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Macroeconomics, 15/e
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Table of Contents

PART 1: AN INTRODUCTION TO ECONOMICS AND THE ECONOMY

To the Student
  1. The Nature and Method of Economics
    • The Economic Perspective
    • Scarcity and Choice · Rational Behavior · Marginalism: Benefits and Costs
    • Why Study Economics?
    • Economics for Citizenship · Professional and Personal Applications
    • Economics Methodology
    • Theoretical Economics · Policy Economics
    • Macroeconomics and Microeconomics
    • Macroeconomics · Microeconomics · Positive and Normative Economics
    • Pitfalls to Objective Thinking
    • Biases · Loaded Terminology · Definitions · Fallacy of Composition · Causation Fallacies
    • A Look Ahead
    • LAST WORD: Fast Food Lines: An Economic Perspective
    • Appendix to Chapter 1: Graphs and Their Meaning · Construction of a Graph · Direct and Inverse Relationships · Dependent and Independent Variables · Other Things Equal · Slope of a Line · Vertical Intercept · Equation of a Linear Relationship · Slope of a Nonlinear Curve
  1. The Economizing Problem
    • The Foundation of Economics
    • Unlimited Wants · Scarce Resources
    • Economics: Employment and Efficiency
    • Full Employment: Using Available Resources · Full Production: Using Resources Efficiently · Production Possibilities Table · Production Possibilities Curve · Law of Increasing Opportunity Cost · Allocative Efficiency Revisited
    • Unemployment Growth and the Future
    • Unemployment and Productive Inefficiency · A Growing Economy · A Qualification: International Trade · Examples and Applications
    • Economic Systems
    • The Market System · The Command System
    • The Circular Flow Model
    • LAST WORD: Women and Expanded Production Possibilities
  1. Individual Markets: Demand and Supply
    • Markets
    • Demand
    • Law of Demand · Demand Curve · Market Demand · Change in Demand · Changes in Quantity Demanded
    • Supply
    • Law of Supply · The Supply Curve · Determinants of Supply · Changes in Supply · Changes in Quantity Supplied
    • Supply and Demand: Market Equilibrium
    • Surpluses · Shortages · Equilibrium Price and Quantity · Rationing Function of Prices · Changes in Supply, Demand, and Equilibrium · A Reminder: "Other Things Equal" · Application: Pink Salmon
    • LAST WORD: Ticket Scalping: A Bum Rap
  1. The Market System
    • Characteristics of the Market System
    • Private Property · Freedom of Enterprise and Choice · Self-Interest · Competition · Markets and Prices · Reliance on Technology and Capital Goods · Specialization · Use of Money · Active, but Limited Government
    • The Market System at Work
    • What Will Be Produced? · How Will the goods and Services Be Produced? · Who Will Get the Goods and Services? · How will the System Accommodate Change
    • Competition and the "Invisible Hand"
    • LAST WORD: Shuffling the Deck: How the Market System Arranges the World’s Individual Resources
  1. The U.S. Economy: Private and Public Sectors
    • Households as Income Receivers
    • The Functional Distribution of Income · The Personal Distribution of Income
    • Households as Spenders
    • Personal Taxes · Personal Saving · Personal Consumption Expenditure
    • The Business Population
    • Legal Forms of Business
    • Advantages and Disadvantages · The Principal-Agent Problem
    • The Public Sector: Government’s Role
    • Providing the Legal Structure
    • Maintaining Competition
    • Redistributing Income
    • Reallocating Resources
    • Spillovers or Externalities · Public Goods and Services · Quasipublic Goods · The Reallocation Process
    • Promoting Stability
    • The Circular Flow Revisited
    • Government Finance
    • Government Purchases and Transfers
    • Federal Finance
    • Federal Expenditures · Federal Tax Revenues
    • State and Local Finance
    • State Finances · Local Finances · Fiscal Federalism
    • LAST WORD: The Financing of Corporate Operations
  1. The United States in the Global Economy
    • International Linkages
    • U.S. and World Trade
    • Volume and Pattern · Rapid Trade Growth · Participants in International Trade
    • Specialization and Comparative Advantage
    • Basic Principle · Comparative Costs · Terms of Trade · Gains from Specialization and Trade
    • The Foreign Exchange Market
    • Government and Trade
    • Trade Impediments and Subsidies · Why Government Trade Interventions? · Costs to Society
    • Multilateral Trade Agreements and Free-Trade Zones
    • Reciprocal Trade Agreements Act · General Agreements on Tariffs and Trade (GATT) · World Trade Organization (WTO) · The European Union (EU) · North American Free Trade Agreement (NAFTA)
    • Increased Global Competition
    • LAST WORD: Buy American: the Global Refrigerator

PART 2: NATIONAL INCOME, EMPLOYMENT, AND FISCAL POLICY
  1. Measuring Domestic Output, National Income, and the Price Level
    • Assessing the Economy’s Performance
    • Gross Domestic Product
    • A Monetary Measure · Avoiding Multiple Counting · GDP Excludes Nonproduction Transactions · Two Ways of Looking at GDP: Spending and Income
    • The Expenditures Approach
    • Personal Consumption Expenditures © · Gross Private Domestic Investment (Ig) · Government Purchases (G) · Net Exports (Xn) · Putting It All Together: GDP = C + Ig + G + Xn
    • Income Approach
    • Compensation of Employees · Rents · Interest · Proprietor’s Income · Corporate Profits · Adding Up National Income
    • Other National Accounts
    • Net Domestic Product (NDP) · National Income (NI) · Personal Income (PI) · Disposable Income (DI) · The Circular Flow Revisited
    • Nominal GDP versus Real GDP
    • Adjustment Process in a One-Product Economy · An Alternative Method · Real-World Consideration and Data
    • The Consumer Price Index (CPI)
    • Shortcomings of GDP
    • Nonmarket Transactions · Leisure · Improved Product Quality · The Underground Economy · GDP and the Environment · Composition and Distribution of Output · Per Capita Output · Noneconomic Sources of Well-Being
    • LAST WORD: Feeding the GDP Accounts: Where Does the BEA Get the Data It Compiles?
  1. Introduction to Economic Growth and Instability
    • Economic Growth
    • Growth as a Goal · Growth in the United States · Relative Growth Rates
    • The Business Cycle
    • Phases of the Business Cycle · Causation: A First Glance · Cyclical Impact: Durables and Nondurables
    • Unemployment
    • Measurement of Unemployment · Types of Unemployment · Definition of "Full Employment" · Economic Cost of Unemployment · Noneconomic Costs · International Comparisons
    • Inflation
    • Meaning of Inflation · Facts of Inflation · Types of Inflation · Demand-Pull Inflation · Complexities
    • Redistribution Effects of Inflation
    • Who is Hurt by Inflation · Who is Unaffected or Helped by Inflation · Anticipated Inflation · Addenda
    • Effects of Inflation on Output
    • Cost-Push Inflation and Real Output · Demand-Pull Inflation and Real Output
    • LAST WORD: The Stock Market and the Economy
  1. Building the Aggregate Expenditures Model
    • Simplifications
    • Tools of the Aggregate Expenditures Model
    • Consumption and Saving
    • Income-Consumption and Income-Saving Relationships · The Consumption Schedule · The Saving Schedule · Average and Marginal Propensities · Nonincome Determinants of Consumption and Saving · Terminology, Shifts, and Stability
    • Investment
    • Expected Rate of Return · The Real Interest Rate · Investment Demand Curve · Shifts in the Investment Demand Curve · Investment Schedule · Instability of Investment
    • Equilibrium GDP
    • Tabular Analysis · Graphical Analysis
    • Other Features of Equilibrium GDP
    • Saving Equals Planned Investment · No Unplanned Changes in Inventories
    • LAST WORD: Say’s Law, The Great Depression, And Keynes
  1. Aggregate Expenditures: The Multiplier, Net Exports, and Government
    • Changes in Equilibrium GDP and the Multiplier
    • The Multiplier Effect
    • International Trade and Equilibrium Output
    • Net Exports and Aggregate Expenditures · The Net Export Schedule · Net Exports and Equilibrium GDP · International Economic Linkages
    • Adding the Public Sector
    • Simplifying Assumptions · Government Purchases and Equilibrium GDP · Taxation and Equilibrium GDP · Balanced-Budget Multiplier
    • Equilibrium versus Full-Employment GDP
    • Recessionary Gap · Inflationary Gap
    • Application of the Model
    • The Great Depression in the United States · Vietnam War Inflation · The End of the Japanese Growth "Miracle"
    • LAST WORD: Squaring the Economic Circle
  1. Aggregate Demand and Aggregate Supply
    • Aggregate Demand
    • Aggregate Demand Curve · Derivation of the Aggregate Demand Curve from the Aggregate Expenditures Model · Determinants of Aggregate Demand · Aggregate Demand Shifts and the Aggregate Expenditures Model
    • Aggregate Supply
    • Aggregate Supply Curve · Determinants of Aggregate Supply
    • Equilibrium: Real Output and the Price Level
    • Changes in Equilibrium
    • Increases in AD: Demand-Pull Inflation · Multiplier with Price-Level Changes · Decreases in AD: Recession and Cyclical Unemployment · Decreases in AS: Cost-Push Inflation · Increases in AS: Full Employment with Price-Level Stability
    • LAST WORD: Why Is Unemployment So High?
  1. Fiscal Policy
    • Legislative Mandates
    • Fiscal Policy and the AD/AS Model
    • Expansionary Fiscal Policy · Contractionary Fiscal Policy · Policy Options: G or T?
    • Built in Stability
    • Automatic or Built-In Stabilizers
    • Evaluating Fiscal Policy
    • Full-Employment Budget
    • Problems, Criticisms, and Complications
    • Problems of Timing · A Political Business Cycle? · Offsetting State and Local Finance · Crowding-Out Effect · Fiscal Policy, Aggregate Supply, and Inflation · Fiscal Policy in the Open Economy · Supply-Side Fiscal Policy
    • LAST WORD: The Leading Indicators

PART 3: MONEY, BANKING, AND MONETARY POLICY
  1. Money and Banking
    • The Functions of Money
    • The Supply of Money
    • Money Definition M1 · Money Definition M2 · Money Definition M3
    • What "Backs" the Money Supply
    • Money as Debt · Value of Money · Money and Prices · Stabilization of Money’s Value
    • The Demand for Money
    • Transaction Demand, Dt · Asset Demand, Da · Total Money Demand, Dm
    • The Money Market
    • Adjustment to a Decline in the Money Supply · Adjustment to an Increase in the Money Supply
    • The Federal Reserve and the Banking System
    • Historical Background · Board of Governors · Assistance and Advice · The Twelve Federal Reserve Banks · Commercial Banks and Thrifts · Fed Functions and the Money Supply · Federal Reserve Independence
    • Recent Developments in Money and Banking
    • The Relative Decline of Banks and Thrifts · Consolidation among Banks and Thrifts · Convergence of Services Provided by Financial Institutions · Globalization of Financial Markets · Electronic Transactions
    • LAST WORD: The Global Greenback
  1. How Banks and Thrifts Create Money
    • The Balance Sheet of a Commercial Bank
    • Prologue: The Goldsmiths
    • Single Commercial Bank
    • Formations of a Commercial Bank · Money-Creating Transactions of a Commercial Bank ·Profits, Liquidity, and the Federal Funds Market
    • The Banking System: Multiple-Deposit Expansion
    • The Banking System’s Lending Potential · The Monetary Multiplier · Some Modifications · Need for Monetary Control
    • LAST WORD: The Bank Panics of 1930 and 1933
  1. Monetary Policy
    • Consolidated Balance Sheet of the Federal Reserve Banks
    • Assets · Liabilities
    • Tools of Monetary Policy
    • Open-Market Operations · The Reserve Ratio · The Discount Rate · Easy Money and Tight Money · Relative Importance
    • Monetary Policy, Real GDP, and the Price Level
    • Cause-Effect Chain · Effects of an Easy Money Policy · Effects of a Tight Money Policy · Monetary Policy and Aggregate Supply
    • Effectiveness of Monetary Policy
    • Strengths of Monetary Policy · Shortcomings and Problems · Targeting the Federal Funds Rate · Monetary Policy and the International Community
    • The "Big Picture"
    • LAST WORD: For the Fed, Life Is a Metaphor

PART 4: LONG-RUN PERSPECTIVES AND MACROECONOMIC DEBATES
  1. Extending the Analysis of Aggregate Supply
    • Short-Run and Long-Run Aggregate Supply
    • Short-Run Aggregate Supply · Long-Run Aggregate Supply · Equilibrium in the Extended AD-AS Model
    • Applying the Extended AD-AS Model
    • Demand-Pull Inflation in the Extended AD-AS Model · Cost-Push Inflation in the Extended AD-AS Model · Recession and the Extended AD-AS Model
    • The Inflation-Unemployment Relationship
    • The Phillips Curve · Aggregate Supply Shocks and the Phillips Curve
    • The Long-Run Vertical Phillips Curve
    • Long-Run Vertical Phillips Curve · Disinflation
    • Taxation and Aggregate Supply
    • Taxes and Incentives to Work · Incentives to Save and Invest · The Laffer Curve · Criticisms of the Laffer Curve
    • LAST WORD: Has the Impact of Oil Prices Diminished?
  1. Economic Growth and the New Economy
    • Ingredients of Growth
    • Efficiency Factor
    • Production Possibilities Analysis
    • Labor and Productivity · Growth in AD-AS Model
    • U.S. Economic Growth Rates
    • Accounting for Growth
    • Inputs versus Productivity · Quantity of Labor · Technological Advance · Quantity of Capital · Education and Training · Resource Allocation and Economies of Scale · Other Factors
    • Productivity Growth and the New Economy
    • Characteristics of the New Economy · Macroeconomic Implications · Skepticism about the New Economy
    • Is Growth Desirable and Sustainable?
    • The Antigrowth View · In Defense of Economic Growth
    • LAST WORD: Some Pleasant Side Effects of the New Economy
  1. Deficits, Surpluses and the Public Debt
    • Deficits, Surpluses, and Debt: Definitions
    • Budget Philosophies
    • Annually Balanced Budget · Cyclically Balanced Budget · Functional Finance
    • The Public Debt: Facts and Figures
    • Causes · Quantitative Aspects · Social Security Considerations
    • False Concerns
    • Bankruptcy · Burdening Future Generations
    • Substantive Issues
    • Income Distribution · Incentives · Foreign-Owned Public Debt · Crowding Out and the Stock of Capital
    • Deficits and Surpluses: 1990-2010
    • Options for the Surpluses
    • Pay Down the Public Debt · Reduce Taxes · Increase Government Expenditures · Bolster the Social Security Trust Fund · Combination of Policies
    • LAST WORD: Debt Reduction and the U.S. Trade Deficit
  1. Disputes Over Macro Theory and Policy
    • Some History: Classical Economics and Keynes
    • The Classical View · The Keynesian View
    • What Causes Macro Instability?
    • Mainstream View · Monetarist View · Real-Business-Cycle View · Coordination Failures
    • Does the Economy "Self-Correct"?
    • New Classical View of Self Correction · Mainstream View of Self-Correction
    • Rules or Discretion?
    • In Support of Policy Rules · In Defense of Discretionary Stabilization Policy · Increased Macro Stability
    • Summary of Alternative Views
    • LAST WORD: The Taylor Rule: Could a Robot Replace Alan Greenspan?

PART 5: INTERNATIONAL ECONOMICS AND THE WORLD ECONOMY
  1. International Trade
    • Some Key Facts
    • The Economic Basis for Trade
    • Comparative Advantage: Graphical Analysis
    • Two Isolated Nations · Specializing Based on Comparative Advantage · Terms of Trade · Gains from Trade · Trade with Increasing Costs · The Case for Free Trade
    • Supply and Demand Analysis of Exports and Imports
    • Supply and Demand in the United States · Supply and Demand in Canada · Equilibrium World Price, Exports, and Imports
    • Trade Barriers
    • Economic Impact of Tariffs · Economic Impact of Quotas · Net Costs of Tariffs and Quotas
    • The Case for Protection: A Critical Review
    • Military Self-Sufficiency Argument · Diversification for Stability Argument · Infant-Industry Argument · Protection against Dumping Argument · Cheap Foreign Labor Argument · A Summing up
    • The World Trade Organization
    • LAST WORD: Petition of the Candlemakers, 1845
  1. Exchange Rates, The Balance of Payments, and Trade Deficits
    • Financing International Trade
    • U.S. Export Transaction · U.S. Import Transaction
    • The Balance of Payments
    • Current Account · Capital Account · Official Reserves Account · Payments Deficits and Surpluses
    • Flexible Exchange Rates
    • Depreciation and Appreciation · Determinants of Exchange Rates · Flexible Rates and The Balance Of Payments · Disadvantages Of Flexible Exchange Rates
    • Fixed Exchange Rates
    • Use Of Reserves · Trade Policies · Exchange Controls and Rationing · Domestic Macroeconomic Adjustments
    • International Exchange Rate Systems
    • The Gold Standard: Fixed Exchange Rates · The Bretton Woods System · The Current System: The Managed Float
    • Recent U.S. Trade Deficits
    • Causes of the Trade Deficit · Implications of U.S. Trade Deficits
    • LAST WORD: Speculation in Currency Markets
  1. The Economics of Developing Countries
    • The Rich and The Poor
    • Classifications · Comparisons · Growth, Decline, and Income Gaps · The Human Realities
    • Obstacles to Economic Development
    • Natural Resources · Human Resources · Capital Accumulation · Technological Advance · Sociocultural and Institutional Factors
    • The Vicious Circle
    • Role of Government
    • A Positive Role · Public Sector Problems
    • Role of Advanced Nations
    • Expanding Trade · Foreign Aid: Public Loans and Grants · Flows of Private Capital
    • Where from Here?
    • VC Policies for Promoting Growth · IAC Policies for Fostering DVC Growth
    • LAST WORD: Famine in Africa
  • Bonus Web Chapter Transition Economies: Russia and China
    • Ideology and Institutions
    • State Ownership and Central Planning
    • Planning Goals and Techniques
    • Problems with Central Planning
    • The Coordination Problem · The Incentive Problem
    • The Collapse of the Soviet Economy
    • Declining Growth · Poor Product Quality · Lack of Consumer Goods · Large Military Burden · Agricultural Drag
    • The Russian Transition to a Market System
    • Privatization · Price Reform · Promotion of Competition · Making the Ruble Fully Convertible · Price Level Stabilization · Other Major Problems · Future Prospects
    • Market Reforms In China
    • Agricultural and Rural Reform · Reform of Urban Industries · Special Economic Zones · Development of Supporting Institutions · Transformation of the SOEs
    • Outcomes and Prospects
    • Positive Outcomes of Reform · Problems
    • LAST WORD: "Police Smash Smirnov’s Doors"




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