Macroeconomics : Understanding the Wealth of Nations

by David Miles (The Management School, Imperial College, London); Andrew Scott (The London Business School, London)

• ISBN13: 9780471988458
• ISBN10: 0471988456
• Format: Hardcover
• Copyright: 2002-01-01
• Publisher: Wiley

Summary

Miles and Scott deal with sophisticated issues using advanced economic theory but in a manner that is accessible to someone taking a single course in macroeconomics. They discuss real world economic issues and first describe why these issues matter before discussing economic theory. In explaining why certain economic events occur the authors utilise logical economic thinking and modelling but they only introduce models after the real world problem of interest has first been discussed. A distinguishing feature of this text is the focus on the data and detail of the world economy and the use of this material as an entry point into the world of theory.

Table of Contents

Preface	xiv
What Is Macroeconomics?	1	(14)
Overview	1	(1)
What is Macroeconomics?	1	(3)
But What About That Definition?	4	(1)
The Difference Between Macro and Microeconomics	5	(2)
Why Should People Interested in Business Study Macroeconomics?	7	(8)
Summary	12	(1)
Conceptual Questions	13	(1)
Analytical Questions	14	(1)
The Language of Macroeconomics: Data and Definitions	15	(24)
Overview	15	(1)
What Do Macroeconomists Measure?	16	(1)
How Do Macroeconomists Measure Output?	17	(8)
How Large are Modern Economies?	25	(2)
Total Output and Total Happiness	27	(3)
How Does Output Change Over Time?	30	(4)
What Produces Output?	34	(5)
Summary	36	(1)
Conceptual Questions	36	(1)
Analytical Questions	37	(2)
Analytical Overview: Introducing Fundamental Tools	39	(17)
Overview	39	(1)
Supply, Demand, and Equilibrium	39	(3)
A Conceptual Overview of This Book	42	(9)
Bringing It All Together: The Link Between the Domestic Economy and the Wider World	51	(5)
Summary	53	(1)
Conceptual Questions	53	(1)
Analytical Questions	54	(2)
The Increasing Wealth of Nations	56	(28)
Overview	56	(1)
Increasing Output Over Time	56	(5)
The Benefits of Economic Growth	61	(3)
The Importance of Economic Growth	64	(2)
How Does Your Output Grow?	66	(4)
The Link Between Input and Output Growth	70	(2)
What Caused the Output Growth?	72	(2)
Accounting for Growth	74	(2)
What is Total Factor Productivity?	76	(8)
Summary	82	(1)
Conceptual Questions	82	(1)
Analytical Questions	83	(1)
Capital Accumulation and Economic Growth	84	(32)
Overview	84	(1)
What is the Capital Stock?	84	(4)
Capital Accumulation and Output Growth	88	(2)
Capital Stock and Interest Rates	90	(2)
Why Poor Countries Catch Up with the Rich	92	(3)
Growing Importance of Total Factor Productivity	95	(1)
The End of Growth Through Capital Accumulation	96	(4)
Why Bother Saving?	100	(2)
How Much Should a Country Invest?	102	(4)
The Asian Miracle---A Case Study in Capital Accumulation	106	(6)
China---A Big Tiger	112	(4)
Summary	114	(1)
Conceptual Questions	114	(1)
Analytical Questions	115	(1)
Technological Progress	116	(23)
Overview	116	(1)
What is Technological Progress?	116	(2)
Technological Progress and the Steady State	118	(2)
Foreign Direct Investment and Technological Progress	120	(3)
R&D and Knowledge	123	(1)
Technological Progress and Unemployment	124	(4)
Technological Progress and Structural Unemployment	128	(1)
The Impact of It on the Economy	129	(10)
Summary	136	(1)
Conceptual Questions	137	(1)
Analytical Questions	137	(2)
Human Capital, Endogenous Growth, and Convergence	139	(29)
Overview	139	(1)
Human Capital	140	(4)
Endogenous Growth	144	(5)
Poverty Traps	149	(2)
Convergence or Divergence?	151	(3)
Reconciling the Evidence	154	(1)
Determinants of the Steady State	154	(3)
Why is Africa So Poor?	157	(11)
Summary	165	(1)
Conceptual Questions	165	(1)
Analytical Questions	166	(2)
Unemployment and the Labor Market	168	(31)
Overview	168	(1)
Labor Market Data	168	(3)
A Long-Run Model of the Labor Market	171	(4)
The Natural Rate of Unemployment	175	(1)
A Diagrammatic Analysis	176	(1)
Determinants of the natural Rate	177	(5)
What Lowers Unemployment?	182	(2)
A Flow Approach to the Natural Rate of Unemployment	184	(6)
Labor Market Reform	190	(2)
Limits to Labor Market Reform	192	(1)
Widening Inequality	192	(7)
Summary	196	(1)
Conceptual Questions	196	(1)
Analytical Questions	197	(2)
International Trade	199	(33)
Overview	199	(1)
Patterns of World Trade	200	(5)
Comparative Advantage---How Countries Benefit From Trade	205	(5)
The Terms of Trade	210	(2)
What Goods Will Countries Trade In?	212	(5)
So What's Wrong With Free Trade?	217	(3)
Competitiveness	220	(2)
New Trade Theory	222	(3)
Political Economy	225	(1)
Trade Restrictions in Practice	226	(6)
Summary	229	(1)
Conceptual Questions	229	(1)
Analytical Questions	230	(2)
The Role of Government	232	(33)
Overview	232	(1)
Government Spending	232	(8)
The Rationale for Government's Role and the Failure of the Invisible Hand	240	(5)
The Impact of Government Provision on Behavior	245	(3)
Taxation and Efficiency	248	(5)
The Future Role of the Public Sector: Demographic Pressures and Factor Mobility	253	(8)
Political Factors Behind the Role of Government	261	(4)
Summary	262	(1)
Conceptual Questions	262	(1)
Analytical Questions	263	(2)
Fiscal Policy	265	(21)
Overview	265	(1)
Government Spending and Taxing Over the Long Term: The Case of the United States	265	(5)
Government Saving, National Saving, and the Balance of Payments	270	(2)
Government Budget Constraints and Ricardian Equivalence	272	(3)
Intergenerational Redistribution and Fiscal Policy	275	(2)
Long-Run Sustainability	277	(3)
Optimal Budget Deficits	280	(1)
Political Factors Behind Fiscal Policy	281	(5)
Summary	283	(1)
Conceptual Questions	284	(1)
Analytical Questions	284	(2)
Money and Prices	286	(29)
Overview	286	(1)
Rising Prices	287	(3)
Measuring Inflation	290	(2)
The Costs of Inflation	292	(5)
The Nature of Money	297	(3)
The Money Supply	300	(2)
How Banks Make Money---The Money Multiplier	302	(2)
Seignorage and the Inflation Tax---How Governments Make Money From Money	304	(2)
Hyperinflation	306	(3)
Monetarism and the Quantity Theory of Money	309	(6)
Summary	312	(1)
Conceptual Questions	313	(1)
Analytical Questions	314	(1)
Consumption	315	(25)
Overview	315	(1)
The Importance of Consumption	315	(4)
The Basic Keynesian Model	319	(3)
The Permanent Income Model	322	(7)
The Importance of Current Income Revisited	329	(3)
The Influence of Interest Rates	332	(1)
The Role of Wealth and Capital Gains	333	(2)
Demographic Influences in the Life Cycle Model	335	(5)
Summary	337	(1)
Conceptual Questions	338	(1)
Analytical Questions	338	(2)
Investment	340	(29)
Overview	340	(1)
Investment and the Capital Stock	340	(8)
The Optimal Stock of Capital	348	(6)
Investment and the Stock Market	354	(6)
Cash Flows and Investment	360	(1)
Lumpy Investment and Business Cycles	361	(1)
Foreign Direct Investment and the Global Capital Market	362	(7)
Summary	366	(1)
Conceptual Questions	366	(1)
Analytical Questions	367	(2)
Business Cycles	369	(36)
Overview	369	(1)
What is a Business Cycle?	369	(2)
Measuring the Business Cycle	371	(2)
Characterizing Business Cycles	373	(3)
Business Cycles as Aggregate Fluctuations	376	(4)
Have Business Cycles Changed	380	(4)
Are Business Cycles Bad?	384	(3)
The Frisch-Slutsky Paradigm	387	(6)
Aggregate Demand and Aggregate Supply	393	(8)
So What Causes Business Cycles?	401	(4)
Summary	402	(1)
Conceptual Questions	402	(1)
Analytical Questions	403	(2)
Stabilization Policy	405	(23)
Overview	405	(1)
Output Fluctuations and the Tools of Macroeconomic Policy	405	(3)
General Arguments Against Stabilization Policy	408	(4)
The Inflation Output Tradeoff	412	(4)
The Phillips Curve and Shifting Expectations	416	(2)
Credibility---The Good News About Shifting Expectations	418	(2)
Time Inconsistency	420	(8)
Rules Versus Discretion	425	(2)
Summary	427	(1)
Conceptual Questions	427	(1)
Analytical Questions	428	(27)
Monetary Policy	430	(1)
Overview	430	(1)
The Influence of Central Banks	430	(2)
What Does Money Policy Target?	432	(3)
What Intermediate Target Should Central Banks Use?	435	(2)
Money Supply Targeting	437	(4)
Exchange Rate Targets	441	(1)
Inflation Targeting	441	(2)
The Operational Instruments of Monetary Policy	443	(2)
Controlling the Money Supply or Interest Rates?	445	(1)
How Monetary Policy Affects the Economy---The Transmission Mechanism	446	(3)
Monetary Policy in Practice	449	(2)
The Future of Central Banks	451	(4)
Summary	452	(1)
Conceptual Questions	453	(1)
Analytical Questions	453	(2)
Exchange Rate Determination I: Prices and the Real Exchange Rate	455	(32)
Overview	455	(1)
Definitions	455	(4)
Law of One Price	459	(6)
Purchasing Power Parity	465	(7)
Current and Capital Accounts	472	(4)
Who Is Rich and Who Is Poor?	476	(3)
A Big Equation	479	(8)
Summary	484	(1)
Conceptual Questions	485	(1)
Analytical Questions	485	(2)
Exchange Rate Determination II: Nominal Exchange Rates and Currency Crises	487	(34)
Overview	487	(1)
The Importance of Asset Markets	487	(5)
Covered Interest Parity	492	(1)
Uncovered Interest Parity	492	(2)
Pinning Down the Exchange Rate With UIP	494	(4)
Monetary Policy and the Exchange Rate	498	(1)
Does UIP Hold?	499	(2)
Introducing Risk-Averse Investors	501	(2)
What are Exchange Rate Markets Really Like?	503	(3)
Currency Crashes	506	(2)
First-Generation Models	508	(1)
Second-Generation Models and the ERM Crisis	509	(4)
The Asian Crisis	513	(8)
Summary	518	(1)
Conceptual Questions	519	(1)
Analytical Questions	520	(1)
Exchange Rate Systems and Global Capital Markets	521	(29)
Overview	521	(1)
Fixed or Flexible Exchange Rates?	521	(4)
Currency Boards	525	(2)
Single Currencies	527	(1)
Optimal Currency Areas	528	(1)
The Euro	528	(3)
Dollarization	531	(1)
Global Capital Markets	532	(2)
Are Capital Markets Really Global?	534	(9)
Should We Impose Capital Controls?	543	(2)
Capital Controls	545	(5)
Summary	548	(1)
Conceptual Questions	549	(1)
Analytical Questions	549	(1)
Equity Markets	550	(35)
Overview	550	(1)
What are Equities?	550	(6)
International Comparisons of Equity Markets	556	(2)
The Determination of Stock Prices	558	(9)
On the Unpredictability of Share Prices	567	(2)
Risk, Equity Prices, and Excess Return	569	(6)
Are Stock Prices Forecastable?	575	(2)
Speculation or Fundamentals?	577	(3)
Bubbles	580	(1)
Market Efficiency---What Should We Think?	580	(5)
Summary	582	(1)
Conceptual Questions	583	(1)
Analytical Questions	583	(2)
The Bond Market	585	(32)
Overview	585	(1)
What Is A Bond?	586	(3)
Prices, Yields, and Interest Rates	589	(6)
The Bond Market in April 2000	595	(3)
Inflation and the Bond Market	598	(3)
Government Policy and the Yield Curve	601	(4)
Deficits and Bond Prices	605	(4)
Bond Yields and Equity Yields	609	(3)
Corporate Bonds and Leverage	612	(5)
Summary	614	(1)
Conceptual Questions	615	(1)
Analytical Questions	615	(2)
Real Estate	617	(24)
Overview	617	(1)
Why Is Property Distinctive?	618	(3)
Property Value	621	(8)
Property Price Changes and the Wider Economy	629	(5)
Portfolio Allocation and Property	634	(2)
Public Policy and Property	636	(5)
Summary	638	(1)
Conceptual Questions	638	(1)
Analytical Questions	639	(2)
The Banking Sector	641	(25)
Overview	641	(1)
The Role of Banks	641	(6)
Problems in Banking Markets	647	(6)
Bank Lending and Instability	653	(1)
The Southeast Asia Problem	654	(3)
The Japanese Problem	657	(3)
Regulation and Securitization: An End to Banking Problems?	660	(6)
Summary	663	(1)
Conceptual Questions	663	(1)
Analytical Questions	664	(2)
Glossary	666	(6)
Credits	672	(4)
Index	676