Macroeconomics, 6th Edition PDF by Paul Krugman and Robin Wells


Macroeconomics, Sixth Edition

By Paul Krugman and Robin Wells

Macroeconomics, 6th Edition PDF by Paul Krugman and Robin Wells



PART 1 What Is Economics?


An Engine for Growth and Discovery

A Day in the Megacity

The Invisible Hand

My Benefit, Your Cost

Good Times, Bad Times

Onward and Upward

An Engine for Discovery


First Principles

Common Ground

Principles That Underlie Individual Choice: The

Core of Economics

Principle #1: Choices Are Necessary Because Resources Are Scarce

Principle #2: The True Cost of Something Is Its Opportunity Cost

Principle #3: “How Much” Is a Decision at the Margin

Principle #4: People Respond to Incentives, Exploiting Opportunities to Make Themselves

Better Off

ECONOMICS >> in Action The Cost of Marriage:

Chinaʼs One-Child Policy Creates Millions of Lonely Bachelors

Interaction: How Economies Work

Principle #5: There Are Gains from Trade

Principle #6: Markets Move Toward Equilibrium

Principle #7: Resources Should Be Used Efficiently

to Achieve Societyʼs Goals

Principle #8: Markets Usually Lead to Efficiency,

But When They Donʼt, Government Intervention

Can Improve Societyʼs Welfare

ECONOMICS >> in Action Wait, Then Hurry Up, and Wait Again

Economy-Wide Interactions

Principle #9: One Personʼs Spending Is Another Personʼs Income

Principle #10: Overall Spending Sometimes Gets Out of Line with the Economyʼs Productive

Capacity; When It Does, Government Policy Can

Change Spending

Principle #11: Increases in the Economyʼs Potential Lead to Economic Growth Over Time

BUSINESS CASE How Priceline Revolutionized the Travel Industry


Economic Models: Trade-offs and Trade

From Kitty Hawk to Dreamliner

Models in Economics: Some Important Examples

Trade-offs: The Production Possibility Frontier

Comparative Advantage and Gains from Trade

Comparative Advantage and International Trade, in Reality


Transactions: The Circular-Flow Diagram

ECONOMICS >> in Action Rich Nation, Poor Nation

Using Models

Positive versus Normative Economics

When and Why Economists Disagree

ECONOMICS >> in Action When Economists Agree

BUSINESS CASE Efficiency, Opportunity Cost, and the

Logic of Lean Production


Appendix: Graphs in Economics

Getting the Picture

Graphs, Variables, and Economic Models

How Graphs Work

Two-Variable Graphs

Curves on a Graph

A Key Concept: The Slope of a Curve

The Slope of a Linear Curve

Horizontal and Vertical Curves and Their Slopes

The Slope of a Nonlinear Curve

Calculating the Slope Along a Nonlinear Curve

Maximum and Minimum Points

Calculating the Area Below or Above a Curve

Graphs That Depict Numerical Information

Types of Numerical Graphs

Challenges with Interpreting Numerical Graphs

PART 2 Supply and Demand


Supply and Demand

A Natural Gas Boom and Bust

Supply and Demand: A Model of a Competitive Market

The Demand Curve

The Demand Schedule and the Demand Curve

Shifts of the Demand Curve


Understanding Shifts of the Demand Curve

ECONOMICS >> in Action Beating the Traffic

The Supply Curve

The Supply Schedule and the Supply Curve

Shifts of the Supply Curve

Understanding Shifts of the Supply Curve

ECONOMICS >> in Action The Plunging Cost of Solar Panels

Supply, Demand, and Equilibrium

Finding the Equilibrium Price and Quantity

Using Equilibrium to Describe Markets

ECONOMICS >> in Action The Price of Admission

Changes in Supply and Demand

What Happens When the Demand Curve Shifts

What Happens When the Supply Curve Shifts

Simultaneous Shifts of Supply and Demand Curves

ECONOMICS >> in Action Holy Guacamole!

Competitive Markets — and Others

BUSINESS CASE Uber Gives Riders a Lesson in Supply and Demand


Price Controls and Quotas: Meddling with Markets

A Bronx Tale

Why Governments Control Prices

Price Ceilings

Modeling a Price Ceiling

How a Price Ceiling Causes Inefficiency

FOR INQUIRING MINDS Mumbaiʼs Rent-Control


So Why Are There Price Ceilings?

ECONOMICS >> in Action How Price Controls in

Venezuela Proved Disastrous

Price Floors

GLOBAL COMPARISON Check Out Our Low, Low Wages!

How a Price Floor Causes Inefficiency

So Why Are There Price Floors?

ECONOMICS >> in Action The Rise and Fall of the Unpaid Intern

Controlling Quantities

The Anatomy of Quantity Controls

The Costs of Quantity Controls

ECONOMICS >> in Action Crabbing, Quotas, and

Saving Lives in Alaska

BUSINESS CASE A Market Disruptor Gets Disrupted by the Market


International Trade

The Everywhere Phone

Comparative Advantage and International Trade

Production Possibilities and Comparative

Advantage, Revisited

The Gains from International Trade

Comparative Advantage versus Absolute


Popular Misconceptions Arising from

Misunderstanding Comparative Advantage

GLOBAL COMPARISON Productivity and Wages

Around the World

Sources of Comparative Advantage

FOR INQUIRING MINDS How Scale Effects Drive

International Trade

ECONOMICS >> in Action How Hong Kong Lost Its Shirts

Supply, Demand, and International Trade

The Effects of Imports

The Effects of Exports

International Trade and Wages

ECONOMICS >> in Action The China Shock

The Effects of Trade Protection

The Effects of a Tariff

The Effects of an Import Quota

ECONOMICS >> in Action The Steel Tariffs of 2018– 2019

The Political Economy of Trade Protection

Arguments for Trade Protection

The Politics of Trade Protection

International Trade Agreements and the World

Trade Organization

Challenges to Globalization

ECONOMICS >> in Action Trade War, What Is It Good For?

BUSINESS CASE Li & Fung: From Guangzhou to You


Appendix: Consumer and Producer Surplus

Consumer Surplus and the Demand Curve

Willingness to Pay and the Demand Curve

Willingness to Pay and Consumer Surplus

Producer Surplus and the Supply Curve

Cost and Producer Surplus

The Gains from Trade

PART 3 Introduction to Macroeconomics


Macroeconomics: The Big Picture

Greek Tragedies

The Nature of Macroeconomics

Macroeconomic Questions

Macroeconomics: The Whole Is Greater Than the

Sum of Its Parts

Macroeconomics: Theory and Policy

ECONOMICS >> in Action Fending Off Depression

The Business Cycle

Charting the Business Cycle

The Pain of Recession

Taming the Business Cycle

FOR INQUIRING MINDS Defining Recessions and Expansions

GLOBAL COMPARISON Recessions, Here and There

ECONOMICS >> in Action Bad Times in Brazil

Long-Run Economic Growth

ECONOMICS >> in Action A Tale of Two Countries

Inflation and Deflation

The Causes of Inflation and Deflation

The Pain of Inflation and Deflation

ECONOMICS >> in Action A Fast (Food) Measure of Inflation

International Imbalances

ECONOMICS >> in Action Greeceʼs Costly Surplus



GDP and the CPI: Tracking the Macroeconomy

China Hits the Big Time

The National Accounts

Following the Money: The Expanded Circular-

Flow Diagram

Gross Domestic Product

Calculating GDP


What GDP Tells Us

Real GDP: A Measure of Aggregate Output

Calculating Real GDP

What Real GDP Doesnʼt Measure

GLOBAL COMPARISON GDP and The Meaning of Life

ECONOMICS >> in Action Argentinaʼs Peso Perplex

Price Indexes and the Aggregate Price Level

Market Baskets and Price Indexes

The Consumer Price Index

Other Price Measures

ECONOMICS >> in Action Indexing to the CPI

BUSINESS CASE Paying for a Heads-Up on Inflation


Unemployment and Inflation

The Great Mistake of 2011

The Unemployment Rate

Defining and Measuring Unemployment

The Significance of the Unemployment Rate

Growth and Unemployment

ECONOMICS >> in Action Opportunity Knocks

The Natural Rate of Unemployment

Job Creation and Job Destruction

Frictional Unemployment

Structural Unemployment

The Natural Rate of Unemployment

Changes in the Natural Rate of Unemployment

ECONOMICS >> in Action Men Not Working

Inflation and Deflation

The Level of Prices Doesnʼt Matter …… But the Rate of Change of Prices Does

Winners and Losers from Inflation

Inflation Is Easy. Disinflation Is Hard.

ECONOMICS >> in Action Israelʼs Experience with Inflation


PART 4 Long-Run Economic Growth


Long-Run Economic Growth

The Smog of Prosperity

Comparing Economies Across Time and Space

Real GDP per Capita

Growth Rates

ECONOMICS >> in Action An Economic

Breakthrough in Bangladesh

The Sources of Long-Run Growth

The Crucial Importance of Productivity

Explaining Growth in Productivity

Accounting for Growth: The Aggregate

Production Function

What About Natural Resources?

ECONOMICS >> in Action The Rise, Fall, and Return

of the Productivity Paradox

Why Growth Rates Differ

Explaining Differences in Growth Rates

The Role of Government in Promoting Economic Growth

ECONOMICS >> in Action Whatʼs the Matter with Italy?

Success, Disappointment, and Failure

East Asiaʼs Miracle

Latin Americaʼs Disappointment

Africaʼs Troubles and Promise

Left Behind by Growth?

GLOBAL COMPARISON Lagging Regions in Rich Countries

ECONOMICS >> in Action Global Winners and Losers

Is World Growth Sustainable?

Natural Resources and Growth, Revisited

Economic Growth and the Environment

ECONOMICS >> in Action Chinaʼs War on Pollution

BUSINESS CASE Raising the Bar(code)


Savings, Investment Spending, and the Financial System

Paying for a Hidden Empire

Matching Up Savings and Investment Spending

The Savings–Investment Spending Identity

The Market for Loanable Funds


ECONOMICS >> in Action Three Generations of U.S.

Interest Rates

The Financial System

Three Tasks of a Financial System

Types of Financial Assets

Financial Intermediaries

GLOBAL COMPARISON Corporate Bonds in the

United States and the Euro Area

ECONOMICS >> in Action Banks, Success, and South America

Financial Fluctuations

The Demand for Stocks


The Demand for Other Assets

Asset Price Expectations

FOR INQUIRING MINDS Behavioral Finance

Asset Prices and Macroeconomics

ECONOMICS >> in Action The Rise and Fall of

Mortgage Delinquencies

BUSINESS CASE Grameen Bank: Banking Against Poverty


Appendix: Toward a Fuller Understanding of Present Value

How to Calculate the Present Value of One-Year Projects

How to Calculate the Present Value of Multiyear Projects

How to Calculate the Present Value of Projects with Revenues and Costs

How to Calculate the Price of a Bond Using Present Value

How to Calculate the Price of a Share of Stock

Using Present Value

PART 5 Short-Run Economic Fluctuations


Income and Expenditure

The Malls in Spain Have Mainly Dodged the Pain

The Multiplier: An Informal Introduction

ECONOMICS >> in Action To Shale and Back

Consumer Spending

Current Disposable Income and Consumer Spending

Shifts of the Aggregate Consumption Function

ECONOMICS >> in Action Famous First Forecasting


Investment Spending

  1. The Interest Rate and Investment Spending
  2. Expected Future Real GDP, Production Capacity, and Investment Spending
  3. Inventories and Unplanned Investment


ECONOMICS >> in Action Business Investment in the Great Recession

The Income–Expenditure Model

Planned Aggregate Spending and Real GDP

Income–Expenditure Equilibrium

The Multiplier Process and Inventory Adjustment

What About Exports and Imports?

ECONOMICS >> in Action Inventories and the End of a Recession

BUSINESS CASE Whatʼs Good for America Is Good for GM


Appendix: Deriving the Multiplier Algebraically


Aggregate Demand and Aggregate Supply

Different Generations, Different Policies

Aggregate Demand

Why Is the Aggregate Demand Curve Downward Sloping?

The Aggregate Demand Curve and the Income–

Expenditure Model

Shifts of the Aggregate Demand Curve

Government Policies and Aggregate Demand

ECONOMICS >> in Action Moving Along the

Aggregate Demand Curve, 1979–1980

Aggregate Supply

The Short-Run Aggregate Supply Curve

FOR INQUIRING MINDS Whatʼs Truly Flexible, Whatʼs Truly Sticky

Shifts of the Short-Run Aggregate Supply Curve

The Long-Run Aggregate Supply Curve

From the Short Run to the Long Run

ECONOMICS >> in Action Sticky Wages in the Great Recession

The AD–AS Model

Short-Run Macroeconomic Equilibrium

Shifts of Aggregate Demand: Short-Run Effects

Shifts of the SRAS Curve

Long-Run Macroeconomic Equilibrium

FOR INQUIRING MINDS Whereʼs the Deflation?

ECONOMICS >> in Action Supply Shocks versus

Demand Shocks in Practice

Macroeconomic Policy

Policy in the Face of Demand Shocks

FOR INQUIRING MINDS Keynes and the Long Run

Responding to Supply Shocks

ECONOMICS >> in Action Is Stabilization Policy Stabilizing?

BUSINESS CASE Toyota Makes Its Move

PART 6 Stabilization Policy


Fiscal Policy

Spending to Fight a Recession

Fiscal Policy: The Basics

Taxes, Purchases of Goods and Services,

Government Transfers, and Borrowing

The Government Budget and Total Spending

Expansionary and Contractionary Fiscal Policy

Can Expansionary Fiscal Policy Actually Work?

A Cautionary Note: Lags in Fiscal Policy

ECONOMICS >> in Action A Tale of Two Stimuli

Fiscal Policy and the Multiplier

Multiplier Effects of an Increase in Government

Purchases of Goods and Services

Multiplier Effects of Changes in Government

Transfers and Taxes

How Taxes Affect the Multiplier

ECONOMICS >> in Action Austerity and the Multiplier

The Budget Balance

The Budget Balance as a Measure of Fiscal Policy

The Business Cycle and the Cyclically Adjusted Budget Balance

Should the Budget Be Balanced?

ECONOMICS >> in Action Trying to Balance Budgets in a Recession

Long-Run Implications of Fiscal Policy

Deficits, Surpluses, and Debt

Potential Dangers Posed by Rising Government Debt

GLOBAL COMPARISON The American Way of Debt

Deficits and Debt in Practice

FOR INQUIRING MINDS What Happened to the Debt from World War II?

Implicit Liabilities

ECONOMICS >> in Action Whoʼs Afraid of a Debt Spiral?

BUSINESS CASE Here Comes the Sun


Appendix: Taxes and the Multiplier


Money, Banking, and the Federal Reserve System

Not So Funny Money

The Meaning of Money

What Is Money?

Roles of Money


Types of Money

Measuring the Money Supply

FOR INQUIRING MINDS All About the Benjamins

ECONOMICS >> in Action The History of the Dollar

The Monetary Role of Banks

What Banks Do

The Problem of Bank Runs

Bank Regulation

ECONOMICS >> in Action Itʼs a Wonderful Banking System

Determining the Money Supply

How Banks Create Money

Reserves, Bank Deposits, and the Money Multiplier

The Money Multiplier in Reality

ECONOMICS >> in Action Multiplying Money Down

The Federal Reserve System

The Structure of the Fed

What the Fed Does: Reserve Requirements and the Discount Rate

Open-Market Operations

FOR INQUIRING MINDS Who Gets the Interest on the Fedʼs Assets?

The European Central Bank

ECONOMICS >> in Action The Fedʼs Balance Sheet, Normal and Abnormal

The Evolution of the U.S. Banking System

The Crisis in U.S. Banking in the Early Twentieth Century

Responding to Banking Crises: The Creation of the Federal Reserve

The Savings and Loan Crisis of the 1980s

Back to the Future: The Financial Crisis of 2008 and Its Aftermath

Shadow Banking and Its Vulnerabilities

ECONOMICS >> in Action Financial Regulation After the 2008 Crisis

BUSINESS CASE The Perfect Gift: Cash or a Gift Card?


Monetary Policy

The Most Powerful Person in Government

The Demand for Money

The Opportunity Cost of Holding Money

The Money Demand Curve

Shifts of the Money Demand Curve

ECONOMICS >> in Action A Yen for Cash

Money and Interest Rates

The Equilibrium Interest Rate

Two Models of Interest Rates?

Monetary Policy and the Interest Rate

Long-Term Interest Rates

ECONOMICS >> in Action Up the Down Staircase

Monetary Policy and Aggregate Demand

Expansionary and Contractionary Monetary Policy

Monetary Policy in Practice

The Taylor Rule Method of Setting Monetary Policy Inflation Targeting


The Zero Lower Bound Problem

ECONOMICS >> in Action What the Fed Wants, the Fed Gets

Money, Output, and Prices in the Long Run

Short-Run and Long-Run Effects of an Increase in the Money Supply

Monetary Neutrality

Changes in the Money Supply and the Interest

Rate in the Long Run

ECONOMICS >> in Action International Evidence of Monetary Neutrality

BUSINESS CASE Parking Your Money at PayPal


Appendix: Reconciling the Two Models of the Interest Rate

The Interest Rate in the Short Run

The Interest Rate in the Long Run


Inflation, Disinflation, and Deflation

That and 900,000 Bolivars Will Get You a Cup of Coffee

Money and Inflation

The Classical Model of Money and Prices

The Inflation Tax

The Logic of Hyperinflation

ECONOMICS >> in Action Behind Venezuelaʼs Inflation

Moderate Inflation and Disinflation

The Output Gap and the Unemployment Rate


The Short-Run Phillips Curve

FOR INQUIRING MINDS The Aggregate Supply

Curve and the Short-Run Phillips Curve

Inflation Expectations and the Short-Run Phillips Curve

ECONOMICS >> in Action The Spanish Squeeze

Inflation and Unemployment in the Long Run

The Long-Run Phillips Curve

The Natural Rate of Unemployment, Revisited

The Costs of Disinflation

GLOBAL COMPARISON Disinflation Around the World

ECONOMICS >> in Action The Great Disinflation of the 1980s


Debt Deflation

Effects of Expected Deflation

ECONOMICS >> in Action Is Europe Turning Japanese?

BUSINESS CASE Hyperinflation as a Business Opportunity

PART 7 Events and Ideas


Macroeconomics: Events and Ideas

Sympathy for the deficit

Classical Macroeconomics

Money and the Price Level

The Business Cycle

The Great Depression and the Keynesian Revolution

Keynesʼs Theory

FOR INQUIRING MINDS The Politics of Keynes

Policy to Fight Recessions

ECONOMICS >> in Action The End of the Great Depression

Challenges to Keynesian Economics

The Revival of Monetary Policy


Limits to Macroeconomic Policy: Inflation and the

Natural Rate of Unemployment

Rational Expectations and New Classical


FOR INQUIRING MINDS Supply-Side Economics

The Political Business Cycle

ECONOMICS >> in Action Did the Fed Cause the Great Depression?

From Great Moderation to Secular Stagnation

The Limits of Monetary Policy

The Revival of Fiscal Policy

Policy in a Low-Interest-Rate World

ECONOMICS >> in Action Debt Fears, Austerity, and the U.S. Recovery

PART 8 The International Economy


International Macroeconomics

Switzerland Doesn’t Want Your Money

Capital Flows and the Balance of Payments

Balance of Payments Accounts

FOR INQUIRING MINDS GDP, GNP, and the Current Account


Modeling the Financial Account

Underlying Determinants of International Capital Flows

Two-Way Capital Flows

ECONOMICS >> in Action Leprechaun Economics

The Role of the Exchange Rate

Understanding Exchange Rates

The Equilibrium Exchange Rate

Inflation and Real Exchange Rates

Purchasing Power Parity


ECONOMICS >> in Action Strong Dollar Woes

Exchange Rate Policy

Exchange Rate Regimes

How Can an Exchange Rate Be Held Fixed?

The Exchange Rate Regime Dilemma

FOR INQUIRING MINDS From Bretton Woods to the


ECONOMICS >> in Action China Pegs the Yuan

Exchange Rates and Macroeconomic Policy

Devaluation and Revaluation of Fixed Exchange Rates

Monetary Policy Under Floating Exchange Rates

International Business Cycles

ECONOMICS >> in Action The Little Currency That Could

BUSINESS CASE German Cars, Made in Spain

Solutions to Check Your Understanding Questions



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