Robert H. Frank,
Cornell University Ben S. Bernanke,
Princeton University
ISBN: 0073193976 Copyright year: 2007
What's New
Expanded Discussion of Macroeconomic Policy
The revised monetary policy reaction function the authors introduce in Chapter 14 is a more realistic description of how the Fed actually conducts monetary policy and clarifies the Taylor rule.
In Chapter 15 the authors use this policy reaction function to help students distinguish between a move along the aggregate demand curve and a shift in the aggregate demand curve resulting from a change in monetary policy.
In a new Chapter 16, the authors provide a more complete analysis of the interaction between fiscal and monetary policy, illustrating the crucial role of the central bank in any long-run inflation. The authors also discuss how enhanced credibility can help to anchor inflationary expectations and explain the contributions of central bank independence, inflation targeting, and central bank reputation. In the last section of Chapter 16 they expand their discussion of the real-world difficulties in conducting macroeconomic policy.
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More Patient Presentation of Models: In Chapter 13 the authors explain the effects of tax cuts on planned aggregate expenditure more carefully. In an optional box we also solve a simple Keynesian model, leaving the full model in the appendix, as in the second edition. In the diagrams in Chapter 15 the authors include the transitional short-run aggregate supply lines to illustrate how the short-run aggregate supply line shifts when actual output deviates from potential output.
Expanded Discussion of Supply-Side Economics: Most economists agree that changes in marginal tax rates can affect both aggregate demand and aggregate supply, but they disagree on the size of the effects. In Chapter 28 the authors describe this controversy in greater detail and present both the theoretical and empirical evidence of the effects of changes in marginal tax rates on aggregate supply.
Greater Attention to Asset Prices: In Chapter 8 the authors provide a clearer explanation of the inverse relationship between bond prices and interest rates. They also discuss the effects of changes in asset prices (especially stocks and houses) on aggregate demand.
Simpler Presentation of Exchange Rates: The authors use supply and demand curves to illustrate the determination of nominal exchange rates before they introduce the real exchange rate and purchasing-power-parity.
Additional Material on China: At its current rate of growth the Chinese economy may become the largest economy in the world within the next generation. In this edition the authors expand their discussion of China in the world economy. They discuss the determinants of its success and its management of its exchange rate.
New Material on the Acceleration of Productivity Growth: The productivity slowdown of 1973-1995 has been followed by surprisingly strong productivity growth. The authors present and discuss the reasons for this acceleration.
Updated Discussion of Saving and Investment: In addition to emphasizing the importance of public and private saving and the relationship between the budget deficit, national saving, and capital flows, the authors discuss the recently divergent trends in business and household saving.
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2007 McGraw-Hill Higher Education