Essentials of Economics, 10th Edition PDF by Gregory Mankiw


Essentials of Economics, 10th Edition

By Gregory Mankiw

Essentials of Economics, 10th Edition PDF by Gregory Mankiw


Preface: To the Instructor v

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 6

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 8

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

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

2-1e Our Second Model: The Production

Possibilities Frontier 22

2-1f Microeconomics and Macroeconomics 24

2-2 The Economist as Policy Adviser 25

In the News: Why Tech Companies Hire Economists 26

2-2a Positive versus Normative Analysis 26

2-2b Economists in Washington 28

2-2c Why Economists’ Advice Is Often Not Followed 29

2-3 Why Economists Disagree 30

2-3a Differences in Scientific Judgments 30

2-3b Differences in Values 30

2-3c Perception versus Reality 31

Ask the Experts: Ticket Resale 31

2-4 Let’s Get Going 32

Chapter in a Nutshell 32

Key Concepts 33

Questions for Review 33

Problems and Applications 33

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 53

3-3a Should Naomi Osaka Mow Her 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 70

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 82

Ask the Experts: Price Gouging 82

Chapter in a Nutshell 83

Key Concepts 83

Questions for Review 84

Problems and Applications 84

Quick Quiz Answers 85

Chapter 5

Elasticity and Its Application 87

5-1 The Elasticity of Demand 88

5-1a The Price Elasticity of Demand and Its Determinants 88

5-1b The Price Elasticity of Demand, with Numbers 89

5-1c The Midpoint Method: A Better Way to Calculate

Percentage Changes and Elasticities 89

5-1d The Variety of Demand Curves 90

5-1e Total Revenue and the Price Elasticity of Demand 91

FYI: A Few Elasticities from the Real World 91

5-1f Elasticity and Total Revenue along

a Linear Demand Curve 94

5-1g Other Demand Elasticities 96

5-2 The Elasticity of Supply 97

5-2a The Price Elasticity of Supply and Its Determinants 97

5-2b The Price Elasticity of Supply, with Numbers 98

5-2c The Variety of Supply Curves 98

5-3 Three Applications of Supply, Demand, and Elasticity 100

5-3a Can Good News for Farming Be Bad News

for Farmers? 101

5-3b Why Has OPEC Failed to Keep the Price of

Oil High? 103

5-3c Does Drug Interdiction Increase or Decrease

Drug-Related Crime? 104

In the News: Elasticity of Supply and Demand

in the Ride-share Market 106

5-4 Conclusion 108

Chapter in a Nutshell 108

Key Concepts 108

Questions for Review 108

Problems and Applications 109

Quick Quiz Answers 110

Chapter 6

Supply, Demand, and Government

Policies 111

6-1 The Surprising Effects of Price Controls 112

6-1a How Price Ceilings Affect Market Outcomes 112

Case Study: How to Create Long Lines

at the Gas Pump 114

Case Study: Why Rent Control Causes Housing Shortages,

Especially in the Long Run 115

Ask the Experts: Rent Control 116

6-1b How Price Floors Affect Market Outcomes 116

Case Study: Controversies over the Minimum Wage 118

Ask the Experts: The Minimum Wage 120

6-1c Evaluating Price Controls 120

6-2 The Surprising Study of Tax Incidence 121

6-2a How Taxes on Sellers Affect Market Outcomes 121

In the News: Should the Minimum Wage

Be $15 an Hour? 122

6-2b How Taxes on Buyers Affect Market Outcomes 124

Case Study: Can Congress Distribute the Burden

of a Payroll Tax? 126

6-2c Elasticity and Tax Incidence 127

Case Study: Who Pays the Luxury Tax? 128

6-3 Conclusion 129

Chapter in a Nutshell 129

Key Concepts 130

Questions for Review 130

Problems and Applications 130

Quick Quiz Answers 131

Part III Markets and

Welfare 133

Chapter 7

Consumers, Producers, and the

Efficiency of Markets 133

7-1 Consumer Surplus 134

7-1a Willingness to Pay 134

7-1b Using the Demand Curve to Measure

Consumer Surplus 135

7-1c How a Lower Price Raises Consumer Surplus 137

7-1d What Does Consumer Surplus Measure? 138

7-2 Producer Surplus 139

7-2a Cost and the Willingness to Sell 139

7-2b Using the Supply Curve to Measure Producer Surplus 140

7-2c How a Higher Price Raises Producer Surplus 141

7-3 Market Efficiency 143

7-3a Benevolent Social Planners 143

7-3b Evaluating the Market Equilibrium 144

Ask the Experts: Supplying Kidneys 146

Case Study: Should There Be a Market for Organs? 146

7-4 Conclusion: Market Efficiency and Market Failure 147

In the News: How Ticket Resellers Help Allocate

Scarce Resources 148

Chapter in a Nutshell 150

Key Concepts 150

Questions for Review 150

Problems and Applications 150

Quick Quiz Answers 152

Chapter 8

Application: The Costs of Taxation 153

8-1 The Deadweight Loss of Taxation 154

8-1a How a Tax Affects Market Participants 154

8-1b Deadweight Losses and the Gains from Trade 157

8-2 The Determinants of the Deadweight Loss 158

Case Study: The Deadweight Loss Debate 160

8-3 Deadweight Loss and Tax Revenue as Taxes Vary 162

Case Study: The Laffer Curve and Supply-Side

Economics 163

Ask the Experts: The Laffer Curve 164

8-4 Conclusion 165

Chapter in a Nutshell 165

Key Concept 166

Questions for Review 166

Problems and Applications 166

Quick Quiz Answers 167

Chapter 9

Application: International Trade 169

9-1 The Determinants of Trade 170

9-1a The Equilibrium without Trade 170

9-1b The World Price and Comparative Advantage 171

9-2 The Winners and Losers from Trade 171

9-2a The Gains and Losses of an Exporting Country 172

9-2b The Gains and Losses of an Importing Country 173

9-2c The Effects of a Tariff 175

FYI: Import Quotas: Another Way to Restrict Trade 177

9-2d The Lessons for Trade Policy 177

9-2e Other Benefits of International Trade 178

9-3 The Arguments for Restricting Trade 179

9-3a The Jobs Argument 180

9-3b The National-Security Argument 180

9-3c The Infant-Industry Argument 180

9-3d The Unfair-Competition Argument 181

9-3e The Protection-as-a-Bargaining-Chip Argument 181

Case Study: Trade Agreements and the World Trade

Organization 181

Ask the Experts: Trade Deals and Tariffs 181

In the News: Trade as a Tool for Economic Development 182

9-4 Conclusion 184

Chapter in a Nutshell 185

Key Concepts 185

Questions for Review 185

Problems and Applications 186

Quick Quiz Answers 187

Part IV The Economics

of the Public Sector 189

Chapter 10

Externalities 189

10-1 Externalities and Market Inefficiency 191

10-1a Welfare Economics: A Recap 191

10-1b Negative Externalities 192

10-1c Positive Externalities 193

Case Study: Technology Spillovers, Industrial Policy,

and Patent Protection 194

10-2 Public Policies toward Externalities 195

10-2a Command-and-Control Policies: Regulation 195

10-2b Market-Based Policy 1: Corrective Taxes

and Subsidies 196

Ask the Experts: Covid Vaccines 196

Case Study: Why Is Gasoline Taxed So Heavily? 197

10-2c Market-Based Policy 2: Tradable Pollution Permits 199

10-2d Objections to the Economic Analysis of Pollution 201

Case Study: Climate Change and Carbon Taxes 201

Ask the Experts: Carbon Taxes 202

10-3 Private Solutions to Externalities 203

10-3a The Types of Private Solutions 203

10-3b The Coase Theorem 204

10-3c Why Private Solutions Do Not Always Work 205

In the News: The Coase Theorem in Action 206

10-4 Conclusion 206

Chapter in a Nutshell 207

Key Concepts 208

Questions for Review 208

Problems and Applications 208

Quick Quiz Answers 209

Chapter 11

Public Goods and Common

Resources 211

11-1 The Different Kinds of Goods 212

11-2 Public Goods 214

11-2a The Free-Rider Problem 214

11-2b Some Important Public Goods 214

Case Study: Are Lighthouses Public Goods? 216

11-2c The Difficult Job of Cost–Benefit Analysis 217

Case Study: How Much Is a Life Worth? 217

11-3 Common Resources 218

11-3a The Tragedy of the Commons 218

11-3b Some Important Common Resources 219

Ask the Experts: Congestion Pricing 220

Case Study: Why the Cow Is Not Extinct 221

In the News: Road Pricing 222

11-4 Conclusion: Property Rights and Government Action 222

Chapter in a Nutshell 224

Key Concepts 224

Questions for Review 224

Problems and Applications 224

Quick Quiz Answers 226

Part V Firm Behavior and the

Organization of Industry 227

Chapter 12

The Costs of Production 227

12-1 What Are Costs? 228

12-1a Total Revenue, Total Cost, and Profit 228

12-1b Why Opportunity Costs Matter 228

12-1c The Cost of Capital Is an Opportunity Cost 229

12-1d Economists and Accountants Measure Profit

Differently 229

12-2 Production and Costs 231

12-2a The Production Function 231

12-2b From the Production Function

to the Total-Cost Curve 233

12-3 The Many Measures of Cost 234

12-3a Fixed and Variable Costs 235

12-3b Average and Marginal Cost 235

12-3c Cost Curves and Their Shapes 236

12-3d Typical Cost Curves 238

12-4 Costs in the Short Run and in the Long Run 240

12-4a The Relationship between Short-Run and Long-Run

Average Total Cost 240

12-4b Economies and Diseconomies of Scale 241

FYI: Lessons from a Pin Factory 241

12-5 Conclusion 242

Chapter in a Nutshell 243

Key Concepts 243

Questions for Review 243

Problems and Applications 244

Quick Quiz Answers 245

Chapter 13

Firms in Competitive Markets 247

13-1 What Is a Competitive Market? 248

13-1a The Meaning of Competition 248

13-1b The Revenue of a Competitive Firm 248

13-2 Profit Maximization and the Competitive

Firm’s Supply Curve 250

13-2a A Simple Example of Profit Maximization 250

13-2b The Marginal-Cost Curve and the Firm’s Supply

Decision 252

13-2c The Firm’s Short-Run Decision to Shut Down 254

13-2d Spilt Milk and Other Sunk Costs 255

Case Study: Near-Empty Restaurants and Off-Season

Miniature Golf 256

13-2e The Firm’s Long-Run Decision to Exit

or Enter a Market 257

13-2f Measuring Profit in Our Graph for the

Competitive Firm 257

13-2g A Brief Recap 259

13-3 The Supply Curve in a Competitive Market 260

13-3a The Short Run: Market Supply with a Fixed

Number of Firms 260

13-3b The Long Run: Market Supply with Entry and Exit 260

13-3c Why Do Competitive Firms Stay in Business If They

Make Zero Profit? 262

13-3d A Shift in Demand in the Short Run and Long

Run 263

13-3e Why the Long-Run Supply Curve Might Slope

Upward 263

13-4 Conclusion: Behind the Supply Curve 265

Chapter in a Nutshell 266

Key Concepts 266

Questions for Review 266

Problems and Applications 267

Quick Quiz Answers 269

Chapter 14

Monopoly 271

14-1 Why Monopolies Arise 272

14-1a Monopoly Resources 273

14-1b Government-Created Monopolies 273

14-1c Natural Monopolies 274

14-2 How Monopolies Make Production and Pricing

Decisions 275

14-2a Monopoly versus Competition 275

14-2b A Monopoly’s Revenue 276

14-2c Profit Maximization 278

FYI: Why a Monopoly Does Not Have a Supply Curve 280

14-2d A Monopoly’s Profit 280

Case Study: Monopoly Drugs versus Generic Drugs 281

14-3 The Welfare Cost of Monopolies 283

14-3a The Deadweight Loss 283

14-3b The Monopoly’s Profit: A Social Cost? 285

14-4 Price Discrimination 286

14-4a A Parable about Pricing 286

14-4b The Moral of the Story 287

14-4c The Analytics of Price Discrimination 288

14-4d Examples of Price Discrimination 289

14-5 Public Policy toward Monopolies 290

14-5a Increasing Competition with Antitrust Laws 291

14-5b Regulation 291

Ask the Experts: Mergers and Competition 292

14-5c Public Ownership 293

14-5d Above All, Do No Harm 293

In the News: Will the Biden Administration Expand the Scope

of Antitrust Policy? 294

14-6 Conclusion: The Prevalence of Monopolies 294

Chapter in a Nutshell 296

Key Concepts 297

Questions for Review 297

Problems and Applications 297

Quick Quiz Answers 300

Part VI The Data of

Macroeconomics 301

Chapter 15

Measuring a Nation’s Income 301

15-1 The Economy’s Income and Expenditure 302

15-2 The Measurement of GDP 304

15-2a “GDP Is the Market Value . . .” 304

15-2b “. . . of All . . .” 304

15-2c “. . . Final . . .” 305

15-2d “. . . Goods and Services . . .” 305

15-2e “. . . Produced . . .” 305

15-2f “. . . Within a Country . . .” 305

15-2g “. . . In a Given Period.” 305

FYI: Other Measures of Income 306

15-3 The Components of GDP 307

15-3a Consumption 307

15-3b Investment 307

15-3c Government Purchases 308

15-3d Net Exports 308

Case Study: The Components of U.S. GDP 309

15-4 Real versus Nominal GDP 310

15-4a A Numerical Example 310

15-4b The GDP Deflator 311

Case Study: A Half Century of Real GDP 312

15-5 Is GDP a Good Measure of Economic Well-Being? 314

Case Study: International Differences in GDP and the

Quality of Life 315

In the News: Sex, Drugs, and GDP 316

15-6 Conclusion 317

Chapter in a Nutshell 318

Key Concepts 318

Questions for Review 318

Problems and Applications 318

Quick Quiz Answers 320

Chapter 16

Measuring the Cost of Living 321

16-1 The Consumer Price Index 322

16-1a How the CPI Is Calculated 322

FYI: What’s in the CPI’s Basket? 324

16-1b Problems in Measuring the Cost of Living 325

16-1c The GDP Deflator versus the Consumer Price

Index 326

16-2 Correcting Economic Variables for the

Effects of Inflation 328

16-2a Dollar Figures from Different Times 328

FYI: Mr. Index Goes to Hollywood 329

Case Study: Regional Differences in the Cost of

Living 329

16-2b Indexation 331

16-2c Real and Nominal Interest Rates 331

Case Study: Interest Rates in the U.S. Economy 332

16-3 Conclusion 334

Chapter in a Nutshell 335

Key Concepts 335

Questions for Review 335

Problems and Applications 336

Quick Quiz Answers 337

Part VII The Real Economy

in the Long Run 339

Chapter 17

Production and Growth 339

17-1 Economic Growth around the World 340

FYI: Are You Richer Than the Richest American? 342

17-2 Productivity: Its Role and Determinants 342

17-2a Why Productivity Is So Important 343

17-2b How Productivity Is Determined 343

FYI: The Production Function 345

Case Study: Are Natural Resources a Limit

to Growth? 346

17-3 Economic Growth and Public Policy 347

17-3a Saving and Investment 347

17-3b Diminishing Returns and the Catch-Up Effect 347

17-3c Investment from Abroad 349

17-3d Education 350

17-3e Health and Nutrition 350

17-3f Property Rights and Political Stability 351

17-3g Free Trade 352

17-3h Research and Development 352

17-3i Population Growth 353

Ask the Experts: Innovation and Growth 353

Case Study: Why Is So Much of Africa Poor? 355

In the News: The Secret Sauce of American Prosperity 358

17-4 Conclusion: The Importance of Long-Run Growth 358

Chapter in a Nutshell 359

Key Concepts 360

Questions for Review 360

Problems and Applications 360

Quick Quiz Answers 361

Chapter 18

Saving, Investment, and the Financial

System 363

18-1 Financial Institutions in the U.S. Economy 364

18-1a Financial Markets 364

18-1b Financial Intermediaries 366

18-1c Summing Up 368

18-2 Saving and Investment in the National Income Accounts 368

18-2a Some Important Identities 369

18-2b The Meaning of Saving and Investment 370

18-3 The Market for Loanable Funds 371

18-3a Supply and Demand for Loanable Funds 371

18-3b Policy 1: Saving Incentives 373

18-3c Policy 2: Investment Incentives 375

Case Study: The Decline in Real Interest Rates

from 1984 to 2020 376

18-3d Policy 3: Government Budget Deficits and Surpluses 377

Case Study: The History of U.S. Government Debt 379

Ask the Experts: Fiscal Policy and Saving 379

FYI: Financial Crises 381

18-4 Conclusion 382

Chapter in a Nutshell 382

Key Concepts 382

Questions for Review 383

Problems and Applications 383

Quick Quiz Answers 384

Chapter 19

The Basic Tools of Finance 385

19-1 Present Value: Measuring the Time Value of Money 386

FYI: The Magic of Compounding and the Rule of 70 388

19-2 Managing Risk 388

19-2a Risk Aversion 389

19-2b The Markets for Insurance 389

19-2c Diversification of Firm-Specific Risk 390

19-2d The Trade-Off between Risk and Return 391

19-3 Asset Valuation 393

19-3a Fundamental Analysis 393

FYI: Key Numbers for Stock Watchers 394

19-3b The Efficient Markets Hypothesis 394

Case Study: Random Walks and Index Funds 395

Ask the Experts: Diversified Investing 396

In the News: The Perils of Investing with

a Y Chromosome 396

19-3c Market Irrationality 397

19-4 Conclusion 398

Chapter in a Nutshell 399

Key Concepts 399

Questions for Review 399

Problems and Applications 399

Quick Quiz Answers 400

Chapter 20

Unemployment 401

20-1 Identifying Unemployment 402

20-1a How Is Unemployment Measured? 402

Case Study: Labor-Force Participation of Women

and Men in the U.S. Economy 405

20-1b Does the Unemployment Rate Measure What

We Want It to Measure? 406

20-1c How Long Are the Unemployed without Work? 406

20-1d Why Are There Always Some People

Unemployed? 408

FYI: The Jobs Number 408

20-2 Job Search 409

20-2a Why Some Frictional Unemployment Is Inevitable 409

20-2b Public Policy and Job Search 410

20-2c Unemployment Insurance 410

20-3 Minimum-Wage Laws 412

Case Study: Who Earns the Federal Minimum Wage? 413

20-4 Unions and Collective Bargaining 414

20-4a The Economics of Unions 414

20-4b Are Unions Good or Bad for the Economy? 415

FYI: Mismatch as a Source of Structural Unemployment 416

20-5 The Theory of Efficiency Wages 417

20-5a Worker Health 417

20-5b Worker Turnover 417

20-5c Worker Quality 417

20-5d Worker Effort 418

20-5e Worker Morale 418

Case Study: Henry Ford and the Amazing

$5-a-Day Wage 418

In the News: Efficiency Wages in Practice 420

20-6 Conclusion 420

Chapter in a Nutshell 421

Key Concepts 422

Questions for Review 422

Problems and Applications 422

Quick Quiz Answers 423

Part VIII Money and Prices in

the Long Run 425

Chapter 21

The Monetary System 425

21-1 The Meaning of Money 426

21-1a The Functions of Money 426

21-1b The Kinds of Money 427

FYI: Cryptocurrencies: A Fad or the Future? 428

21-1c Money in the U.S. Economy 428

FYI: Why Credit Cards Aren’t Money 429

Case Study: Where Is All the Currency? 430

21-2 The Federal Reserve System 430

21-2a The Fed’s Organization 430

21-2b The Federal Open Market Committee 431

21-3 Banks and the Money Supply 432

21-3a The Simple Case of 100-Percent-Reserve Banking 432

21-3b Money Creation with Fractional-

Reserve Banking 433

21-3c The Money Multiplier 434

21-3d Bank Capital, Leverage, and the Financial Crisis

of 2008–2009 435

21-4 The Fed’s Tools of Monetary Control 437

21-4a How the Fed Influences the Quantity

of Reserves 438

21-4b How the Fed Influences the Reserve Ratio 439

21-4c Problems in Controlling the Money Supply 440

Case Study: Bank Runs and the Money Supply 441

21-4d The Federal Funds Rate 442

In the News: A Trip to Jekyll Island 442

21-5 Conclusion 444

Chapter in a Nutshell 445

Key Concepts 445

Questions for Review 445

Problems and Applications 446

Quick Quiz Answers 447

Chapter 22

Money Growth and Inflation 449

22-1 The Classical Theory of Inflation 450

22-1a The Level of Prices and the Value of Money 451

22-1b Money Supply, Money Demand, and Monetary

Equilibrium 451

22-1c The Effects of a Monetary Injection 452

22-1d A Brief Look at the Adjustment Process 453

22-1e The Classical Dichotomy and Monetary Neutrality 455

22-1f Velocity and the Quantity Equation 456

Case Study: Money and Prices during Four

Hyperinflations 458

22-1g The Inflation Tax 459

22-1h The Fisher Effect 460

22-2 The Costs of Inflation 462

22-2a A Fall in Purchasing Power? The Inflation Fallacy 462

22-2b Shoeleather Costs 463

22-2c Menu Costs 464

22-2d Relative-Price Variability and the Misallocation of

Resources 464

22-2e Inflation-Induced Tax Distortions 465

22-2f Confusion and Inconvenience 466

22-2g A Special Cost of Unexpected Inflation: Arbitrary

Redistributions of Wealth 467

22-2h Inflation Is Bad, but Deflation May Be Worse 467

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

Debate 468

In the News: Life during Hyperinflation 470

22-3 Conclusion 470

Chapter in a Nutshell 472

Key Concepts 472

Questions for Review 472

Problems and Applications 472

Quick Quiz Answers 473

Part IX Short-Run Economic

Fluctuations 475

Chapter 23

Aggregate Demand and Aggregate

Supply 475

23-1 Three Key Facts about Economic Fluctuations 476

23-1a Fact 1: Economic Fluctuations Are Irregular

and Unpredictable 476

23-1b Fact 2: Most Macroeconomic Quantities

Fluctuate Together 478

23-1c Fact 3: As Output Falls, Unemployment Rises 478

23-2 Explaining Short-Run Economic Fluctuations 479

23-2a The Assumptions of Classical Economics 479

23-2b The Reality of Short-Run Fluctuations 479

23-2c The Model of Aggregate Demand and Aggregate

Supply 480

23-3 The Aggregate-Demand Curve 481

23-3a Why the Aggregate-Demand Curve

Slopes Downward 481

23-3b Why the Aggregate-Demand Curve Might Shift 484

23-4 The Aggregate-Supply Curve 486

23-4a Why the Aggregate-Supply Curve Is Vertical in

the Long Run 487

23-4b Why the Long-Run Aggregate-Supply

Curve Might Shift 488

23-4c Using Aggregate Demand and Aggregate Supply to

Depict Long-Run Growth and Inflation 489

23-4d Why the Aggregate-Supply Curve Slopes Upward in

the Short Run 490

23-4e Why the Short-Run Aggregate-Supply

Curve Might Shift 494

23-5 Two Causes of Economic Fluctuations 495

23-5a The Effects of a Shift in Aggregate Demand 496

FYI: Monetary Neutrality Revisited 499

Case Study: Two Big Shifts in Aggregate Demand: The Great

Depression and World War II 499

Case Study: The Great Recession of 2008–2009 500

23-5b The Effects of a Shift in Aggregate Supply 502

Case Study: Oil and the Economy 504

FYI: The Origins of the Model of Aggregate Demand and

Aggregate Supply 505

Case Study: The Covid Recession of 2020 506

In the News: The Strange Downturn of 2020 506

23-6 Conclusion 509

Chapter in a Nutshell 509

Key Concepts 510

Questions for Review 510

Problems and Applications 510

Quick Quiz Answers 512

Chapter 24

The Influence of Monetary and Fiscal

Policy on Aggregate Demand 513

24-1 How Monetary Policy Influences Aggregate Demand 514

24-1a The Theory of Liquidity Preference 515

FYI: Interest Rates in the Long Run and

the Short Run 517

24-1b The Downward Slope of the Aggregate-Demand

Curve 518

24-1c Changes in the Money Supply 519

24-1d The Role of Interest-Rate Targets in Fed Policy 520

Case Study: Why the Fed Watches the Stock Market (and

Vice Versa) 521

24-1e The Zero Lower Bound 522

24-2 How Fiscal Policy Influences Aggregate Demand 523

24-2a Changes in Government Purchases 523

24-2b The Multiplier Effect 524

24-2c A Formula for the Spending Multiplier 524

24-2d Other Applications of the Multiplier Effect 526

24-2e The Crowding-Out Effect 526

24-2f Changes in Taxes 528

FYI: How Fiscal Policy Might Affect Aggregate Supply 529

24-3 Using Policy to Stabilize the Economy 529

24-3a The Case for Active Stabilization Policy 530

Case Study: Keynesians in the White House 531

24-3b The Case against Active Stabilization Policy 531

Ask the Experts: Economic Stimulus 531

24-3c Automatic Stabilizers 533

24-4 Conclusion 534

Chapter in a Nutshell 534

Key Concepts 534

Questions for Review 535

Problems and Applications 535

Quick Quiz Answers 536

Glossary 537

Index 543

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