Economics, 14th Edition PDF by Michael Parkin

By

Economics, Fourteenth Edition

By Michael Parkin

Economics, 14th Edition PDF by Michael Parkin

Detailed Contents:

Part One

Introduction 39

Chapter 1 ◆ What Is Economics? 39

Definition Of Economics 40

Two Big Economic Questions 41

What, How, And For Whom? 41

Do Choices Made In The Pursuit Of Self-Interest

Also Promote The Social Interest? 43

The Economic Way Of Thinking 47

A Choice Is A Tradeoff 47

Making A Rational Choice 47

Benefit: What You Gain 47

Cost: What You Must Give Up 47

How Much? Choosing At The Margin 48

Choices Respond To Incentives 48

Economics As Social Science And Policy Tool 49

Economist As Social Scientist 49

Economist As Policy Adviser 49

Economists In The Economy 50

Jobs For An Economics Major 50

Will Jobs For Economics Majors Grow? 50

Earnings Of Economics Majors 51

Skills Needed For Economics Jobs 51

A Diversity Challenge In The Economics Profession 51

Worked Problem, Summary (Key Points And Key Terms),

Problems And Applications, And Additional Problems And

Applications Appear At The End Of Each Chapter.

Appendix Graphs In Economics 55

Graphing Data 55

Graphing Economic Data 56

Scatter Diagrams 56

Graphs Used In Economic Models 58

Variables That Move In The Same Direction 58

Variables That Move In Opposite Directions 59

Variables That Have A Maximum Or A Minimum 60

Variables That Are Unrelated 61

The Slope Of A Relationship 62

The Slope Of A Straight Line 62

The Slope Of A Curved Line 63

Graphing Relationships Among More Than Two

Variables 64

Ceteris Paribus 64

When Other Things Change 65

Mathematical Note Equations Of Straight Lines 66

■ At Issue, 46

■ Economics In The News, 44

C Hapter 2 ◆ T He Economic P Roblem 7 1

Production Possibilities And Opportunity Cost 72

Production Possibilities Frontier 72

Production Efficiency 73

Tradeoff Along The Ppf 73

Opportunity Cost 73

Using Resources Efficiently 75

The Ppf And Marginal Cost 75

Preferences And Marginal Benefit 76

Allocative Efficiency 77

Gains From Trade 78

Comparative Advantage And Absolute Advantage 78

Achieving The Gains From Trade 80

The Liz–Joe Economy And Its Ppf 82

Economic Growth 83

The Cost Of Economic Growth 83

A Nation’s Economic Growth 84

Changes In What We Produce 84

Economic Coordination 86

Firms 86

Markets 86

Property Rights 86

Money 86

Circular Flows Through Markets 86

Coordinating Decisions 87

■ Economics In Action, 84

■ Economics In The News, 74, 88

Part One Wrap- Understanding The Scope Of Economics

Your Economic Revolution 95

Talking With Esther Duflo 96

Part Two

How Markets Work 97

Chapter 3 ◆ Demand And Supply 97

Markets And Prices 98

Demand 99

The Law Of Demand 99

Demand Curve And Demand Schedule 99

A Change In Demand 100

A Change In The Quantity Demanded Versus A

Change In Demand 102

Supply 104

The Law Of Supply 104

Supply Curve And Supply Schedule 104

A Change In Supply 105

A Change In The Quantity Supplied Versus A

Change In Supply 106

Market Equilibrium 108

Price As A Regulator 108

Price Adjustments 109

Predicting Changes In Price And Quantity 110

An Increase In Demand 110

A Decrease In Demand 110

An Increase In Supply 112

A Decrease In Supply 112

Changes In Both Demand And Supply 114

Mathematical Note

Demand, Supply, And Equilibrium 118

Up ◆ ■ Economics In The News, 111, 113, 116

Chapter 4 ◆ Elasticity 125

Price Elasticity Of Demand 126

Calculating Price Elasticity Of Demand 126

Inelastic And Elastic Demand 127

The Factors That Influence The Elasticity

Of Demand 128

Elasticity Along A Linear Demand Curve 129

Total Revenue And Elasticity 130

Your Expenditure And Your Elasticity 132

More Elasticities Of Demand 133

Income Elasticity Of Demand 133

Cross Elasticity Of Demand 134

Elasticity Of Supply 136

Calculating The Elasticity Of Supply 136

The Factors That Influence The Elasticity Of

Supply 137

■ Economics In Action, 131, 133, 134

■ Economics In The News, 132, 135, 140

Chapter 5 ◆ Efficiency And Equity 147

Resource Allocation Methods 148

Market Price 148

Command 148

Majority Rule 148

Contest 148

First-Come, First-Served 148

Lottery 149

Personal Characteristics 149

Force 149

Benefit, Cost, And Surplus 150

Demand, Willingness To Pay, And Value 150

Individual Demand And Market Demand 150

Consumer Surplus 151

Supply And Marginal Cost 151

Supply, Cost, And Minimum Supply-Price 152

Individual Supply And Market Supply 152

Producer Surplus 153

Is The Competitive Market Efficient? 154

Efficiency Of Competitive Equilibrium 154

Market Failure 156

Sources Of Market Failure 156

Alternatives To The Market 157

Is The Competitive Market Fair? 158

It’s Not Fair If The Result Isn’t Fair 158

It’s Not Fair If The Rules Aren’t Fair 160

Case Study: A Generator Shortage In A Natural

Disaster 160

■ Economics In Action, 155

■ At Issue, 161

■ Economics In The News, 162

Chapter 6 ◆ Government Actions In Markets 169

A Housing Market With A Rent Ceiling 170

A Housing Shortage 170

Increased Search Activity 170

An Illicit Market 170

Inefficiency Of A Rent Ceiling 171

Are Rent Ceilings Fair? 172

A Labor Market With A Minimum Wage 173

Minimum Wage Brings Unemployment 173

Is The Minimum Wage Fair? 173

Inefficiency Of A Minimum Wage 174

Taxes 175

Tax Incidence 175

Equivalence Of A Tax On Buyers And Sellers 176

Taxes And Efficiency 177

Tax Influence Of The Elasticity Of Demand 178

Tax Influence Of The Elasticity Of Supply 179

Taxes And Fairness 180

The Big Tradeoff 180

Production Quotas And Subsidies 181

Production Quotas 181

Subsidies 182

Markets For Illegal Goods 184

A Free Market For A Drug 184

A Market For An Illegal Drug 184

Legalizing And Taxing Drugs 185

■ Economics In Action, 172, 180, 183

■ At Issue, 174

■ Economics In The News, 186

Chapter 7 ◆ Global Markets In Action 193

How Global Markets Work 194

International Trade Today 194

What Drives International Trade? 194

Why The United States Imports T-Shirts 195

Why The United States Exports Airplanes 196

Winners, Losers, And The Net Gain

From Trade 197

Gains And Losses From Imports 197

Gains And Losses From Exports 198

Gains For All 198

International Trade Restrictions 199

Tariffs 199

Import Quotas 202

Other Import Barriers 205

Export Subsidies 205

The Case Against Protection 206

Helps An Infant Industry Grow 206

Counteracts Dumping 206

Saves Domestic Jobs 206

Allows Us To Compete With Cheap Foreign Labor 206

Penalizes Lax Environmental Standards 207

Prevents Rich Countries From Exploiting Developing Countries 207

Reduces Offshore Outsourcing That Sends Good

U.S. Jobs To Other Countries 207

Avoiding Trade Wars 208

Why Is International Trade Restricted? 208

Compensating Losers 209

■ Economics In Action, 194, 200, 205

■ At Issue, 208

■ Economics In The News, 204, 210

Part Two Wrap-Up ◆

Understanding How Markets Work

The Amazing Market 217

Talking With Susan Athey 218

Part Three

Households’ Choices 219

Chapter 8 ◆ Utility And Demand 219

Consumption Choices 220

Consumption Possibilities 220

Preferences 221

Utility-Maximizing Choice 223

A Spreadsheet Solution 223

Choosing At The Margin 224

The Power Of Marginal Analysis 226

Revealing Preferences 226

Predictions Of Marginal Utility Theory 227

A Fall In The Price Of A Movie 227

A Rise In The Price Of Soda 229

A Rise In Income 230

The Paradox Of Value 231

Temperature: An Analogy 232

New Ways Of Explaining Consumer Choices 234

Behavioral Economics 234

Neuroeconomics 235

Controversy 235

■ Economics In Action, 232

■ Economics In The News, 236

Chapter 9 ◆ Possibilities, Preferences, And Choices 243

Consumption Possibilities 244

Budget Line 244

Budget Equation 245

Preferences And Indifference Curves 247

Marginal Rate Of Substitution 248

Degree Of Substitutability 249

Predicting Consumer Choices 250

Best Affordable Choice 250

A Change In Price 251

A Change In Income 253

Substitution Effect And Income Effect 254

■ Economics In Action, 252

■ Economics In The News, 256

Part Three Wrap-Up ◆

Understanding Households’ Choices

Making The Most Of Life 263

Talking With

Steven D. Levitt 264

Part Four

Firms And Markets 265

Chapter 10 ◆ Organizing Production 265

The Firm And Its Economic Problem 266

The Firm’s Goal 266

Accounting Profit 266

Economic Accounting 266

A Firm’s Opportunity Cost Of Production 266

Economic Accounting: A Summary 267

The Firm’s Decisions 267

The Firm’s Constraints 268

Technological And Economic Efficiency 269

Technological Efficiency 269

Economic Efficiency 269

Information And Organization 271

Command Systems 271

Incentive Systems 271

The Principal–Agent Problem 271

Coping With The Principal–Agent Problem 271

Types Of Business Organization 272

Pros And Cons Of Different Types Of Firms 273

Markets And The Competitive Environment 275

Measures Of Concentration 276

Limitations Of A Concentration Measure 278

Produce Or Outsource? Firms And Markets 280

Firm Coordination 280

Market Coordination 280

Why Firms? 280

■ Economics In Action, 274, 277, 279, 281

■ Economics In The News, 272, 282

Chapter 11 ◆ Output And Costs 289

Decision Time Frames 290

The Short Run 290

The Long Run 290

Short-Run Technology Constraint 291

Product Schedules 291

Product Curves 291

Total Product Curve 292

Marginal Product Curve 292

Average Product Curve 294

Short-Run Cost 295

Total Cost 295

Marginal Cost 296

Average Cost 296

Marginal Cost And Average Cost 296

Why The Average Total Cost Curve Is U-Shaped 296

Cost Curves And Product Curves 298

Shifts In The Cost Curves 300

Long-Run Cost 302

The Production Function 302

Short-Run Cost And Long-Run Cost 302

The Long-Run Average Cost Curve 304

Economies And Diseconomies Of Scale 304

■ Economics In Action, 294, 305

■ Economics In The News, 298, 306

Chapter 12 ◆ Perfect Competition 313

What Is Perfect Competition? 314

How Perfect Competition Arises 314

Price Takers 314

Economic Profit And Revenue 314

The Firm’s Decisions 315

The Firm’s Output Decision 316

Marginal Analysis And The Supply Decision 317

Temporary Shutdown Decision 318

The Firm’s Supply Curve 319

Output, Price, And Profit In The Short Run 320

Market Supply In The Short Run 320

Short-Run Equilibrium 321

A Change In Demand 321

Profits And Losses In The Short Run 321

Three Possible Short-Run Outcomes 322

Output, Price, And Profit In The Long Run 323

Entry And Exit 323

A Closer Look At Entry 324

A Closer Look At Exit 324

Long-Run Equilibrium 325

Changes In Demand And Supply As Technology Advances 326

A Decrease In Demand 326

An Increase In Demand 327

Technological Advances Change Supply 328

Competition And Efficiency 330

Efficient Use Of Resources 330

Choices, Equilibrium, And Efficiency 330

■ Economics In Action, 323, 325

■ Economics In The News, 327, 329, 332

Chapter 13 ◆ Monopoly 339

Monopoly And How It Arises 340

How Monopoly Arises 340

Monopoly Price-Setting Strategies 341

A Single-Price Monopoly’s Output And Price Decision 342

Price And Marginal Revenue 342

Marginal Revenue And Elasticity 343

Price And Output Decision 344

Single-Price Monopoly And Competition Compared 346

Comparing Price And Output 346

Efficiency Comparison 347

Redistribution Of Surpluses 348

Rent Seeking 348

Rent-Seeking Equilibrium 348

Price Discrimination 349

Two Ways Of Price Discriminating 349

Increasing Profit And Producer Surplus 350

A Price-Discriminating Airline 350

Efficiency And Rent Seeking With Price

Discrimination 353

Monopoly Regulation 355

Efficient Regulation Of A Natural Monopoly 355

Second-Best Regulation Of A Natural

Monopoly 356

■ Economics In Action, 341, 353

■ Economics In The News, 354, 358

Chapter 14 ◆ Monopolistic Competition 365

What Is Monopolistic Competition? 366

Large Number Of Firms 366

Product Differentiation 366

Competing On Quality, Price, And Marketing 366

Entry And Exit 367

Examples Of Monopolistic Competition 367

Price And Output In Monopolistic Competition 368

The Firm’s Short-Run Output And Price Decision 368

Profit Maximizing Might Be Loss Minimizing 368

Long Run: Zero Economic Profit 369

Monopolistic Competition And Perfect Competition 370

Is Monopolistic Competition Efficient? 371

Product Development And Marketing 372

Product Development 372

Advertising 372

Using Advertising To Signal Quality 374

Brand Names 375

Efficiency Of Advertising And Brand Names 375

■ Economics In Action, 367, 373

■ Economics In The News, 376

Chapter 15 ◆ Oligopoly 383

What Is Oligopoly? 384

Barriers To Entry 384

Small Number Of Firms 385

Examples Of Oligopoly 385

Oligopoly Games 386

What Is A Game? 386

The Prisoners’ Dilemma 386

An Oligopoly Price-Fixing Game 388

A Game Of Chicken 393

Repeated Games And Sequential Games 394

A Repeated Duopoly Game 394

A Sequential Entry Game In A Contestable Market 396

Antitrust Law 398

The Antitrust Laws 398

Price Fixing Always Illegal 399

Three Antitrust Policy Debates 399

Mergers And Acquisitions 401

■ Economics In Action, 385, 392, 400, 401

■ Economics In The News, 395, 402

Part Four Wrap-Up ◆

Understanding Firms And Markets

Managing Change And Limiting Market Power 409

Talking With Thomas Hubbard 410

Part Five

Market Failure And Government 411

Chapter 16 ◆ Public Choices,

Public Goods, And Healthcare 411

Public Choices 412

Why Governments? 412

Public Choice And The Political Marketplace 412

Political Equilibrium 413

What Is A Public Good? 414

A Fourfold Classification 414

The Things Our Governments Buy 414

Providing Public Goods 416

The Free-Rider Problem 416

Marginal Social Benefit Of A Public Good 416

Marginal Social Cost Of A Public Good 417

Efficient Quantity Of A Public Good 417

Inefficient Private Provision 417

Efficient Public Provision 417

Inefficient Public Overprovision 419

The Economics Of Healthcare 420

Healthcare Market Failure 420

Alternative Public Choice Solutions 421

Better Solutions? 425

■ Economics In Action, 412, 415, 418, 421, 423

■ At Issue, 424

■ Economics In The News, 426

Chapter 17 ◆ Externalities 433

Externalities In Our Lives 434

Negative Production Externalities 434

Positive Production Externalities 434

Negative Consumption Externalities 434

Positive Consumption Externalities 434

Negative Externality: Pollution 436

Private, External, And Social Cost 436

Establish Property Rights 437

Mandate Clean Technology 438

Tax Or Cap And Price Pollution 439

Coping With Global Externalities 442

Negative Externality: The Tragedy Of The

Commons 443

Unsustainable Use Of A Common Resource 443

Inefficient Use Of A Common Resource 444

Achieving An Efficient Outcome 446

Positive Externality: Knowledge 448

Private Benefits And Social Benefits 448

Government Actions In The Market With External

Benefits 449

Illustrating An Efficient Outcome 449

Bureaucratic Inefficiency And Government

Failure 450

■ Economics In Action, 435, 440, 442, 445, 447 , 451

■ At Issue, 441

■ Economics In The News, 452

Part Five Wrap-Up ◆

Understanding Market Failure And Government We, The People, … 459

Talking With Caroline M. Hoxby 460

Part Six

Factor Markets, Inequality,

And Uncertainty 461

Chapter 18 ◆ Markets For Factors Of

Production 461

The Anatomy Of Factor Markets 462

Markets For Labor Services 462

Markets For Capital Services 462

Markets For Land Services And Natural Resources 462

Entrepreneurship 462

The Demand For A Factor Of Production 463

Value Of Marginal Product 463

A Firm’s Demand For Labor 463

A Firm’s Demand For Labor Curve 464

Changes In A Firm’s Demand For Labor 465

Labor Markets 466

A Competitive Labor Market 466

Differences And Trends In Wage Rates 468

A Labor Market With A Union 469

Capital And Natural Resource Markets 473

Capital Rental Markets 473

Land Rental Markets 473

Nonrenewable Natural Resource Markets 475

Mathematical Note

Present Value And Discounting 480

■ Economics In Action, 468, 477

■ At Issue, 471

■ Economics In The News, 474, 478

Chapter 19 ◆ Economic Inequality 487

Economic Inequality In The United States 488

The Distribution Of Income 488

The Income Lorenz Curve 489

The Distribution Of Wealth 490

Wealth Or Income? 490

Annual Or Lifetime Income And Wealth? 491

Trends In Inequality 491

Poverty 493

Inequality In The World Economy 495

Income Distributions In Selected Countries 495

Global Inequality And Its Trends 496

The Sources Of Economic Inequality 497

Human Capital 497

Discrimination 498

Contests Among Superstars 499

Unequal Wealth 500

Income Redistribution 501

Income Taxes 501

Income Maintenance Programs 501

Subsidized Services 501

The Big Tradeoff 502

■ Economics In Action, 492, 494, 502

■ Economics In The News, 504

Chapter 20 ◆ Uncertainty And

Information 511

Decisions In The Face Of Uncertainty 512

Expected Wealth 512

Risk Aversion 512

Utility Of Wealth 512

Expected Utility 513

Making A Choice With Uncertainty 514

Buying And Selling Risk 515

Insurance Markets 515

A Graphical Analysis Of Insurance 516

Risk That Can’t Be Insured 517

Private Information 518

Asymmetric Information: Examples And

Problems 518

The Market For Used Cars 518

The Market For Loans 521

The Market For Insurance 522

Uncertainty, Information, And The Invisible Hand 523

Information As A Good 523

Monopoly In Markets That Cope With Uncertainty 523

■ Economics In Action, 517, 522

■ Economics In The News, 524

Part Six Wrap-Up ◆

Understanding Factor Markets, Inequality,

And Uncertainty

For Whom? 531

Talking With

Raj Chetty 532

Part Seven

Monitoring Macroeconomic

Performance 533

Chapter 21 ◆ Measuring The Value Of

Production: Gdp 533

Gross Domestic Product 534

Gdp Defined 534

Gdp And The Circular Flow Of Expenditure And Income 534

Why “Domestic” And Why “Gross”? 536

Measuring U.S. Gdp 537

The Expenditure Approach 537

The Income Approach 538

Nominal Gdp And Real Gdp 539

Calculating Real Gdp 539

The Uses And Limitations Of Gdp 540

The Standard Of Living Over Time 540

The Standard Of Living Across Countries 542

Limitations Of Gdp 543

Appendix Graphs In Macroeconomics 548

The Time-Series Graph 548

Making A Time-Series Graph 548

Reading A Time-Series Graph 548

Ratio Scale Reveals Trend 549

A Time-Series With A Trend 549

Using A Ratio Scale 549

Mathematical Note

Chained-Dollar Real Gdp 550

■ Economics In Action, 545

■ At Issue, 544

■ Economics In The News, 546

Chapter 22 ◆ Monitoring Jobs And Inflation 557

Employment And Unemployment 558

Why Unemployment Is A Problem 558

Current Population Survey 559

Three Labor Market Indicators 559

Other Definitions Of Unemployment 561

Most Costly Unemployment 562

Alternative Measures Of Unemployment 562

Unemployment And Full Employment 563

Frictional Unemployment 563

Structural Unemployment 563

Cyclical Unemployment 563

“Natural” Unemployment 563

Real Gdp And Unemployment Over The Cycle 564

The Price Level, Inflation, And Deflation 566

Why Inflation And Deflation Are Problems 566

The Consumer Price Index 567

Reading The Cpi Numbers 567

Constructing The Cpi 567

Measuring The Inflation Rate 568

Distinguishing High Inflation From A High

Price Level 569

The Biased Cpi 569

Consequences And Magnitude Of Bias 570

Alternative Price Indexes 570

Core Inflation 571

■ Economics In Action, 558, 565, 570

■ Economics In The News, 572

Part Seven Wrap-Up ◆

Monitoring Macroeconomic Performance The Big Picture 579

Talking With

Dave Donaldson 580

Part Eight

Macroeconomic Trends 581

Chapter 23 ◆ Economic Growth 581

The Basics Of Economic Growth 582

Calculating Growth Rates 582

Economic Growth Versus Business Cycle Expansion 582

The Magic Of Sustained Growth 583

Applying The Rule Of 70 584

Long-Term Growth Trends 585

Long-Term Growth In The U.S. Economy 585

Real Gdp Growth In The World Economy 586

How Potential Gdp Grows 588

What Determines Potential Gdp? 588

What Makes Potential Gdp Grow? 590

Why Labor Productivity Grows 593

Preconditions For Labor Productivity Growth 593

Physical Capital Growth 593

Human Capital Growth 594

Technological Advances 594

Is Economic Growth Sustainable? Theories,

Evidence, And Policies 597

Classical Growth Theory 597

Neoclassical Growth Theory 597

New Growth Theory 598

New Growth Theory Versus Malthusian Theory 600

Sorting Out The Theories 600

The Empirical Evidence On The Causes Of Economic Growth 600

Policies For Achieving Faster Growth 600

■ Economics In Action, 587, 594, 595

■ Economics In The News, 596, 602

Part Eight

Macroeconomic Trends 581

Chapter 23 ◆ Economic Growth 581

The Basics Of Economic Growth 582

Calculating Growth Rates 582

Economic Growth Versus Business Cycle

Expansion 582

The Magic Of Sustained Growth 583

Applying The Rule Of 70 584

Long-Term Growth Trends 585

Long-Term Growth In The U.S. Economy 585

Real Gdp Growth In The World Economy 586

How Potential Gdp Grows 588

What Determines Potential Gdp? 588

What Makes Potential Gdp Grow? 590

Why Labor Productivity Grows 593

Preconditions For Labor Productivity

Growth 593

Physical Capital Growth 593

Human Capital Growth 594

Technological Advances 594

Is Economic Growth Sustainable? Theories,

Evidence, And Policies 597

Classical Growth Theory 597

Neoclassical Growth Theory 597

New Growth Theory 598

New Growth Theory Versus Malthusian

Theory 600

Sorting Out The Theories 600

The Empirical Evidence On The Causes Of

Economic Growth 600

Policies For Achieving Faster Growth 600

■ Economics In Action, 587, 594, 595

■ Economics In The News, 596, 602

Chapter 24 ◆ Finance, Saving, And

Investment 609

Financial Markets And Financial

Institutions 610

Finance And Money 610

Capital And Financial Capital 610

Capital And Investment 610

Wealth And Saving 610

Financial Capital Markets 611

Financial Institutions 612

Funds That Finance Investment 614

Financial Decisions And Risks 616

The Time Value Of Money 616

Net Present Value 616

The Decision Rule 616

Financial Risk: Insolvency And Illiquidity 616

Market Risk: Interest Rates And Asset Prices 617

Getting Real 617

The Loanable Funds Market 618

The Demand For Loanable Funds 618

The Supply Of Loanable Funds 618

Equilibrium In The Loanable Funds Market 619

Changes In Demand And Supply 620

Government In The Loanable Funds

Market 622

A Government Budget Surplus 622

A Government Budget Deficit 622

■ Economics In Action, 612, 613, 615, 620

■ Economics In The News, 624

Chapter 25 ◆ Money, The Price Level,

And Inflation 631

What Is Money? 632

Medium Of Exchange 632

Unit Of Account 632

Store Of Value 633

Money In The United States Today 633

Depository Institutions 635

Types Of Depository Institutions 635

What Depository Institutions Do 635

Economic Benefits Provided By Depository

Institutions 636

How Depository Institutions Are Regulated 636

Financial Technology 638

The Federal Reserve System 639

The Structure Of The Fed 639

The Fed’s Balance Sheet 640

The Fed’s Policy Tools 640

How Banks Create Money 642

Creating Deposits By Making Loans 642

The Money Creation Process 643

The Money Multiplier 644

The Money Market 646

The Demand For Money 646

Changes In The Demand For Money 646

The Supply Of Money 647

Money Market Equilibrium 648

The Quantity Theory Of Money 650

Mathematical Note

The Money Multiplier 654

■ Economics In Action, 633, 638, 641, 644, 650

■ At Issue, 637

■ Economics In The News, 645, 652

Chapter 26 ◆ The Exchange Rate

And The Balance

Of Payments 661

The Foreign Exchange Market 662

Trading Currencies 662

Exchange Rates 662

Questions About The U.S. Dollar Exchange

Rate 662

An Exchange Rate Is A Price 662

The Demand For One Money Is The Supply

Of Another Money 663

Demand In The Foreign Exchange Market 663

Demand Curve For U.S. Dollars 664

Supply In The Foreign Exchange Market 665

Supply Curve For U.S. Dollars 665

Market Equilibrium 666

Changes In The Demand For U.S. Dollars 666

Changes In The Supply Of U.S. Dollars 667

Changes In The Exchange Rate 668

Arbitrage, Speculation, And Market

Fundamentals 670

Arbitrage 670

Speculation 671

Market Fundamentals 672

Exchange Rate Policy 673

Flexible Exchange Rate 673

Fixed Exchange Rate 673

Crawling Peg 674

Financing International Trade 676

Balance Of Payments Accounts 676

Borrowers And Lenders 678

The Global Loanable Funds Market 678

Debtors And Creditors 679

Is U.S. Borrowing For Consumption? 679

Current Account Balance 680

Net Exports 680

Where Is The Exchange Rate? 681

■ Economics In Action, 663, 669, 671, 674,

677, 681

■ Economics In The News, 682

Part Eight Wrap-Up ◆

Understanding Macroeconomic Trends

Expanding The Frontier 689

Talking With

Xavier Sala-I-Martin 690

Part Nine

Macroeconomic Fluctuations 691

Chapter 27 ◆ Aggregate Supply And

Aggregate Demand 691

Aggregate Supply 692

Quantity Supplied And Supply 692

Long-Run Aggregate Supply 692

Short-Run Aggregate Supply 693

Changes In Aggregate Supply 694

Aggregate Demand 696

The Aggregate Demand Curve 696

Changes In Aggregate Demand 697

Explaining Macroeconomic Trends And

Fluctuations 700

Short-Run Macroeconomic Equilibrium 700

Long-Run Macroeconomic Equilibrium 700

Economic Growth And Inflation In The As-Ad

Model 701

The Business Cycle In The As-Ad Model 702

Fluctuations In Aggregate Demand 704

Fluctuations In Aggregate Supply 705

Macroeconomic Schools Of Thought 706

The Classical View 706

The Keynesian View 706

The Monetarist View 707

The Way Ahead 707

■ Economics In Action, 698, 701, 702

■ Economics In The News, 708

Chapter 28 ◆ Expenditure

Multipliers 715

Fixed Prices And Expenditure Plans 716

Expenditure Plans 716

Consumption And Saving Plans 716

Marginal Propensities To Consume And Save 718

Slopes And Marginal Propensities 718

Consumption As A Function Of Real Gdp 719

Import Function 719

Real Gdp With A Fixed Price Level 720

Aggregate Planned Expenditure 720

Actual Expenditure, Planned Expenditure, And

Real Gdp 721

Equilibrium Expenditure 722

Convergence To Equilibrium 723

The Multiplier 724

The Basic Idea Of The Multiplier 724

The Multiplier Effect 724

Why Is The Multiplier Greater Than 1? 725

The Size Of The Multiplier 725

The Multiplier And The Slope Of The Ae

Curve 726

Imports And Income Taxes 727

The Multiplier Process 727

Business Cycle Turning Points 728

The Multiplier And The Price Level 729

Adjusting Quantities And Prices 729

Aggregate Expenditure And Aggregate

Demand 729

Deriving The Aggregate Demand Curve 729

Changes In Aggregate Expenditure And Aggregate

Demand 730

Equilibrium Real Gdp And The Price Level 731

Mathematical Note

The Algebra Of The Keynesian Model 736

■ Economics In Action, 719, 728

■ Economics In The News, 734

Chapter 29 ◆ The Business Cycle,

Inflation, And

Deflation 745

The Business Cycle 746

Mainstream Business Cycle Theory 746

Real Business Cycle Theory 747

Inflation Cycles 751

Demand-Pull Inflation 751

Cost-Push Inflation 753

Expected Inflation 755

Forecasting Inflation 756

Inflation And The Business Cycle 756

Deflation 757

What Causes Deflation? 757

What Are The Consequences Of Deflation? 759

How Can Deflation Be Ended? 759

The Phillips Curve 760

The Short-Run Phillips Curve 760

The Long-Run Phillips Curve 760

■ Economics In Action, 748, 758, 761

■ Economics In The News, 762

Part Nine Wrap-Up ◆

Understanding Macroeconomic Fluctuations

Boom And Bust 769

Talking With

Emi Nakamura 770

Part Ten

Macroeconomic Policy 771

Chapter 30 ◆ Fiscal Policy 771

The Federal Budget 772

The Institutions And Laws 772

Highlights Of The 2022 Budget 773

The Budget In Historical Perspective 774

Budget Balance And Debt 776

State And Local Budgets 777

Supply-Side Effects Of Fiscal Policy 778

Full Employment And Potential Gdp 778

The Effects Of The Income Tax 778

Taxes On Expenditure And The Tax Wedge 779

Taxes And The Incentive To Save And Invest 780

Tax Revenues And The Laffer Curve 781

The Supply-Side Debate 781

Generational Effects Of Fiscal Policy 782

Generational Accounting And Present Value 782

The Social Security Time Bomb 782

Generational Imbalance 783

International Debt 783

Fiscal Stimulus 784

Automatic Fiscal Policy And Cyclical And

Structural Budget Balances 784

Discretionary Fiscal Stimulus 787

■ Economics In Action, 777, 779, 786, 788

■ Economics In The News, 790

Chapter 31 ◆ Monetary Policy 797

Monetary Policy Objectives And Framework 798

Monetary Policy Objectives 798

Operational “Stable Prices” Goal 799

Operational “Maximum Employment” Goal 799

Responsibility For Monetary Policy 800

The Conduct Of Monetary Policy 800

The Monetary Policy Instruments 800

Monetary Policy Decisions 801

Hitting The Federal Funds Rate Target 803

Monetary Policy Transmission 805

Quick Overview 805

Changes In Interest Rates 806

Changes In Money And Loans 806

Changes In Real Gdp, Unemployment,

And Inflation 807

The Change In Aggregate Demand, Real Gdp,

And The Price Level 807

The Fed Fights Recession 808

The Fed Fights Inflation 810

Loose Links And Long And Variable Lags 811

Policy Strategies And Clarity 812

Financial Crisis: Cure And Prevention 814

The Anatomy Of The Financial Crisis 814

The Fed’s Policy Actions In Crisis 814

Congress’s Policy Actions In Crisis 814

Macroprudential Regulation 815

■ Economics In Action, 812

■ At Issue, 804

■ Economics In The News, 816

Part Ten Wrap-Up ◆

Understanding Macroeconomic Policy

Tradeoffs And Free Lunches 823

Talking With

Stephanie Schmitt-Grohé 824

Glossary G-1

Index I-1

Credits C-1

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