Brief Principles of Macroeconomics, 9th Edition PDF by N. Gregory Mankiw


Brief Principles of Macroeconomics, Ninth Edition

By N. Gregory Mankiw

Brief principles of macroeconomics


Preface: To the Instructor v

Preface: To the Student xxii

Part I Introduction 1

Chapter 1

Ten Principles of Economics 1

1-1 How People Make Decisions 2

1-1a Principle 1: People Face Trade-Offs 2

1-1b Principle 2: The Cost of Something Is What You Give

Up to Get It 3

1-1c Principle 3: Rational People Think at the Margin 4

1-1d Principle 4: People Respond to Incentives 5

1-2 How People Interact 6

1-2a Principle 5: Trade Can Make Everyone Better Off 7

1-2b Principle 6: Markets Are Usually a Good Way to

Organize Economic Activity 7

FYI: Adam Smith and the Invisible Hand 8

Case Study: Adam Smith Would Have Loved Uber 9

1-2c Principle 7: Governments Can Sometimes Improve

Market Outcomes 9

1-3 How the Economy as a Whole Works 11

1-3a Principle 8: A Country’s Standard of Living Depends

on Its Ability to Produce Goods and Services 11

1-3b Principle 9: Prices Rise When the Government Prints

Too Much Money 11

1-3c Principle 10: Society Faces a Short-Run Trade-Off

between Inflation and Unemployment 12

1-4 Conclusion 13

Chapter in a Nutshell 14

Key Concepts 14

Questions for Review 14

Problems and Applications 14

Quick Quiz Answers 15

Chapter 2

Thinking Like an Economist 17

2-1 The Economist as Scientist 18

2-1a The Scientific Method: Observation, Theory, and

More Observation 18

2-1b The Role of Assumptions 19

2-1c Economic Models 19

Preface: To the Instructor v

Preface: To the Student xxii

2-1d Our First Model: The Circular-Flow Diagram 20

2-1e Our Second Model: The Production Possibilities

Frontier 21

2-1f Microeconomics and Macroeconomics 24

2-2 The Economist as Policy Adviser 25

2-2a Positive versus Normative Analysis 25

In The News: Why Tech Companies Hire Economists 26

2-2b Economists in Washington 27

2-2c Why Economists’ Advice Is Not Always Followed 28

2-3 Why Economists Disagree 29

2-3a Differences in Scientific Judgments 29

2-3b Differences in Values 30

2-3c Perception versus Reality 30

ask the experts: Ticket Resale 32

2-4 Let’s Get Going 32

Chapter in a Nutshell 33

Key Concepts 33

Questions for Review 33

Problems and Applications 34

Quick Quiz Answers 34

APPENDIX Graphing: A Brief Review 35

Graphs of a Single Variable 35

Graphs of Two Variables: The Coordinate System 36

Curves in the Coordinate System 37

Slope 39

Cause and Effect 41

Chapter 3

Interdependence and the Gains

from Trade 45

3-1 A Parable for the Modern Economy 46

3-1a Production Possibilities 46

3-1b Specialization and Trade 48

3-2 Comparative Advantage: The Driving Force of

Specialization 50

3-2a Absolute Advantage 50

3-2b Opportunity Cost and Comparative Advantage 50

3-2c Comparative Advantage and Trade 52

3-2d The Price of the Trade 52

FYI: The Legacy of Adam Smith and David Ricardo 53

3-3 Applications of Comparative Advantage 54

3-3a Should LeBron James Mow His Own Lawn? 54

3-3b Should the United States Trade with Other Countries? 54

3-4 Conclusion 55

ask the experts: Trade between China and the

United States 55

In The News: Economics within a Marriage 56

Chapter in a Nutshell 56

Key Concepts 57

Questions for Review 57

Problems and Applications 58

Quick Quiz Answers 59

Part II How Markets

Work 61

Chapter 4

The Market Forces of Supply and Demand 61

4-1 Markets and Competition 62

4-1a What Is a Market? 62

4-1b What Is Competition? 62

4-2 Demand 63

4-2a The Demand Curve: The Relationship between Price and Quantity Demanded 63

4-2b Market Demand versus Individual Demand 64

4-2c Shifts in the Demand Curve 65

Case Study: Two Ways to Reduce Smoking 68

4-3 Supply 69

4-3a The Supply Curve: The Relationship between

Price and Quantity Supplied 69

4-3b Market Supply versus Individual Supply 70

4-3c Shifts in the Supply Curve 71

4-4 Supply and Demand Together 73

4-4a Equilibrium 73

4-4b Three Steps to Analyzing Changes in Equilibrium 75

In The News: Price Increases after Disasters 80

4-5 Conclusion: How Prices Allocate Resources 81

ask the experts: Price Gouging 82

Chapter in a Nutshell 82

Key Concepts 83

Questions for Review 83

Problems and Applications 84

Quick Quiz Answers 85

Part III The Data of

Macroeconomics 87

Chapter 5

Measuring a Nation’s Income 87

5-1 The Economy’s Income and Expenditure 88

5-2 The Measurement of GDP 90

5-2a “GDP Is the Market Value . . .” 90

5-2b “. . . of All . . . ” 90

5-2c “. . . Final . . . ” 91

5-2d “. . . Goods and Services . . . ” 91

5-2e “. . . Produced . . . ” 91

5-2f “. . . Within a Country . . . ” 91

5-2g “. . . In a Given Period of Time.” 91

FYI: Other Measures of Income 92

5-3 The Components of GDP 93

5-3a Consumption 93

5-3b Investment 93

5-3c Government Purchases 94

5-3d Net Exports 94

Case Study: The Components of U.S. GDP 95

5-4 Real versus Nominal GDP 96

5-4a A Numerical Example 96

5-4b The GDP Deflator 97

Case Study: A Half Century of Real GDP 98

5-5 Is GDP a Good Measure of Economic Well-Being? 100

Case Study: International Differences in GDP and the

Quality of Life 101

In The News: Sex, Drugs, and GDP 102

5-6 Conclusion 103

Chapter in a Nutshell 104

Key Concepts 104

Questions for Review 104

Problems and Applications 104

Quick Quiz Answers 106

Chapter 6

Measuring the Cost of Living 107

6-1 The Consumer Price Index 108

6-1a How the CPI Is Calculated 108

FYI: What’s in the CPI’s Basket? 110

6-1b Problems in Measuring the Cost of Living 111

6-1c The GDP Deflator versus the Consumer

Price Index 112

6-2 Correcting Economic Variables for the Effects

of Inflation 114

6-2a Dollar Figures from Different Times 114

FYI: Mr. Index Goes to Hollywood 115

Case Study: Regional Differences in the

Cost of Living 115

6-2b Indexation 117

6-2c Real and Nominal Interest Rates 117

Case Study: Interest Rates in the U.S. Economy 119

6-3 Conclusion 120

Chapter in a Nutshell 121

Key Concepts 121

Questions for Review 121

Problems and Applications 122

Quick Quiz Answers 123

Part iv The Real Economy

in the Long Run 125

Chapter 7

Production and Growth 125

7-1 Economic Growth around the World 126

FYI: Are You Richer Than the Richest American? 128

7-2 Productivity: Its Role and Determinants 128

7-2a Why Productivity Is So Important 129

7-2b How Productivity Is Determined 129

FYI: The Production Function 131

Case Study: Are Natural Resources a Limit

to Growth? 132

7-3 Economic Growth and Public Policy 133

7-3a Saving and Investment 133

7-3b Diminishing Returns and the Catch-Up Effect 133

7-3c Investment from Abroad 135

7-3d Education 136

7-3e Health and Nutrition 136

7-3f Property Rights and Political Stability 137

7-3g Free Trade 138

7-3h Research and Development 139

ask the experts: Innovation and Growth 139

7-3i Population Growth 139

Case Study: Why Is So Much of Africa Poor? 141

In The News: The Secret Sauce of American Prosperity 144

7-4 Conclusion: The Importance of Long-Run Growth 144

Chapter in a Nutshell 145

Key Concepts 146

Questions for Review 146

Problems and Applications 146

Quick Quiz Answers 147

Chapter 8

Saving, Investment, and the

Financial System 149

8-1 Financial Institutions in the U.S. Economy 150

8-1a Financial Markets 150

8-1b Financial Intermediaries 152

8-1c Summing Up 154

8-2 Saving and Investment in the National Income

Accounts 154

8-2a Some Important Identities 155

8-2b The Meaning of Saving and Investment 156

8-3 The Market for Loanable Funds 157

8-3a Supply and Demand for Loanable Funds 157

8-3b Policy 1: Saving Incentives 159

8-3c Policy 2: Investment Incentives 161

8-3d Policy 3: Government Budget Deficits and

Surpluses 162

ask the experts: Fiscal Policy and Saving 163

Case Study: The History of U.S. Government Debt 164

FYI: Financial Crises 166

8-4 Conclusion 167

Chapter in a Nutshell 167

Key Concepts 167

Questions for Review 168

Problems and Applications 168

Quick Quiz Answers 169

Chapter 9

The Basic Tools of Finance 171

9-1 Present Value: Measuring the Time Value of Money 172

FYI: The Magic of Compounding and the Rule of 70 174

9-2 Managing Risk 174

9-2a Risk Aversion 175

9-2b The Markets for Insurance 175

9-2c Diversification of Firm-Specific Risk 176

9-2d The Trade-Off between Risk and Return 177

9-3 Asset Valuation 179

9-3a Fundamental Analysis 179

FYI: Key Numbers for Stock Watchers 180

9-3b The Efficient Markets Hypothesis 180

Case Study: Random Walks and Index Funds 181

ask the experts: Diversified Investing 182

9-3c Market Irrationality 182

9-4 Conclusion 183

Chapter in a Nutshell 183

Key Concepts 184

Questions for Review 184

Problems and Applications 184

Quick Quiz Answers 185

Chapter 10

Unemployment 187

10-1 Identifying Unemployment 188

10-1a How Is Unemployment Measured? 188

Case Study: Labor-Force Participation of Men and

Women in the U.S. Economy 191

10-1b Does the Unemployment Rate Measure What We

Want It to Measure? 192

10-1c How Long Are the Unemployed without

Work? 194

10-1d Why Are There Always Some People

Unemployed? 194

FYI: The Jobs Number 195

10-2 Job Search 196

10-2a Why Some Frictional Unemployment Is

Inevitable 196

10-2b Public Policy and Job Search 196

10-2c Unemployment Insurance 197

10-3 Minimum-Wage Laws 198

Case Study: Who Earns the Minimum Wage? 199

10-4 Unions and Collective Bargaining 201

10-4a The Economics of Unions 201

10-4b Are Unions Good or Bad for the Economy? 202

10-5 The Theory of Efficiency Wages 203

10-5a Worker Health 203

10-5b Worker Turnover 204

10-5c Worker Quality 204

10-5d Worker Effort 204

Case Study: Henry Ford and the Very Generous

$5-a-Day Wage 205

10-6 Conclusion 206

Chapter in a Nutshell 206

Key Concepts 207

Questions for Review 207

Problems and Applications 207

Quick Quiz Answers 208

Part v Money and Prices

in the Long Run 209

Chapter 11

The Monetary System 209

11-1 The Meaning of Money 210

11-1a The Functions of Money 210

11-1b The Kinds of Money 211

FYI: Cryptocurrencies: A Fad or the Future? 212

11-1c Money in the U.S. Economy 213

FYI: Why Credit Cards Aren’t Money 214

Case Study: Where Is All the Currency? 214

11-2 The Federal Reserve System 215

11-2a The Fed’s Organization 215

11-2b The Federal Open Market Committee 216

11-3 Banks and the Money Supply 217

11-3a The Simple Case of 100-Percent-Reserve

Banking 217

11-3b Money Creation with Fractional-Reserve

Banking 218

11-3c The Money Multiplier 219

11-3d Bank Capital, Leverage, and the Financial Crisis of

2008–2009 220

11-4 The Fed’s Tools of Monetary Control 222

11-4a How the Fed Influences the Quantity

of Reserves 222

11-4b How the Fed Influences the Reserve Ratio 224

11-4c Problems in Controlling the Money Supply 224

Case Study: Bank Runs and the Money Supply 225

In The News: A Trip to Jekyll Island 226

11-4d The Federal Funds Rate 226

11-5 Conclusion 228

Chapter in a Nutshell 229

Key Concepts 229

Questions for Review 229

Problems and Applications 230

Quick Quiz Answers 231

Chapter 12

Money Growth and Inflation 233

12-1 The Classical Theory of Inflation 234

12-1a The Level of Prices and the Value of Money 235

12-1b Money Supply, Money Demand, and Monetary

Equilibrium 235

12-1c The Effects of a Monetary Injection 237

12-1d A Brief Look at the Adjustment Process 238

12-1e The Classical Dichotomy and Monetary Neutrality 239

12-1f Velocity and the Quantity Equation 240

Case Study: Money and Prices during Four

Hyperinflations 242

12-1g The Inflation Tax 242

12-1h The Fisher Effect 244

12-2 The Costs of Inflation 246

12-2a A Fall in Purchasing Power? The Inflation

Fallacy 246

12-2b Shoeleather Costs 247

12-2c Menu Costs 248

12-2d Relative-Price Variability and the Misallocation of

Resources 248

12-2e Inflation-Induced Tax Distortions 249

12-2f Confusion and Inconvenience 250

12-2g A Special Cost of Unexpected Inflation: Arbitrary

Redistributions of Wealth 251

12-2h Inflation Is Bad, but Deflation May Be Worse 251

Case Study: The Wizard of Oz and the Free-Silver

Debate 252

In The News: Life During Hyperinflation 254

12-3 Conclusion 254

Chapter in a Nutshell 256

Key Concepts 256

Questions for Review 256

Problems and Applications 257

Quick Quiz Answers 257

Part vi The Macroeconomics

of Open

Economies 259

Chapter 13

Open-Economy Macroeconomics:

Basic Concepts 259

13-1 The International Flows of Goods and Capital 260

13-1a The Flow of Goods: Exports, Imports, and Net Exports 260

Case Study: The Increasing Openness of the

U.S. Economy 261

13-1b The Flow of Financial Resources: Net Capital

Outflow 262

13-1c The Equality of Net Exports and Net Capital

Outflow 263

13-1d Saving, Investment, and Their Relationship to the

International Flows 265

13-1e Summing Up 266

Case Study: Is the U.S. Trade Deficit a National

Problem? 267

ask the experts: Trade Balances and Trade

Negotiations 268

13-2 The Prices for International Transactions: Real and

Nominal Exchange Rates 269

13-2a Nominal Exchange Rates 269

13-2b Real Exchange Rates 270

FYI: The Euro 271

13-3 A First Theory of Exchange-Rate Determination:

Purchasing-Power Parity 272

13-3a The Basic Logic of Purchasing-Power Parity 273

13-3b Implications of Purchasing-Power Parity 273

Case Study: The Nominal Exchange Rate during a

Hyperinflation 275

13-3c Limitations of Purchasing-Power Parity 276

Case Study: The Hamburger Standard 276

13-4 Conclusion 277

Chapter in a Nutshell 278

Key Concepts 278

Questions for Review 278

Problems and Applications 278

Quick Quiz Answers 279

Chapter 14

A Macroeconomic Theory of the

Open Economy 281

14-1 Supply and Demand for Loanable Funds and for

Foreign-Currency Exchange 282

14-1a The Market for Loanable Funds 282

14-1b The Market for Foreign-Currency Exchange 284

FYI: Purchasing-Power Parity as a Special Case 286

14-2 Equilibrium in the Open Economy 287

14-2a Net Capital Outflow: The Link between the

Two Markets 287

14-2b Simultaneous Equilibrium in Two Markets 288

FYI: Disentangling Supply and Demand 290

14-3 How Policies and Events Affect an Open Economy 290

14-3a Government Budget Deficits 291

14-3b Trade Policy 293

ask the experts: Deficits 293

14-3c Political Instability and Capital Flight 295

Case Study: Capital Flows from China 297

In The News: Separating Fact from Fiction 298

ask the experts: Currency Manipulation 298

14-4 Conclusion 300

Chapter in a Nutshell 300

Key Concepts 301

Questions for Review 301

Problems and Applications 301

Quick Quiz Answers 302

Part vii Short-Run Economic

Fluctuations 303

Chapter 15

Aggregate Demand and Aggregate

Supply 303

15-1 Three Key Facts about Economic Fluctuations 304

15-1a Fact 1: Economic Fluctuations Are Irregular

and Unpredictable 304

15-1b Fact 2: Most Macroeconomic Quantities Fluctuate

Together 306

15-1c Fact 3: As Output Falls, Unemployment Rises 306

15-2 Explaining Short-Run Economic Fluctuations 307

15-2a The Assumptions of Classical Economics 307

15-2b The Reality of Short-Run Fluctuations 307

15-2c The Model of Aggregate Demand and Aggregate

Supply 308

15-3 The Aggregate-Demand Curve 309

15-3a Why the Aggregate-Demand Curve Slopes Downward 309

15-3b Why the Aggregate-Demand Curve Might Shift 312

15-4 The Aggregate-Supply Curve 315

15-4a Why the Aggregate-Supply Curve Is Vertical in

the Long Run 315

15-4b Why the Long-Run Aggregate-Supply Curve

Might Shift 316

15-4c Using Aggregate Demand and Aggregate

Supply to Depict Long-Run Growth and Inflation 317

15-4d Why the Aggregate-Supply Curve Slopes Upward

in the Short Run 319

15-4e Why the Short-Run Aggregate-Supply Curve Might Shift 322

15-5 Two Causes of Economic Fluctuations 324

15-5a The Effects of a Shift in Aggregate Demand 325

FYI: Monetary Neutrality Revisited 327

Case Study: Two Big Shifts in Aggregate Demand: The

Great Depression and World War II 327

Case Study: The Great Recession of 2008–2009 329

15-5b The Effects of a Shift in Aggregate Supply 331

Case Study: Oil and the Economy 333

FYI: The Origins of the Model of Aggregate Demand and

Aggregate Supply 334

15-6 Conclusion 334

Chapter in a Nutshell 335

Key Concepts 335

Questions for Review 336

Problems and Applications 336

Quick Quiz Answers 337

Chapter 16

The Influence of Monetary and Fiscal

Policy on Aggregate Demand 339

16-1 How Monetary Policy Influences Aggregate Demand 340

16-1a The Theory of Liquidity Preference 341

16-1b The Downward Slope of the Aggregate-Demand Curve 343

FYI: Interest Rates in the Long Run and the Short Run 344

16-1c Changes in the Money Supply 345

16-1d The Role of Interest-Rate Targets in Fed Policy 347

Case Study: Why the Fed Watches the Stock Market

(and Vice Versa) 347

16-1e The Zero Lower Bound 348

16-2 How Fiscal Policy Influences Aggregate Demand 350

16-2a Changes in Government Purchases 350

16-2b The Multiplier Effect 350

16-2c A Formula for the Spending Multiplier 351

16-2d Other Applications of the Multiplier Effect 352

16-2e The Crowding-Out Effect 353

16-2f Changes in Taxes 354

FYI: How Fiscal Policy Might Affect Aggregate Supply 355

16-3 Using Policy to Stabilize the Economy 356

16-3a The Case for Active Stabilization Policy 356

Case Study: Keynesians in the White House 357

ask the experts: Economic Stimulus 357

In The News: How Large Is the Fiscal Policy Multiplier? 358

16-3b The Case against Active Stabilization Policy 359

16-3c Automatic Stabilizers 361

16-4 Conclusion 362

Chapter in a Nutshell 362

Key Concepts 363

Questions for Review 363

Problems and Applications 363

Quick Quiz Answers 364

Chapter 17

The Short-

Run Trade-Off between

Inflation and Unemployment 365

17-1 The Phillips Curve 366

17-1a Origins of the Phillips Curve 366

17-1b Aggregate Demand, Aggregate Supply, and the

Phillips Curve 367

17-2 Shifts in the Phillips Curve: The Role of Expectations 369

17-2a The Long-Run Phillips Curve 369

17-2b The Meaning of “Natural” 371

17-2c Reconciling Theory and Evidence 372

17-2d The Short-Run Phillips Curve 373

17-2e The Natural Experiment for the Natural-Rate

Hypothesis 374

17-3 Shifts in the Phillips Curve: The Role of Supply Shocks 376

17-4 The Cost of Reducing Inflation 379

17-4a The Sacrifice Ratio 379

17-4b Rational Expectations and the Possibility of Costless

Disinflation 381

17-4c The Volcker Disinflation 382

17-4d The Greenspan Era 383

17-4e A Financial Crisis Takes Us for a Ride along the

Phillips Curve 384

17-5 Conclusion 386

Chapter in a Nutshell 386

Key Concepts 386

Questions for Review 387

Problems and Applications 387

Quick Quiz Answers 388

Part viii Final Thoughts 389

Chapter 18

Six Debates over Macroeconomic

Policy 389

18-1 Should Monetary and Fiscal Policymakers Try to Stabilize

the Economy? 390

18-1a Pro: Policymakers Should Try to Stabilize

the Economy 390

18-1b Con: Policymakers Should Not Try to Stabilize

the Economy 390

18-2 Should the Government Fight Recessions with Spending

Hikes Rather Than Tax Cuts? 392

18-2a Pro: The Government Should Fight Recessions

with Spending Hikes 392

18-2b Con: The Government Should Fight Recessions

with Tax Cuts 393

18-3 Should Monetary Policy Be Made by Rule Rather Than by

Discretion? 395

18-3a Pro: Monetary Policy Should Be Made by Rule 395

18-3b Con: Monetary Policy Should Not Be Made by Rule 396

FYI: Inflation Targeting 397

18-4 Should the Central Bank Aim for Zero Inflation? 398

18-4a Pro: The Central Bank Should Aim for Zero Inflation 398

18-4b Con: The Central Bank Should Not Aim for Zero

Inflation 399

In The News: A Central Bank Assesses Its Policy 400

18-5 Should the Government Balance Its Budget? 402

18-5a Pro: The Government Should Balance Its Budget 402

18-5b Con: The Government Should Not Balance Its Budget 403

18-6 Should the Tax Laws Be Reformed to Encourage Saving? 405

18-6a Pro: The Tax Laws Should Be Reformed to Encourage

Saving 405

ask the experts: Taxing Capital and Labor 406

18-6b Con: The Tax Laws Should Not Be Reformed to

Encourage Saving 406

18-7 Conclusion 407

Chapter in a Nutshell 408

Questions for Review 408

Problems and Applications 409

Quick Quiz Answers 409

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