Macroeconomics, Sixth Edition
By Paul Krugman and Robin Wells
Contents:
Preface
PART 1 What Is Economics?
INTRODUCTION
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
CHAPTER 1
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
CHAPTER 2
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
GLOBAL COMPARISON Pajama Republics
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
CHAPTER 2
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
CHAPTER 3
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
GLOBAL COMPARISON Pay More, Pump Less
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
CHAPTER 4
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
Millionaires
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
CHAPTER 5
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
Advantage
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
CHAPTER 5
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
CHAPTER 6
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
BUSINESS CASE GM Survives
CHAPTER 7
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
FOR INQUIRING MINDS Our Imputed Lives
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
CHAPTER 8
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
BUSINESS CASE Task Rabbit
PART 4 Long-Run Economic Growth
CHAPTER 9
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)
CHAPTER 10
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
FOR INQUIRING MINDS Using Present Value
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
FOR INQUIRING MINDS How Now, Dow Jones?
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
CHAPTER 10
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
CHAPTER 11
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
Failures
Investment Spending
- The Interest Rate and Investment Spending
- Expected Future Real GDP, Production Capacity, and Investment Spending
- Inventories and Unplanned Investment
Spending
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
CHAPTER 11
Appendix: Deriving the Multiplier Algebraically
CHAPTER 12
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
CHAPTER 13
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
CHAPTER 13
Appendix: Taxes and the Multiplier
CHAPTER 14
Money, Banking, and the Federal Reserve System
Not So Funny Money
The Meaning of Money
What Is Money?
Roles of Money
GLOBAL COMPARISON The Cash of Nations
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?
CHAPTER 15
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
GLOBAL COMPARISON Inflation Targets
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
CHAPTER 15
Appendix: Reconciling the Two Models of the Interest Rate
The Interest Rate in the Short Run
The Interest Rate in the Long Run
CHAPTER 16
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
FOR INQUIRING MINDS Okunʼs Law
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
Deflation
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
CHAPTER 17
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
Monetarism
Limits to Macroeconomic Policy: Inflation and the
Natural Rate of Unemployment
Rational Expectations and New Classical
Economics
FOR INQUIRING MINDS Supply-Side Economics
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
CHAPTER 18
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
GLOBAL COMPARISON Big Surpluses
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
FOR INQUIRING MINDS Burgernomics
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
Euro
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
Glossary
Index