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1.1 | Overview |
| What Is Macroeconomics |
| Box 1.1 Economic Policy and Political Popularity |
| Macroeconomic Policy |
| Box 1.2 Macroeconomic Policy and Your Quality of Life |
| Macroeconomics versus Microeconomics |
| 1.2 | Tracking the Economy |
| Economic Statistics and Economic Activity |
| Six Key Variables |
| Box 1.3 U.S. Real GDP per Worker |
| Box 1.4 The U.S. Unemployment Rate in the Twentieth Century |
| Box 1.5 U.S. Inflation Rates in the Twentieth Century |
| Box 1.6 Real Interest Rates |
| Box 1.7 The Stock Market |
| Box 1.8 The Exchange Rate |
| 1.3 | The Current Macroeconomic Situation |
| The United States |
| Europe and Japan |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 2.1 | The Importance of Data |
| 2.2 | The Exchange Rate |
| Nominal versus Real Exchange Rates |
| Box 2.1 Calculating the Real Exchange Rate: An example |
| 2.3 | The Stock Market and Interest Rates |
| The Stock Market |
| Box 2.2 Calculating Real Interest Rates: An Example |
| Box 2.3 Some Useful Mathematical Tools |
| 2.4 | The Price Level and Inflation |
| The Consumer Price Index |
| Box 2.4 Calculating Price Indices: An Example |
| Box 2.5 Laspeyres and Paasche Index Numbers: The Details |
| The Inflation Rate |
| 2.5 | Unemployment |
| Calculating the Unemployment Rate |
| Okun’s Law |
| Box 2.6 Why the Okun’s Law Coefficient is so Large? |
| 2.6 | Real GDP |
| Calculating Real GDP |
| Real and Nominal GDP |
| Box 2.7 Weighing Goods and Services by Their Market Values: An Example |
| Box 2.8 Weighing Goods and Services by Their Base-Year Values: An Example |
| Intermediate Goods, Inventories and Imputations |
| Components of Real GDP |
| What Is and Is Not in GDP |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 3.1 | Understanding Macroeconomics |
| Economics: Is it a Science? |
| Box 3.1 Expectations and the Coming of the Great Depression: An Example |
| 3.2 | The Circular Flow of Economic Activity |
| The Circular Flow Diagram |
| Different Measures of the Circular Flow |
| Box 3.2 Accounting Deficiencies and Statistical Discrepancies: Tools |
| 3.3 | Rhetoric Continued: Patterns of Economists’ Thought |
| Markets |
| Equilibrium |
| Graphs and Equations |
| Building Models |
| Solving Economic Models |
| Box 3.3 The Production Function: An Example of a Behavioral Relationship |
| Box 3.4 Working with Exponents: Some Tools |
| Box 3.5 An Example Equilibrium Condition: The Capital-Output Ratio |
| Box 3.6 Using Arithmetic to Determine Steady-State Output per Worker |
| Box 3.7 Using Algebra to Determine Steady-State Output per Worker |
| Box 3.8 Using Graphs and Geometry to Determine Steady-State Output per Worker |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 4.1 | Sources of Long-Run Growth |
| Better Technology |
| Capital Intensity |
| 4.2 | The Standard Growth Model |
| The Production Function |
| Box 4.1 Using the Production Function: An Example |
| The Rest of the Growth Model |
| Box 4.2 Investment, Depreciation and Capital Accumulation: An Example |
| 4.3 | Understanding the Growth Model |
| How Fast is the Economy Growing? |
| Box 4.3 The Growth of Capital per Worker: An Example |
| Box 4.4 The Growth of Output per Worker: An Example |
| Steady-State Growth Equilibrium |
| Box 4.5 Where the Growth Multiplier Comes From: The Details |
| Box 4.6 Converging to the Steady-State Balanced-Growth Path: An Example |
| Determining the Steady-State Capital-Output Ratio |
| Box 4.7 An Increase in Population Growth: An Example |
| Box 4.8 An Increase in the Savings Rate: An Example |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 5.1 | Before Modern Economic Growth |
| Before the Industrial Revolution |
| Premodern Economic “Growth” |
| The End of the Malthusian Age |
| 5.2 | Modern American Economic Growth |
| American Long Run Growth, 1800-1973 |
| American Economic Growth Since 1973 |
| Box 5.1 Have Real Standards of Living Been Declining? Some Details |
| 5.3 | Modern Economic Growth Around the World |
| Divergence, Bigtime |
| Box 5.2 Purchasing-Power-Parity and Real Exchange Rate Comparisons: Some Tools |
| Box 5.3 Why Have These Economies Converged? A Policy Question |
| Box 5.4 The East Asian Miracle: A Policy Question |
| Box 5.5 Post- Communism: A Policy Question |
| Sources of Divergence |
| Cause and Effect, Effect and Cause |
| 5.4 | Policies and Long-Run Growth |
| Hopes for Convergence |
| Policies for Saving, Investment and Education |
| Policies for Technological Advance |
| Will Government Follow Good Policies? |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 6.1 | Potential Output and Real Wages |
| The Production Function |
| The Labor Market |
| 6.2 | Domestic Spending |
| Consumption Spending |
| Box 6.1 Calculating Consumption from Income: An Example |
| Investment Spending |
| Box 6.2 What is Investment? Some Details |
| Box 6.3 Kinds of Investment: Some Details |
| Box 6.4 How Investment Responds to a Change in Interest Rates: An Example |
| Box 6.5 The Stock Market: Some Details |
| Box 6.6 How to Boost Investment: A Policy Issue |
| Government Purchases |
| 6.3 | International Trade |
| Gross Exports |
| Box 6.7 The J-Curve: Some Details |
| Imports and Net Exports |
| The Exchange Rate |
| Conclusion |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| Appendix 6.A A Closer Look at Consumption |
| Consumption and the Real Interest Rate |
| Appendix 6.B Present Value and Investment |
| 7.1 | Full-Employment Equilibrium |
| Equilibrium and the Real Interest Rate |
| The Flow-of-Funds through Financial Markets |
| Box 7.1 Financial Transactions and the Flow of Funds: Some Details |
| Flow-of-Funds Equilibrium |
| Box 7.2 Solving for and Verifying the Equilibrium Real Interest Rate: An Example |
| 7.2 | Using the Model |
| Comparative Statics as a Method of Analysis |
| Changes in Fiscal Policy |
| Box 7.3 A Government Purchases Boom: An Example |
| Investment Shocks: Changes in Investor’s Optimism |
| International Disturbances |
| Box 7.4 The Effect of a Fall in Confidence in the Currency: An Example |
| Box 7.5 The Mexican and East Asian Financial Crises: Policy Issues |
| 7.2 | Supply Shocks |
| Oil and Supply Shocks |
| Real Business Cycles |
| 7.3 | Conclusion |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 8.1 | Money |
| Money: Liquid Wealth that Can be Spent |
| The Usefulness of Money |
| Units of Account |
| 8.2 | The Quantity Theory of Money |
| The Demand for Money |
| The Quantity Equation |
| Money and Prices |
| Box 8.1 Calculating the Price Level from the Quantity Equation: An Example |
| Box 8.2 Different Definitions of the Money Stock: Some Details |
| Inflation |
| 8.3 | The Interest Rate and Money Demand |
| Money Demand |
| Money, Prices and Inflation |
| 8.4 | The Costs of Inflation |
| The Costs of Moderate Expected Inflation |
| The Costs of Moderate Unexpected Inflation |
| Hyperinflation and its Costs |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 9.1 | Sticky Prices |
| Business Cycles |
| The Consequences of Sticky Prices |
| Why are Prices Sticky? |
| 9.2 | Income and Expenditure |
| Building up Aggregate Demand |
| Box 9.1 Calculating the Consumption Function: An Example |
| Box 9.2 Calculating the MPE: An Example |
| Sticky Price Equilibrium |
| Box 9.3 How Fast Does the Economy Move to Equilibrium? Some Details |
| Box 9.4 Inventory Adjustment and the Circular Flow: Some Details |
| Box 9.5 Calculating the Difference Between Aggregate Demand and Real GDP: An Example |
| 9.3 | The Multiplier |
| Determining the Size of the Multiplier |
| Box 9.6 The Value of the Multiplier: An Example |
| Changing the Size of the Multiplier |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 10.1 | Interest Rates and Aggregate Demand |
| The Importance of Investment |
| Investment and the Real Interest Rate |
| Box 10.1 The Stock Market as an Indicator of Future Investment: Some Tools |
| Exports and Autonomous Spending |
| 10.2 | The IS Curve |
| Autonomous Spending and the Real Estate Rate |
| From the Interest Rate to Investment to Aggregate Demand |
| The Slope and Position of the IS Curve |
| Box 10.2 Calculating the Dependence of Aggregate Demand on the Interest Rate: An Example |
| 10.3 | Using the IS Curve to Understand the Economy |
| Shifting the IS Curve |
| Box 10.3 A Government Spending Increase and the IS Curve: An Example |
| Moving Along the IS Curve |
| Box 10.4 Moving Along the IS Curve: An Example |
| Economic Fluctuations in the United States: the IS Curve as a Lens |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| Appendix 10.A The Term Premium and Expected Future Interest Rates |
| 11.1 | The Money Stock and the Money Market: The LM Curve |
| Money Market Equilibrium |
| The LM Curve |
| The IS-LM Framework |
| Box 11.1 IS-LM Equilibrium: An Example |
| Box 11.2 An IS Shock: An Example |
| Box 11.3 Calculating the Effect of an LM Shock: An Example |
| Classifying Economic Disturbances |
| 11.2 | The Exchange Rate and the Trade Balance |
| The IS-LM Framework and the International Sector |
| Box 11.4 An LM Shock and the Balance of Trade: An Example |
| International Shocks and the Domestic Economy |
| Box 11.5 A Shock to International Investor’s Expectations: An Example |
| 11.3 | Aggregate Demand |
| The Price Level and Aggregate Demand |
| Monetary Policy and Aggregate Demand |
| 11.4 | Aggregate Supply |
| Output and the Price Level |
| Short-Run Aggregate Supply |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 12.1 | Aggregate Supply and the Phillips Curve |
| Unemployment |
| Box 12.1 Forms of Okun’s Law: A Tool |
| Box 12.2 Costs of High Unemployment: Policy Issues |
| Three Faces of Aggregate Supply |
| The Phillips Curve Examined |
| 12.2 | Aggregate Demand and Inflation |
| Box 12.3 From Income-Expenditure to the Phillips Curve and the MPRF: Some Details |
| Box 12.4 Solving for Equilibrium Inflation and Unemployment: Some Details |
| 12.3 | The Natural Rate of Unemployment |
| Demography and the Natural Rate |
| Institutions and the Natural Rate |
| Productivity Growth and the Natural Rate |
| The Past Level of Unemployment and the Natural Rate |
| 12.4 | Unexpected Inflation |
| The Phillips Curve Under Static Expectations |
| Box 12.5 State Expectations of Inflation in the 1960s: An Example |
| The Phillips Curve Under Adaptive Expectations |
| Box 12.6 A High-Pressure Economy Under Adaptive Expectations: An Example |
| Box 12.7 Adaptive Expectations and the Volcker Disinflation: Policy Issues |
| The Phillips Curve Under Rational Expectations |
| What Kind of Expectations Do We Have? |
| 12.5 | From the Short Run to the Long Run |
| Rational Expectations |
| Adaptive Expectations |
| Static Expectations |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 13.1 | Economic Policy Institutions |
| Monetary Policy Institutions |
| Box 13.1 Japan’s Liquidity Trap: A Policy Issue |
| Fiscal Policy Institutions |
| 13.1.3 | The History of Economic Policy |
| 13.2 | The Power and Limits of Stabilization Policy |
| Uncertainty About the Economy |
| Box 13.2 The Structure of the Economy and the Lucas Critique: Some Details |
| Box 13.3 What are Leading Indicators?: Some Details |
| The Money Supply as a Leading Indicator |
| Box 13.4 The Money Multiplier: Policy Issues |
| Long Lags and Variable Effects |
| Box 13.5 The Limits of Stabilization Policy: Policy Issues |
| 13.3 | Monetary vs. Fiscal Policy |
| Relative Power |
| Box 13.6 The Kennedy-Johnson and the Reagan Tax Cuts: Policy Issues |
| Fiscal Policy: Automatic Stabilizers |
| How Monetary Policy Works |
| Box 13.7 Monetary Policy Instruments: Policy Issues |
| 13.4 | Rules vs. Authorities |
| Competence and Objectives |
| Box 13.8 The Political Business Cycle and Richard Nixon: Policy Issues |
| Box 13.9 Is there in Fact a Political Business Cycle?: Details |
| Box 13.10 Central Bank Independence: Policy Issues |
| Credibility and Commitment |
| Modern Monetary Policy |
| 13.5 | Extreme Situations: Financial Crises |
| Lenders of Last Resort |
| Deposit Insurance and Moral Hazard |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 14.1 | Introduction |
| 14.2 | The Budget Deficit and Stabilization Policy |
| The Budget Deficit and the IS Curve |
| Box 14.1 The Deficit as an Index of Fiscal Policy: Some Details |
| Measuring the Budget Balance |
| 14.3 | Measuring the Debt and the Deficit |
| 14.3.1 | Inflation |
| Public Investment |
| Liabilities and General Accounting |
| 14.4 | Analyzing Debts and Deficits |
| Sustainability |
| Box 14.2 The Equilibrium Debt-to-GDP Ratio: An Example |
| Effects of Deficits |
| Box 14.3 The U.S. Debt-to-GDP Ratio: Some History |
| Long-Run Effects of Deficits |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 15.1 | The History of Exchange Rates |
| The Classical Gold Standard |
| Box 15.1 Currency Arbitrage Under the Gold Standard: An Example |
| The Collapse of the Gold Standard |
| The Bretton Woods System |
| Our Current Floating-Rate System |
| 15.2 | How a Fixed Exchange Rate System Works |
| High Capital Mobility |
| Barriers to Capital Mobility |
| 15.3 | The Choice of Exchange Rate Systems |
| Benefits of Fixed Exchange Rates |
| Costs of Fixed Exchange Rates |
| Box 15.2 Are Western Europe and the United States Optimal Currency Areas? |
| 15.4 | Currency Crises |
| The European Crisis of 1992 |
| The Mexican Crisis of 1994-95 |
| The East Asian Crisis of 1997-98 |
| Managing Crises |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| 17.1 | The Past of Macroeconomics |
| The Age of John Maynard Keynes |
| The Age of Milton Friedman and Robert Lucas |
| 17.2 | The Future of Macroeconomics: “Real” Business Cycles |
| One Possible Road |
| The Unevenness of Economic Growth |
| Problems of Real Business Cycle Theory |
| Assessment |
| 17.3 | The Future: New Keynesian Economics |
| Menu Costs |
| Staggered Prices and Coordination Failures |
| Assessment |
| 17.4 | Debts and Deficits, Consumption and Saving |
| Debts and Deficits: Ricardian Equivalence |
| Consumption and Saving |
| 17.5 | Does Monetary Policy have a Long-Run Future? |
| Chapter Summary |
| Key Concepts |
| Analytical Exercises |
| Policy Exercises |
| What Economist Know… |
| …About the Current State of the Economy |
| …About Long-Run Economic Growth |
| …About Business Cycles, Unemployment and Inflation in the Long Run |
| …About Business Cycles, Unemployment and Inflation in the Short Run |
| …About the Making of Macroeconomic Policy |
| What Economists Don’t Know – But Could Learn |
| …About the Long-Run Relationships Between Kinds of Investment and Productivity Growth |
| …Investment and Productivity Growth |
| …About the Short-run Determinants of Investment |
| …About the Impact of Government Policy on the Economy |
| …About the Microfoundations of Macroeconomics |
| What Economists Will Never Know |
| Chasing an Ever-Moving Target |
2002 McGraw-Hill Higher Education