MACROECONOMICS: PRINCIPLES and POLICY, Fourteenth Edition
By William J. Baumol, Alan S. Blinder, and John L. Solow
Table of Contents:
Preface xix
About the Authors xxi
Part 1 Getting Acquainted with Economics 1
Chapter 1 What Is Economics? 3
1-1 Ideas for Beyond the Final Exam 3
1-1a Idea 1: How Much Does It Really Cost? 4
1-1b Idea 2: Attempts to Repeal the Laws of Supply and Demand—The Market Strikes Back 4
1-1c Idea 3: The Surprising Principle of Comparative Advantage 5
1-1d Idea 4: Trade Is a Win–Win Situation 5
1-1e Idea 5: Government Policies Can Limit Economic Fluctuations—But Don’t Always Succeed 5
1-1f Idea 6: The Short-Run Trade-Off between Inflation and Unemployment 6
1-1g Idea 7: Productivity Growth Is (Almost) Everything in the Long Run 6
1-1h Epilogue 6
1-2 Inside the Economist’s Tool Kit 7
1-2a Economics as a Discipline 7
1-2b The Need for Abstraction 7
1-2c The Role of Economic Theory 8
1-2d What Is an Economic Model? 10
1-2e Reasons for Disagreements: Imperfect Information and Value Judgments 11
Summary 12
Key Terms 12
Discussion Questions 12
Appendix Using Graphs: A Review 12
Graphs Used in Economic Analysis 12
Two-Variable Diagrams 13
The Definition and Measurement of Slope 13
Rays through the Origin and 45° Lines 15
Squeezing Three Dimensions into Two: Contour Maps 16
Summary 17
Key Terms 17
Test Yourself 18
Chapter 2 The Economy: Myth and Reality 19
2-1 The American Economy: A Thumbnail Sketch 19
2-1a A Private-Enterprise Economy 21
2-1b A Relatively “Closed” Economy 21
2-1c A Growing Economy . . . 22
2-1d But with Bumps along the Growth Path 23
2-2 The Inputs: Labor and Capital 23
2-2a The American Workforce: Who Is in It? 23
2-2b The American Workforce: What Does It Do? 27
2-2c The American Workforce: What Does It Earn? 27
2-2d Capital and Its Earnings 28
2-3 The Outputs: What Does America Produce? 29
2-4 The Central Role of Business Firms 30
2-5 What’s Missing from the Picture? Government 31
2-5a The Government as Referee 32
2-5b The Government as Business Regulator 32
2-5c Government Expenditures 32
2-5d Taxes in America 33
2-5e The Government as Redistributor 33
2-6 Conclusion: It’s a Mixed Economy 34
Summary 35
Key Terms 35
Discussion Questions 35
Chapter 3 The Fundamental Economic Problem: Scarcity and Choice 36
Issue: What to Do about the Federal Budget? 36
3-1 Scarcity, Choice, and Opportunity Cost 37
3-1a Opportunity Cost and Money Cost 38
3-1b Optimal Choice: Not Just Any Choice 38
3-2 Scarcity and Choice for a Single Firm 39
3-2a The Production Possibilities Frontier 39
3-2b The Principle of Increasing Costs 41
3-3 Scarcity and Choice for The Entire Society 41
3-3a Scarcity and Choice Elsewhere in the Economy 42
Issue Revisited: Agreeing on a Federal Budget 43
3-4 The Three Coordination Tasks of Any Economy 43
3-5 The Concept of Efficiency 43
3-6 T ask 1. How the Market Fosters Efficient Resource Allocation 45
3-6a The Wonders of the Division of Labor 45
3-6b The Amazing Principle of Comparative Advantage 45
3-6c The Arithmetic of Comparative Advantage and Trade 46
3-6d The Graphics of Comparative Advantage and Trade 48
3-7 Task 2. Market Exchange and Deciding How Much of Each Good
to Produce 49
3-8 T ask 3. How to Distribute the Economy’S Outputs among Consumers 50
3-9 Looking Ahead 51
Summary 51
Key Terms 52
Test Yourself 52
Discussion Questions 53
Chapter 4 Supply and Demand: An Initial Look 54Puzzle:
What Happened to Oil Prices? 54
4-1 The Invisible Hand 55
4-2 Demand and Quantity Demanded 56
4-2a The Demand Schedule 56
4-2b The Demand Curve 57
4-2c Shifts of the Demand Curve 57
4-3 Supply and Quantity Supplied 60
4-3a The Supply Schedule and the Supply Curve 61
4-3b Shifts of the Supply Curve 61
4-4 Supply and Demand Equilibrium 63
4-4a The Law of Supply and Demand 65
4-5 Effects of Demand Shifts on Supply-Demand Equilibrium 65
4-6 Supply Shifts and Supply-Demand Equilibrium 67
Puzzle Resolved: Those Volatile Oil Prices 68
4-6a Application: Who Really Pays That Tax? 69
4-6b Speculation 70
4-7 Battling the Invisible Hand: The Market Fights Back 71
4-7a Restraining the Market Mechanism: Price Ceilings 71
4-7b Case Study: Rent Controls in New York City 72
Policy Debate Economic Aspects of the War on Drugs 72
4-7c Restraining the Market Mechanism: Price Floors 73
4-7d Case Study: Farm Price Supports and the Case of Sugar Prices 74
4-7e A Can of Worms 75
4-8 A Simple But Powerful Lesson 76
Summary 76
Key Terms 77
Test Yourself 77
Discussion Questions 79
Part 2 The Macroeconomy: Aggregate Supply and Demand 81
Chapter 5 An Introduction to Macroeconomics 83
Issue: How Did the Housing Bust Lead to the Great Recession? 83
5-1 D rawing a Line Between Macroeconomics and Microeconomics 84
5-1a Aggregation and Macroeconomics 84
5-1b The Foundations of Aggregation 84
5-1c The Line of Demarcation Revisited 85
5-2 Supply and Demand in Macroeconomics 85
5-2a A Quick Review 85
5-2b Moving to Macroeconomic Aggregates 86
5-2c Inflation 86
5-2d Recession and Unemployment 86
5-2e Economic Growth 86
5-3 Gross Domestic Product 87
5-3a Money as the Measuring Rod: Real versus Nominal GDP 88
5-3b What Gets Counted in GDP? 88
5-3c Limitations of the GDP: What GDP Is Not 89
5-4 The Economy on a Roller Coaster 91
5-4a Growth, but with Fluctuations 91
5-4b Inflation and Deflation 92
5-4c The Great Depression 93
5-4d From World War II to 1973 95
5-4e The Great Stagflation, 1973–1981 96
5-4f Reaganomics and Its Aftermath 96
5-4g Clintonomics: Deficit Reduction and the “New Economy” 97
5-4h Tax Cuts and the Bush Economy 97
5-4i Obamanomics and the Great Recession 98
5-4j What Is Trumponomics? 98
Issue Revisited: How Did the Housing Bust Lead to the Great Recession? 98
5-5 T he Problem of Macroeconomic Stabilization: A Sneak Preview 99
5-5a Combating Unemployment 99
5-5b Combating Inflation 99
5-5c Does It Really Work? 100
Summary 100
Key Terms 101
Test Yourself 101
Discussion Questions 102
Chapter 6 The Goals of Macroeconomic Policy 103
6-1 The Goal of Economic Growth 104
Issue: Is Faster Growth Always Better? 105
6-2 T he Capacity to Produce: Potential GDP and the Production Function 105
6-3 The Growth Rate of Potential GDP 107
Issue Revisited: Is Faster Growth Always Better? 108
6-4 The Goal of Low Unemployment 109
6-5 The Human Costs of High Unemployment 109
6-6 Counting the Unemployed: The Official Statistics 111
6-7 Types of Unemployment 112
Policy Debate Does the Minimum Wage Cause Unemployment? 112
6-8 How much Employment is “Full Employment”? 113
6-9 Unemployment Insurance: The Invaluable Cushion 113
6-10 The Goal of Low Inflation 114
6-10a Inflation and Real Wages 114
6-10b The Importance of Relative Prices 116
6-11 Inflation as a Redistributor of Income and Wealth 117
6-12 Real Versus Nominal Interest Rates 117
6-13 Inflation Distorts Measurements 118
6-13a Confusing Real and Nominal Interest Rates 118
6-13b The Malfunctioning Tax System 119
6-14 Other Costs of Inflation 119
6-15 The Costs of Low Versus High Inflation 120
6-16 L ow Inflation does not Necessarily Lead to High Inflation 121
Summary 122
Key Terms 123
Test Yourself 123
Discussion Questions 123
Appendix How Statisticians Measure Inflation 124
Index Numbers for Inflation 124
The Consumer Price Index 124
Using a Price Index to “Deflate” Monetary Figures 125
Using a Price Index to Measure Inflation 125
The GDP Deflator 126
Summary 126
Key Terms 126
Test Yourself 126
Chapter 7 Economic Growth: Theory and Policy 128
Puzzle: Why Does College Education Keep Getting More Expensive? 129
7-1 The Three Pillars of Productivity Growth 129
7-1a Capital 129
7-1b Technology 130
7-1c Labor Quality: Education and Training 130
7-2 Levels, Growth Rates, and the Convergence Hypothesis 131
7-3 Growth Policy: Encouraging Capital Formation 133
7-4 Growth Policy: Improving Education and Training 136
7-5 Growth Policy: Spurring Technological Change 137
7-6 Recent Productivity Performance in the United States 138
7-6a The Productivity Slowdown, 1973–1995 138
7-6b The Productivity Speed-up, 1995–2010 140
7-6c The Productivity Slowdown Since 2010 141
Puzzle Resolved: Why the Relative Price of College Tuition Keeps Rising 141
7-7 Growth in the Developing Countries 142
7-7a The Three Pillars Revisited 142
7-7b Some Special Problems of Developing Countries 144
7-8 From the Long Run to the Short Run 145
Summary 145
Key Terms 145
Test Yourself 146
Discussion Questions 146
Chapter 8 Aggregate Demand and the Powerful Consumer 147
Issue: Demand Management and the Ornery Consumer 148
8-1 A ggregate Demand, Domestic Product, and National Income 148
8-2 T he Circular Flow of Spending, Production, and Income 149
8-3 C onsumer Spending and Income: The Important Relationship 151
8-4 T he Consumption Function and the Marginal Propensity to Consume 154
8-5 Factors that Shift the Consumption Function 155
Policy Debate Using the Tax Code to Spur Saving 157
Issue Revisited: Why Temporary Tax Cuts Have Only Modest Effects on Spending 157
8-6 The Extreme Variability of Investment 158
8-7 The Determinants of Net Exports 159
8-7a National Incomes 159
8-7b Relative Prices and Exchange Rates 160
8-8 How Predictable is Aggregate Demand? 160
Summary 161
Key Terms 161
Test Yourself 162
Discussion Questions 162
Appendix National Income Accounting 162
Defining GDP: Exceptions to the Rules 162
GDP as the Sum of Final Goods and Services 163
GDP as the Sum of All Factor Payments 164
GDP as the Sum of Values Added 165
Summary 167
Key Terms 167
Test Yourself 167
Discussion Questions 168
Chapter 9 Demand-Side Equilibrium: Unemployment or Inflation? 169
Issue: Why Does the Market Permit High Unemployment? 169
9-1 The Meaning of Equilibrium GDP 170
9-2 The Mechanics of Income Determination 171
9-3 The Aggregate Demand Curve 174
9-4 Demand-Side Equilibrium and Full Employment 176
9-5 The Coordination of Saving and Investment 178
9-6 Changes on the Demand Side: Multiplier Analysis 179
9-6a The Magic of the Multiplier 179
9-6b Demystifying the Multiplier: How It Works 181
9-6c Algebraic Statement of the Multiplier 182
9-7 The Multiplier Is a General Concept 183
9-8 The Multiplier and the Aggregate Demand Curve 185
Summary 186
Key Terms 186
Test Yourself 187
Discussion Questions 188
Appendix A The Simple Algebra of Income Determination and the Multiplier 188
Test Yourself 189
Discussion Questions 189
Appendix B The Multiplier with Variable Imports 190
Summary 192
Test Yourself 192
Chapter 10 Bringing in the Supply Side: Unemployment and Inflation? 193
Puzzle: What Causes Stagflation? 193
10-1 The Aggregate Supply Curve 194
10-1a Why the Aggregate Supply Curve Slopes Upward 194
10-1b Shifts of the Aggregate Supply Curve 195
10-2 Equilibrium of Aggregate Demand and Supply 197
10-3 Inflation and the Multiplier 198
10-4 Recessionary and Inflationary Gaps Revisited 199
10-5 A djusting to a Recessionary Gap: Deflation or Unemployment? 201
10-5a Why Nominal Wages and Prices Won’t Fall (Easily) 201
10-5b Does the Economy Have a Self-Correcting Mechanism? 203
10-5c An Example from Recent History: Deflation Worries in the United States 203
10-6 Adjusting to an Inflationary Gap: Inflation 203
10-6a Demand Inflation and Stagflation 204
10-6b A U.S. Example 204
10-7 Stagflation from a Supply Shock 205
10-8 Applying the Model to a Growing Economy 206
10-8a Demand-Side Fluctuations 208
10-8b Supply-Side Fluctuations 209
Puzzle resolved: Explaining Stagflation 210
10-9 A Role for Stabilization Policy 210
Summary 211
Key Terms 211
Test Yourself 211
Discussion Questions 212
Part 3 Fiscal and Monetary Policy 213
Chapter 11 Managing Aggregate Demand: Fiscal Policy 215
Issue: Did the U.S. Need a Tax Cut in 2018? 215
11-1 Income Taxes and the Consumption Schedule 216
11-2 The Multiplier Revisited 217
11-2a The Tax Multiplier 217
11-2b Income Taxes and the Multiplier 217
11-2c Automatic Stabilizers 219
11-2d Government Transfer Payments 219
Issue Revisited: The Tax Cut Debate in 2017 220
11-3 Planning Expansionary Fiscal Policy 220
11-4 Planning Contractionary Fiscal Policy 221
11-5 The Choice Between Spending Policy and Tax Policy 221
Issue Redux: Aggregate Demand and the Tax Cuts of 2017 222
11-6 Some Harsh Realities 223
11-7 The Idea Behind Supply-Side Tax Cuts 223
11-7a Some Flies in the Ointment 225
Issue: The Partisan Debate Once More 226
11-7b Toward an Assessment of Supply-Side Economics 226
Summary 227
Key Terms 228
Test Yourself 228
Discussion Questions 228
Appendix A Graphical Treatment of Taxes and Fiscal Policy 229
Multipliers for Tax Policy 231
Summary 231
Key Terms 231
Test Yourself 232
Discussion Questions 232
Appendix B Algebraic Treatment of Taxes and Fiscal Policy 232
Test Yourself 234
Chapter 12 Money and the Banking System 235
Issue: Why Are Banks So Heavily Regulated? 235
12-1 The Nature of Money 236
12-1a Barter versus Monetary Exchange 237
12-1b The Conceptual Definition of Money 237
12-1c What Serves as Money? 238
12-2 How the Quantity of Money is Measured 240
12-2a M1 240
12-2b M2 240
12-2c Other Definitions of the Money Supply 241
12-3 The Banking System 241
12-3a How Banking Began 241
12-3b Principles of Bank Management: Profits versus Safety 243
12-3c Bank Regulation 244
12-3d Deposit Insurance 244
12-3e Bank Supervision 245
12-3f Reserve Requirements 245
12-4 Systemic Risk and the “Too Big to Fail” Doctrine 245
12-5 The Origins of the Money Supply 247
12-5a How Bankers Keep Books 247
12-6 Banks and Deposit Creation 248
12-6a The Limits to Deposit Creation by a Single Bank 248
12-6b Multiple Deposit Creation by a Series of Banks 249
12-6c The Process in Reverse: Multiple Contraction of Bank Deposits 251
12-7 Why the Deposit-Creation Formula is Oversimplified 252
12-8 The Need for Monetary Policy 253
Summary 254
Key Terms 255
Test Yourself 255
Discussion Questions 255
Chapter 13 Monetary Policy: Conventional and Unconventional 257
Issue: Why Resort to “Unconventional” Monetary Policies? 257
13-1 Money and Income: The Important Difference 258
13-2 America’s Central Bank: The Federal Reserve System 258
13-2a Origins and Structure 258
13-2b Central Bank Independence 259
13-3 Implementing Monetary Policy in Normal Times: Open-Market
Operations 260
13-3a The Market for Bank Reserves 261
13-3b The Mechanics of an Open-Market Operation 262
13-3c Open-Market Operations, Bond Prices, and Interest Rates 264
13-3d Which Interest Rate? 264
13-4 Other Instruments of Monetary Policy 266
13-4a Lending to Banks 266
13-4b Changing Reserve Requirements 268
13-4c Quantitative Easing 268
13-5 How Monetary Policy Works in Normal Times 269
13-5a Investment and Interest Rates 269
13-5b Monetary Policy and Total Expenditure 270
13-6 Money and the Price Level 271
13-7 Application: Why the Aggregate Demand Curve Slopes Downward 272
13-8 Unconventional Monetary Policies 273
13-9 From Financial Distress to Recession 273
13-10 From Models to Policy Debates 275
Summary 274
Key Terms 275
Test Yourself 275
Discussion Questions 276
Chapter 14 The Financial Crisis and the Great Recession 277
Issue: Did the Fiscal Stimulus Work? 277
14-1 Roots of the Crisis 278
14-2 Leverage, Profits, and Risk 279
14-3 The Housing Price Bubble and the Subprime Mortgage Crisis 280
14-4 From the Housing Bubble to the Financial Crisis 282
14-5 From the Financial Crisis to the Great Recession 285
14-6 Hitting Bottom and Recovering 289
Issue Revisited: Did the Fiscal Stimulus Work? 289
14-7 Lessons from the Financial Crisis 289
Summary 290
Key Terms 291
Test Yourself 291
Discussion Questions 291
Chapter 15 The Debate Over Monetary and Fiscal Policy 292
Issue: Should We Forsake Stabilization Policy? 292
15-1 Velocity and The Quantity Theory of Money 293
15-1a Some Determinants of Velocity 295
15-1b Monetarism: The Quantity Theory Modernized 295
15-2 Debate: Should The Fed Use Unconventional Monetary Policies? 296
Policy Debate: Does Money Growth Always Cause Inflation? 296
15-3 Debate: Should Policymakers Fight Asset Price Bubbles? 299
15-4 Debate: Should We Rely on Fiscal or Monetary Policy? 300
15-5 Debate: The Shape of The Aggregate Supply Curve 302
15-6 Debate: Should The Government Intervene At All? 304
15-6a Lags and the Rules-versus-Discretion Debate 305
15-7 Dimensions of The Rules-Versus-Discretion Debate 305
15-7a How Fast Does the Economy’s Self-Correcting Mechanism Work? 206
15-7b How Long Are the Lags in Stabilization Policy? 306
15-7c How Accurate Are Economic Forecasts? 306
15-7d The Size of Government 306
15-7e Uncertainties Caused by Government Policy 307
15-7f A Political Business Cycle? 307
Issue Revisited: What Should Be Done? 309
Summary 309
Key Terms 310
Test Yourself 310
Discussion Questions 311
Chapter 16 Budget Deficits in the Short and Long Run 312
Issue: Is the Federal Government Budget Deficit Too Large? 312
16-1 Should the Budget Always Be Balanced? The Short Run 313
16-2 The Importance of the Policy Mix 314
16-2a The Multiplier Formula Revisited 315
16-2b The Government Budget and Investment 315
16-3 Deficits and Debt: Terminology and Facts 317
16-3a Some Facts about the National Debt 317
16-4 Interpreting the Budget Deficit or Surplus 319
16-4a The Structural Deficit or Surplus 319
16-4b Conclusion: What’s Happened to the Deficit? 320
16-5 Why Is the National Debt Considered a Burden? 321
16-6 Budget Deficits and Inflation 322
16-6a The Monetization Issue 323
16-7 Debt, Interest Rates, and Crowding Out 324
16-7a The Bottom Line 325
16-8 The Main Burden of the National Debt: Slower Growth 326
Issue Revisited: Is the Budget Deficit Still Too Large? 327
16-9 The Economics And Politics of the U.S. Budget Deficit 328
Summary 329
Key Terms 330
Test Yourself 330
Discussion Questions 330
Chapter 17 The Trade-Off Between Inflation and Unemployment 331
Issue: Is the Trade-Off between Inflation and Unemployment a Relic of the Past? 331
17-1 Demand-Side Inflation Versus Supply-Side Inflation: A Review 332
17-2 Origins of the Phillips Curve 333
17-3 Supply-Side Inflation and the Collapse of the Phillips Curve 335
17-3a Explaining the Fabulous Late 1990s 335
Issue Revisited: Why Inflation and Unemployment Both Declined 336
17-4 What the Phillips Curve is not 336
17-5 Fighting Unemployment with Fiscal and Monetary Policy 338
17-6 What Should Be done? 339
17-6a The Costs of Inflation and Unemployment 339
17-6b The Slope of the Short-Run Phillips Curve 339
17-6c The Efficiency of the Economy’s Self-Correcting Mechanism 339
17-7 Inflationary Expectations and the Phillips Curve 340
17-8 The Theory of Rational Expectations 342
17-8a What Are Rational Expectations? 342
17-8b Rational Expectations and the Trade-Off 343
17-8c An Evaluation 344
17-9 Why Economists (and Politicians) Disagree 344
17-10 The Dilemma of Demand Management 345
17-11 Attempts to Improve the Trade-Off 345
17-11a Reducing the Natural Rate of Unemployment 345
17-11b Indexing Contracts for Inflation 346
Summary 347
Key Terms 347
Test Yourself 348
Discussion Questions 348
Part 4 The United States in the World Economy 349
Chapter 18 International Trade and Comparative Advantage 351
Issue: How Can Americans Compete with “Cheap Foreign Labor”? 352
18-1 Why Trade? 352
18-1a Mutual Gains from Trade 353
18-2 International Versus Intranational Trade 354
18-2a Political Factors in International Trade 354
18-2b The Many Currencies Involved in International Trade 354
18-2c Impediments to Mobility of Labor and Capital 354
18-3 The Principle of Comparative Advantage 355
18-4 The Arithmetic of Comparative Advantage 355
18-4a The Graphics of Comparative Advantage 356
18-4b Must Specialization Be Complete? 359
Issue Revisited: Comparative Advantage Exposes the “Cheap Foreign Labor” Fallacy 359
18-5 Tariffs, Quotas, and Other Interferences with Trade 359
18-5a Tariffs versus Quotas 361
18-6 Why Inhibit Trade? 362
18-6a Gaining a Price Advantage for Domestic Firms 362
18-6b Protecting Particular Industries 362
18-6c National Defense and Other Noneconomic Considerations 363
18-6d The Infant-Industry Argument 364
18-6e Strategic Trade Policy 364
18-7 Can Cheap Imports Hurt a Country? 365
Issue Resolved: Last Look at the “Cheap Foreign Labor” Argument 366
Summary 367
Key Terms 368
Test Yourself 368
Discussion Questions 368
Appendix Supply, Demand, and Pricing in World Trade 369
How Tariffs and Quotas Work 370
Summary 371
Test Yourself 371
Chapter 19 The International Monetary System: Order or Disorder? 372
Puzzle: Has the Value of the Dollar Really Sagged? 372
19-1 What are Exchange Rates? 373
19-2 Exchange Rate Determination in a Free Market 374
19-2a Interest Rates and Exchange Rates: The Short Run 376
19-2b Economic Activity and Exchange Rates: The Medium Run 376
19-2c The Purchasing-Power Parity Theory: The Long Run 377
19-2d Market Determination of Exchange Rates: Summary 378
19-3 When Governments Fix Exchange Rates: The Balance of Payments 379
19-4 A Bit of History: The Gold Standard and the Bretton Woods System 381
19-4a The Classical Gold Standard 381
19-4b The Bretton Woods System 382
19-5 Adjustment Mechanisms Under Fixed Exchange Rates 382
19-6 Why Try To Fix Exchange Rates? 383
19-7 The Current “Nonsystem” 384
19-7a The Role of the International Monetary Fund 385
19-7b The Volatile Dollar 385
19-7c The Birth and Adolescence of the Euro 386
Puzzle Resolved: Why the Dollar Rose, Then Fell, Then Rose 387
Summary 388
Key Terms 389
Test Yourself 389
Discussion Questions 389
Chapter 20 Exchange Rates and the Macroeconomy 391
Issue: Is a Cheaper Currency a Blessing? 392
20-1 International Trade, Exchange Rates, and Aggregate Demand 392
20-1a Relative Prices, Exports, and Imports 393
20-1b The Effects of Changes in Exchange Rates 393
20-2 Aggregate Supply in an Open Economy 394
20-3 The Macroeconomic Effects of Exchange Rates 395
20-3a Interest Rates and International Capital Flows 396
20-4 Fiscal and Monetary Policies in an Open Economy 396
20-4a Fiscal Policy Revisited 396
20-4b Monetary Policy Revisited 398
20-5 International Aspects of Deficit Reduction 398
20-5a The Loose Link between the Budget Deficit and the Trade Deficit 399
20-6 Should We Worry About the Trade Deficit? 400
20-7 On Curing the Trade Deficit 400
20-7a Change the Mix of Fiscal and Monetary Policy 400
20-7b More Rapid Economic Growth Abroad 401
20-7c Raise Domestic Saving or Reduce Domestic Investment 401
20-7d Protectionism 402
20-8 Conclusion: No Nation is an Island 402
Issue Revisited: Is a Cheaper Currency a Blessing? 403
Summary 403
Key Terms 404
Test Yourself 404
Discussion Questions 404
Part 5 The Economy Today 405
Chapter 21 Contemporary Issues in the U.S. Economy 407
21-1 Can We Grow Much Faster Than 2 Percent A Year? 407
21-2 Who Loses From Globalization? 409
21-3 Are Trade Wars “Good And Easy To Win”? 411
21-4 Where Is The National Debt Headed? 412
21-5 Has The Phillips Curve Disappeared? 414
Summary 415
Key Terms 415
Discussion Questions 415
Appendix 416
Glossary 428
Index 434