

Glossary

287

(26)

Index

313

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