Economics, Fifth Edition
Contents:
Preface
PART 1 What Is Economics?
Introduction
‘An Engine for Growth and Discovery
A Dayi n the Megacity
The Invisible Hand
My Benefit, Your Cost
Good Times, Bad Times
Onward and Upward
‘An Engine for Discovery
Chapter 1
First Principles
Common Ground
Principles That Underlie Individual Choice: The Core of Economics
Principle #1: Choices Are Necessary Because Resources Are Scarce
Principle #2: The True Cost of Something Is Its Opportunity Cost
Principle #3: “How Much” Is a Decision at the Margin
Principle #4: People Usually Respond to Incentives, Exploiting Opportunities to Make
Themselves Better Off
For InquiMrindis nUsgin g Incentives to Break the Cycle of Poverty
ECONOMICS in Action Boy or Girl? It Depends on the Cost
Interaction: How Economies Work
Principle #5: There Are Gains from Trade
Principle #6: Markets Move Toward Equilibrium
Principle #7: Resources Should Be Used Efficiently to Achieve Society’s Goals
Principle #8: Markets Usually Lead to Efficiency
Principle #9: When Markets Don’t Achieve Efficiency, Government Intervention Can
Improve Society’s Welfare
ECONOMICS in Action The Fundamental Law of Traffic Congestion
Economy-Wide Interactions
Principle #10: One Person’s Spending Is Another Person’s Income
Principle #11: Overall Spending Sometimes Gets Out of Line with the Economy’s
Productive Capacity
Principle #12: Government Policies Can Change Spending
ECONOMICS in Action Adventures in Babysitting
BUSINESS CASE How Priceline Revolutionized the Travel Industry
Chapter 2
Economic Models: Trade-offs and Trade
From Kitty Hawk to Dreamliner
‘Models in Economics: Some Important Examples
For InquirMiindns gTh e Model That Ate the Economy
Trade-offs: The Production Possibility Frontier
Comparative Advantage and Gains from Trade
Comparative Advantage and International Trade, in Reality
GLOBAL COMPARISON Pajama Republics
Transactions: The Circular-Flow Diagram
ECONOMICS in Action Rich Nation, Poor Nation
Using Models
Positive versus Normative Economics
When and Why Economists Disagree
For InquirMinidsn Wghe n Economists Agree
ECONOMICS in Action Economists: What Are They Good For?
BUSINESS CASE Efficiency, Opportunity Cost, and the Logic of Lean Production
Appendix: Graphs in Economics
Getting the Picture
Graphs, Variables, and Economic Models
How Graphs Work
Two-Variable Graphs
Curves on a Graph
A Key Concept: The Slope of a Curve
The Slope of a Linear Curve
Horizontal and Vertical Curves and Their Slopes
The Slope of a Nonlinear Curve
Calculating the Slope Along a Nonlinear Curve
Maximum and Minimum Points
Calculating the Area Below or Above a Curve
Graphs That Depict Numerical information
Types of Numerical Graphs
Problems in Interpreting Numerical Graphs
PART 2 Supply and Demand
Chapter 3
supply and Demand
A Natural Gas Boom
Supply and Demand: A Model of a Competitive Market
‘The Demand Curve
The Demand Schedule and the Demand Curve
GLOBAL COMPARISON Pay More, Pump Less
Shifts of the Demand Curve
Understanding Shifts of the Demand Curve
ECONOMICS in Action Beating the Traffic
The Supply Curve
The Supply Schedule and the Supply Curve
Shifts of the Supply Curve
Understanding Shifts of the Supply Curve
ECONOMICS in Action Only Creatures Small and Pampered
Supply, Demand, and Equilibrium
Finding the Equilibrium Price and Quantity
Why Do All Sales and Purchases in a Market Take Place at the Same Price?
Why Does the Market Price Fall If It Is Above the Equilibrium Price?
Why Does the Market Price Rise If It Is Below the Equilibrium Price?
Using Equilibrium to Describe Markets
ECONOMICS in Action The Price of Admission
Changes in Supply and Demand
What Happens When the Demand Curve Shifts
What Happens When the Supply Curve Shifts
simultaneous Shifts of Supply and Demand Curves
ECONOMICS in Action The Cotton Panic and Crash of 2011
Competitive Markets—and Others
BUSINESS CASE Uber Gives Riders a Lesson in Supply and Demand
Chapter 4
Consumer and Producer Surplus
Making Gains by the Book
Consumer Surplus and the Demand Curve
Willingness to Pay and the Demand Curve
Willingness to Pay and Consumer Surplus
How Changing Prices Affect Consumer Surplus
For InquirMiinndsg A Matter of Life and Death
ECONOMICS in Action When Money Isn’t Enough
Producer Surplus and the Supply Curve
Cost and Producer Surplus
How Changing Prices Affect Producer Surplus
ECONOMICS in Action High Times Down on the Farm
Consumer Surplus, Producer Surplus, and the Gains from Trade
The Gains from Trade
The Efficiency of Markets
Equity and Efficiency
ECONOMICS in Action Take the Keys, Please
A Market Economy
Why Markets Typically Work So Well
A Few Words of Caution
ECONOMICS in Action A Great Leap—Backward
BUSINESS CASE Ticket Prices and Music’s Reigning Couple, Jay-Z and Beyoncé
Chapter 5
Price Controls and Quotas: Meddling with Markets
Big City, Not So Bright Ideas
Why Governments Control Prices
Price Ceilings
‘Modeling a Price Ceiling
How a Price Ceiling Causes Inefficiency
For InquiMirndsi Wninngers , Losers, and Rent Control
For InquiMinrdsi Mnumbgai’ s Rent-Control Millionaires
So Why Are There Price Ceilings?
ECONOMICS in ActioWnhy Price Controls in Venezuela Proved Useless
Price Floors
How a Price Floor Causes Inefficiency
GLOBAL COMPARISON Check Out Our Low, Low Wages!
So Why Are There Price Floors?
ECONOMICS in Action The Rise and Fall of the Unpaid Intern
Controlling Quantities
The Anatomy of Quantity Controls
The Costs of Quantity Controls
ECONOMICS in Action Crabbing, Quotas, and Saving Lives in Alaska
BUSINESS CASE Why Taxi Medallion Lenders Are Feeling Like Roadkill
Chapter 6
Elasticity
Taken for a Ride
Defining and Measuring Elasticity
Calculating the Price Elasticity of Demand
An Alternative Way to Calculate Elasticities: The Midpoint Method
ECONOMICS in Action Estimating Elasticities
Interpreting the Price Elasticity of Demand
How Elastic Is Elastic?
Price Elasticity Along the Demand Curve
What Factors Determine the Price Elasticity of Demand?
ECONOMICS in Action Responding to Your Tuition Bill
Other Demand Elasticities
The Cross-Price Elasticity of Demand
The Income Elasticity of Demand
For InquirMiindsn gWil l China Save the U.S. Farming Sector?
GLOBAL COMPARISON Food’s Bite in World Budgets
ECONOMICS in Action Spending It
‘The Price Elasticity of Supply
‘Measuring the Price Elasticity of Supply
What Factors Determine the Price Elasticity of Supply?
ECONOMICS in Action China and the Global Commodities Glut of 2016
An Elasticity Menagerie
BUSINESS CASE The Airline Industry: Fly Less, Charge More
PART 3 Individuals and Markets
Chapter 7
Taxes
The Founding Taxers
‘The Economics of Taxes: A Preliminary View
The Effect of an Excise Tax on Quantities and Prices
Price Elasticities and Tax Incidence
ECONOMICS in ActioWnho Pays the FICA?
‘The Benefits and Costs of Taxation
The Revenue from an Excise Tax
Tax Rates and Revenue
The Costs of Taxation
For Inquiring Minds French Tax Rates and L’Arc Latter
Elasticities and the Deadweight Loss of a Tax
ECONOMICS in Action Taxing Tobacco
‘Tax Fairness and Tax Efficiency
Two Principles of Tax Fairness
Equity versus Efficiency
ECONOMICS in Action Federal Tax Philosophy
Understanding the Tax System
Tax Bases and Tax Structure
Equity, Efficiency, and Progressive Taxation
Taxes in the United States
Different Taxes, Different Principles
GLOBAL COMPARISON You Think You Pay High Taxes?
For InquiMirndis nTaxgin g Income versus Taxing Consumption
ECONOMICS in Action State Tax Choices
BUSINESS CASE Microsoft’s Internal Carbon Tax
Chapter 8
International Trade
‘The Everywhere Phone
Comparative Advantage and International Trade
Production Possibilities and Comparative Advantage, Revisited
The Gains from International Trade
Comparative Advantage versus Absolute Advantage
GLOBAL COMPARISON Productivity and Wages Around the World
Sources of Comparative Advantage
For Inquiring Minds Increasing Returns to Scale and International Trade
ECONOMICS in Action How Hong Kong Lost Its Shirts
Supply, Demand, and International Trade
The Effects of Imports
The Effects of Exports
International Trade and Wages
ECONOMICS in Action Trade, Wages, and Land Prices in the Nineteenth Century
‘The Effects of Trade Protection
The Effects of a Tariff
The Effects of an Import Quota
ECONOMICS in Action Trade Protection in the United States
‘The Political Economy of Trade Protection
Arguments for Trade Protection
The Politics of Trade Protection
International Trade Agreements and the World Trade Organization
Challenges to Globalization
ECONOMICS in Action Solar Disputes
BUSINESS CASE Li & Fung: From Guangzhou to You
PART 4 Economics and Decision Making
Chapter 9
Decision Making by Individuals and Firms
Making Decisions in Good Times and Bad
Costs, Benefits, and Profits
Explicit versus Implicit Costs
Accounting Profit versus Economic Profit
Making “Either-Or” Decisions
ECONOMICS in Action Airbnb and the Rising Cost of Privacy
‘Making “How Much” Decisions: The Role of Marginal Analysis
Marginal Cost
Marginal Benefit
Marginal Analysis
GLOBAL COMPARISON House Sizes Around the World
A Principle with Many Uses
ECONOMICS in Action The Cost of a Life
Sunk Costs
ECONOMICS in Action Biotech: The World’s Biggest Loser
Behavioral Economics
Rational, but Human, Too
Irrationality: An Economist’s View
For Inquiring Minds In Praise of Hard Deadlines
Rational Models for Irrational People?
ECONOMICS in Action “The Jingle Mail Blues”
BUSINESS CASE J.C. Penney’s One-Price Strategy Upsets Its Customers
Chapter 9
Appendix: How to Make Decisions Involving Time: Understanding Present Value
How to Calculate the Present Value of a One-Year Project
How to Calculate the Present Value of Multiyear Projects
How to Calculate the Present Value of Projects with Revenues and Costs
PART 5 The Consumer
Chapter 10
The Rational Consumer
T he AbsolLuastt eBi te
Utility: Getting Satisfaction
Utility and Consumption
The Principle of Diminishing Marginal Utility
ECONOMICS in Action Is Salmon a Luxury? It Depends
Budgets and Optimal Consumption
Budget Constraints and Budget Lines
Optimal Consumption Choice
For Inquiring Minds Food for Thought on Budget Constraints
ECONOMICS in Action The Great Condiment Craze
Spending the Marginal Dollar
Marginal Utility per Dollar
Optimal Consumption
ECONOMICS in Action Buying Your Way Out of Temptation
From Utility to the Demand Curve
Marginal Utility, the Substitution Effect, and the Law of Demand
The Income Effect
ECONOMICS in Action Lower Gasoline Prices and the Urge to Splurge
BUSINESS CASE Freedom from Fries
Chapter 10
Appendix: Consumer Preferences and Consumer Choice
‘Mapping the Utility Function
Indifference Curves
Properties of Indifference Curves
Indifference Curves and Consumer Choice
The Marginal Rate of Substitution
The Tangency Condition
The Slope of the Budget Line
Prices and the Marginal Rate of Substitution
Preferences and Choices
Using Indifference Curves: Substitutes and Complements
Perfect Substitutes
Perfect Complements
Less Extreme Cases
Prices, Income, and Demand
The Effects of a Price Increase
Income and Consumption
Income and Substitution Effects
PART 6 The Production Decision
Chapter 11
Behind the Supply Curve: Inputs and Costs
‘The Farmer’s Margin
The Production Function
Inputs and Output
GLOBAL COMPARISON Wheat Yields Around the World
From the Production Function to Cost Curves
ECONOMICS in Action Finding the Optimal Team Size
‘Two Key Concepts: Marginal Cost and Average Cost
Marginal Cost
Average Total Cost
‘Minimum Average Total Cost
Does the Marginal Cost Curve Always Slope Upward?
ECONOMICS in Action Smart Grid Economics
Short-Run versus Long-Run Costs
Returns to Scale
Summing Up Costs: The Short and Long of It
ECONOMICS in Action How the Sharing Economy Reduces Fixed Cost
BUSINESS CASE Amazon’s Invasion of the Bots
Chapter 12
Perfect Competition and the Supply Curve
Deck the Halls
Perfect Competition
Defining Perfect Competition
Two Necessary Conditions for Perfect Competition
Free Entry and Exit
For InquiMirndis nWhgat’ s a Standardized Product?
ECONOMICS in Action Pay for Delay
Production and Profits
Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output
When Is Production Profitable?
The Short-Run Production Decision
Changing Fixed Cost
Summing Up: The Perfectly Competitive Firm’s Profitability and Production Conditions
ECONOMICS in Action Farmers Know How
‘The Industry Supply Curve
The Short-Run Industry Supply Curve
The Long-Run Industry Supply Curve
The Cost of Production and Efficiency in Long-Run Equilibrium
ECONOMICS in Action Thirsty? From Global Wine Glut to Shortage
BUSINESS CASE Bricks-and-Mortar Retailers Go Toe to Toe with Mobile Shopping Apps
PART 7 Market Structure: Beyond Perfect Competition
Chapter 13
‘Monopoly
Everybody Must Get Stones
‘Types of Market Structure
‘The Meaning of Monopoly
Monopoly: Our First Departure from Perfect Competition
What Monopolists Do
Why Do Monopolies Exist?
GLOBAL COMPARISON The Price We Pay
ECONOMICS in Action The Monopoly That Wasn’t: China and the Market for Rare Earths
How a Monopolist Maximizes Profit
The Monopolist’s Demand Curve and Marginal Revenue
The Monopolist’s Profit-Maximizing Output and Price
Monopoly versus Perfect Competition
Monopoly: The General Picture
ECONOMICS in Action Shocked by the High Price of Electricity
‘Monopoly and Public Policy
Welfare Effects of Monopoly
Preventing Monopoly
Dealing with Natural Monopoly
ECONOMICS in Action The (R)Evolution of the American High-Speed Internet Market
Price Discrimination
The Logic of Price Discrimination
Price Discrimination and Elasticity
Perfect Price Discrimination
ECONOMICS in Action Sales, Factory Outlets, and Ghost Cities
BUSINESS CASE Amazon and Hachette Go to War
Chapter 14
Oligopoly
Regulators Give Bridgestone a Flat Tire
The Prevalence of Oligopoly
ECONOMICS in Action Is It a Beer-opoly or Not?
Understanding Oligopoly
A Duopoly Example
Collusion and Competition
ECONOMICS in Action The Case Against Chocolate Producers Melts
Games Oligopolists Play
The Prisoners’ Dilemma
For Inquiring Minds Prisoners of the Arms Race and the Resurgent Cold War
Overcoming the Prisoners’ Dilemma: Repeated Interaction and Tacit Collusion
ECONOMICS in Action The Demise of OPEC
Oligopoly in Practice
The Legal Framework
GLOBAL COMPARISON Contrasting Approaches to Antitrust Regulation
Tacit Collusion and Price Wars
Product Differentiation and Price Leadership
How Important Is Oligopoly?
ECONOMICS in Action The Price Wars of Christmas
BUSINESS CASE Virgin Atlantic Blows the Whistle .. . or Blows It?
Chapter 15
Monopolistic Competition and Product Differentiation
Fast-Food Differentiation
‘The Meaning of Monopolistic Competition
Large Numbers
Differentiated Products
Free Entry and Exit in the Long Run
‘Monopolistic Competition: In Sum
Product Differentiation
Differentiation by Style or Type
Differentiation by Location
Differentiation by Quality
Product Differentiation: In Sum
ECONOMICS in Action Abbondanza!
Understanding Monopolistic Competition
‘Monopolistic Competition in the Short Run
‘Monopolistic Competition in the Long Run
ECONOMICS in Action Hits and Flops in the App Store
‘Monopolistic Competition versus Perfect Competition
Price, Marginal Cost, and Average Total Cost
Is Monopolistic Competition Inefficient?
Controversies About Product Differentiation
The Role of Advertising
Brand Names
ECONOMICS in Action The Perfume Industry: Leading Consumers by the Nose
BUSINESS CASE The Dollar Shave Club: How to Avoid a Case of Razor Burn
PART 8 Microeconomics and Public Policy
Chapter 16
Externalities
Trouble Underfoot
External Costs and Benefits
For InquiMirndis Tnalkging , Texting, and Driving
Pollution: An External Cost
The Socially Optimal Quantity of Pollution
Why a Market Economy Produces Too Much Pollution
Private Solutions to Externalities
ECONOMICS in Action How Much Does Your Electricity Really Cost?
Policies Toward Pollution
Environmental Standards
Emissions Taxes
GLOBAL COMPARISON Economic Growth and Greenhouse Gases in Six Countries
Tradable Emissions Permits
Comparing Environmental Policies with an Example
The Economics of Climate Change and the Great Energy Transition
ECONOMICS in Action Cap and Trade
Positive Externalities
Preserved Farmland: An External Benefit
Positive Externalities in Today’s Economy
ECONOMICS in Action The Impeccable Economic Logic of Early-Childhood Intervention
Programs
Network Externalities
The External Benefits of a Network Externality
ECONOMICS in Action The Microsoft Case
BUSINESS CASE Snapchat and Instagram: Not Your Grandmother’s Social Networking
Platforms
Chapter 17
Public Goods and Common Resources
‘The Great Stink
Private Goods—and Others
Characteristics of Goods
Why Markets Can Supply Only Private Goods Efficiently
ECONOMICS in Action From Mayhem to Renaissance
Public Goods
Providing Public Goods
How Much of a Public Good Should Be Provided?
For InquiMirndis nVotgin g as a Public Good
GLOBAL COMPARISON Voting as a Public Good: The Global Perspective
Cost-Benefit Analysis
ECONOMICS in Action American Infrastructure Gets a D+
Common Resources
The Problem of Overuse
The Efficient Use and Maintenance of a Common Resource
For InquiMrinids nWghen Fertile Farmland Turned to Dust
ECONOMICS in Action Saving the Oceans with ITQs
Artificially Scarce Goods
ECONOMICS in Action Twenty-First Century Piracy
BUSINESS CASE Mauricedale Game Ranch and Hunting Endangered Animals to Save Them
Chapter 18
The Economics of the Welfare State
‘The Comofi Onbamgaca re
Poverty, Inequality, and Public Policy
The Logic of the Welfare State
The Problem of Poverty
For InquiMirndis nJusgtic e and the Welfare State
Economic Inequality
Economic Insecurity
GLOBAL COMPARISON Income, Redistribution, and Inequality in Rich Countries
ECONOMICS in Action Long-term Trends in Income Inequality in the United States
The U.S. Welfare State
Means-Tested Programs
Social Security and Unemployment Insurance
The Effects of the Welfare State on Poverty and Inequality
ECONOMICS in Action Welfare State Programs and Poverty Rates in the Great Recession,
2007-2010
‘The Economics of Health Care
The Need for Health Insurance
For Inquiring Minds A California Death Spiral
Government Health Insurance
Health Care in Other Countries
The Affordable Care Act
ECONOMICS in Action What Medicaid Does
‘The Debate over the Welfare State
Problems with the Welfare State
The Politics of the Welfare State
ECONOMICS in Action French Family Values
BUSINESS CASE Ruby Hill Farm: The ACA and Freedom to Farm
PART 9 Factor Markets and Risk
Chapter 19
Factor Markets and the Distribution of Income
The Value ofa Degree
‘The Economy’s Factors of Production
The Factors of Production
Why Factor Prices Matter: The Allocation of Resources
Factor Incomes and the Distribution of Income
For InquirMiindns gTh e Factor Distribution of Income and Social Change in the Industrial
Revolution
ECONOMICS in Action The Factor Distribution of Income in the United States
‘Marginal Productivity and Factor Demand
Value of the Marginal Product
Value of the Marginal Product and Factor Demand
Shifts of the Factor Demand Curve
The Marginal Productivity Theory of Income Distribution
The Markets for Land and Capital
The Marginal Productivity Theory of Income Distribution
ECONOMICS in Action Help Wanted at Flex!
Is the Marginal Productivity Theory of Income Distribution Really True?
Wage Disparities in Practice
Marginal Productivity and Wage Inequality
Market Power
Efficiency Wages
Discrimination
For Inquiring Minds How Labor Works the German Way
So Does Marginal Productivity Theory Work?
ECONOMICS in Action Marginal Productivity and the “1%”
‘The Supply of Labor
Work versus Leisure
Wages and Labor Supply
For InquirMiindns gWh y You Can’t Find a Cab When It’s Raining
Shifts of the Labor Supply Curve
GLOBAL COMPARISON The Overworked American?
ECONOMICS in Action The Decline of the Summer Job
BUSINESS CASE Walmart Gives a Hike
Chapter 19
Appendix: Indifference Curve Analysis of Labor Supply
‘The Time Allocation Budget Line
‘The Effect of a Higher Wage Rate
Indifference Curve Analysis
Chapter 20
Uncertainty, Risk, and Private Information
Extreme Weather
The Economics of Risk Aversion
Expectations and Uncertainty
The Logic of Risk Aversion
For InquirMiindns gTh e Paradox of Gambling
Paying to Avoid Risk
ECONOMICS in Action Warranties
Buying, Selling, and Reducing Risk
Trading Risk
Making Risk Disappear: The Power of Diversification
For InquiMrindis nThgos e Pesky Emotions
The Limits of Diversification
ECONOMICS in Action When Lloyd’s Almost Lost It
Private Information: What You Don’t Know Can Hurt You
Adverse Selection: The Economics of Lemons
Moral Hazard
ECONOMICS in Action Franchise Owners Try Harder
BUSINESS CASE PURE—An Insurance Company That Withstands Hurricanes
PART 10 Introduction to Macroeconomics
Chapter 21
‘Macroeconomics: The Big Picture
Greek Tragedies
‘The Nature of Macroeconomics
Macroeconomic Questions
Macroeconomics: The Whole Is Greater Than the Sum of Its Parts
Macroeconomics: Theory and Policy
ECONOMICS in Action Fending Off Depression
‘The Business Cycle
Charting the Business Cycle
The Pain of Recession
For Inquiring Minds Defining Recessions and Expansions
Taming the Business Cycle
GLOBAL COMPARISON Slumps Across the Atlantic
ECONOMICS in Action Comparing Recessions
Long-Run Economic Growth
ECONOMICS in Action A Tale of Two Countries
Inflation and Deflation
The Causes of Inflation and Deflation
The Pain of Inflation and Deflation
ECONOMICS in Action A Fast (Food) Measure of Inflation
International Imbalances
ECONOMICS in Action Greece’s Costly Surplus
BUSINESS CASE The Business Cycle and the Decline of Montgomery Ward
Chapter 22
GDP and the CPI: Tracking the Macroeconomy
China Hits the Big Time
‘The National Accounts
Following the Money: The Expanded Circular-Flow Diagram
Gross Domestic Product
Calculating GDP
For InquirMiindns gOu r Imputed Lives
What GDP Tells Us
For Inquiring Minds Gross What?
Real GDP: A Measure of Aggregate Output
Calculating Real GDP
What Real GDP Doesn’t Measure
GLOBAL COMPARISON GDP and the Meaning of Life
ECONOMICS in Action Miracle in Venezuela?
Price Indexes and the Aggregate Price Level
Market Baskets and Price Indexes
The Consumer Price Index
Other Price Measures
ECONOMICS in Action Indexing to the CPI
BUSINESS CASE Betting on Bad Numbers
Chapter 23
Unemployment and Inflation
Liftoff
‘The Unemployment Rate
Defining and Measuring Unemployment
The Significance of the Unemployment Rate
Growth and Unemployment
ECONOMICS in Action Failure to Launch
The Natural Rate of Unemployment
Job Creation and Job Destruction
Frictional Unemployment
Structural Unemployment
The Natural Rate of Unemployment
Changes in the Natural Rate of Unemployment
ECONOMICS in Action Structural Unemployment in Spain
Inflation and Deflation
The Level of Prices Doesn’t Matter…
… But the Rate of Change of Prices Does
Winners and Losers from Inflation
Inflation Is Easy; Disinflation Is Hard
ECONOMICS in Action Israel’s Experience with Inflation
BUSINESS CASE TaskRabbit
PART 11 Long-Run Economic Growth
Chapter 24
Long-Run Economic Growth
AirpocalypsNeow
Comparing Economies Across Time and Space
Real GDP per Capita
Growth Rates
ECONOMICS in ActionAn Economic Breakthrough in Bangladesh
The Sources of Long-Run Growth
The Crucial Importance of Productivity
Explaining Growth in Productivity
Accounting for Growth: The Aggregate Production Function
What About Natural Resources?
ECONOMICS in Action The Rise, Fall, and Return of the Productivity Paradox
Why Growth Rates Differ
Explaining Differences in Growth Rates
The Role of Government in Promoting Economic Growth
For Inquiring Minds Inventing R&D
ECONOMICS in Action What’s the Matter with Italy?
Success, Disappointment, and Failure
East Asia’s Miracle
Latin America’s Disappointment
Africa’s Troubles and Promise
Left Behind by Growth?
ECONOMICS in Action Are Economies Converging?
Is World Growth Sustainable?
Natural Resources and Growth, Revisited
Economic Growth and the Environment
ECONOMICS in Action What Is the Cost of Limiting Carbon?
BUSINESS CASE Raising the Bar(code)
Chapter 25
Savings, Investment Spending, and the Financial System
Paying for a Hidden Empire
Matching Up Savings and Investment Spending
The Savings—Investment Spending Identity
The Market for Loanable Funds
For InquiMrindis nUsgin g Present Value
ECONOMICS in Action Sixty Years of U.S. Interest Rates
‘The Financial System
Three Tasks of a Financial System
Types of Financial Assets
Financial Intermediaries
GLOBAL COMPARISON Corporate Bonds in the United States and the Euro Area
ECONOMICS in Action Banks and the South Korean Miracle
Financial Fluctuations
The Demand for Stocks
For Inquiring Minds How Now, Dow Jones?
The Demand for Other Assets
Asset Price Expectations
For Inquiring Minds Behavioral Finance
Asset Prices and Macroeconomics
ECONOMICS in Action The Great American Housing Bubble
BUSINESS CASE Grameen Bank: Banking Against Poverty
PART 12 Short-Run Economic Fluctuations
Chapter 26
Income and Expenditure
H ard Timesin Helsinki
‘The Multiplier: An Informal Introduction
ECONOMICS in Action To Shale and Back
Consumer Spending
Current Disposable Income and Consumer Spending
Shifts of the Aggregate Consumption Function
ECONOMICS in Action Famous First Forecasting Failures
Investment Spending
- The Interest Rate and Investment Spending
- Expected Future Real GDP, Production Capacity, and Investment Spending
- Inventories and Unplanned Investment Spending
ECONOMICS in Action Interest Rates and U.S. Housing
‘The Income-Expenditure Model
Planned Aggregate Spending and Real GDP.
Income—Expenditure Equilibrium
The Multiplier Process and Inventory Adjustment
What About Exports and Imports?
ECONOMICS in Action Inventories and the End of a Recession
BUSINESS CASE What’s Good for America Is Good for GM.
Chapter 26
Appendix: Deriving the Multiplier Algebraically
Chapter 27
Aggregate Demand and Aggregate Supply
Different Generations, Different Policies
Aggregate Demand
Why Is the Aggregate Demand Curve Downward Sloping?
The Aggregate Demand Curve and the Income-Expenditure Model
Shifts of the Aggregate Demand Curve
Government Policies and Aggregate Demand
ECONOMICS in Action Moving Along the Aggregate Demand Curve, 1979-1980
Aggregate Supply
The Short-Run Aggregate Supply Curve
For InquiMirndis nWhgat’ s Truly Flexible, What’s Truly Sticky
Shifts of the Short-Run Aggregate Supply Curve
The Long-Run Aggregate Supply Curve
From the Short Run to the Long Run
ECONOMICS in Action Sticky Wages in the Great Recession
‘The AD-AS Model
Short-Run Macroeconomic Equilibrium
Shifts of Aggregate Demand: Short-Run Effects
Shifts of the SRAS Curve
Long-Run Macroeconomic Equilibrium
For InquiMirndsi Wnhegre’ s the Deflation?
ECONOMICS in Action Supply Shocks versus Demand Shocks in Practice
‘Macroeconomic Policy
Policy in the Face of Demand Shocks
For Inquiring Minds Keynes and the Long Run
Respondingto Supply Shocks
ECONOMICS in Action Is Stabilization Policy Stabilizing?
BUSINESS CASE Toyota Makes Its Move
PART 13 Stabilization Policy
Chapter 28
Fiscal Policy
‘SpOeur Wnay dOut iof na Recgessi on
Fiscal Policy: The Basics
Taxes, Purchases of Goods and Services, Government Transfers, and Borrowing
The Government Budget and Total Spending
Expansionary and Contractionary Fiscal Policy
Can Expansionary Fiscal Policy Actually Work?
A Cautionary Note: Lags in Fiscal Policy
ECONOMICS in Action A Tale of Two Stimuli
Fiscal Policy and the Multiplier
Multiplier Effects of an Increase in Government Purchases of Goods and Services
‘Multiplier Effects of Changes in Government Transfers and Taxes
How Taxes Affect the Multiplier
ECONOMICS in Action Austerity and the Multiplier
‘The Budget Balance
The Budget Balance as a Measure of Fiscal Policy
The Business Cycle and the Cyclically Adjusted Budget Balance
Should the Budget Be Balanced?
ECONOMICS in Action Trying to Balance Budgets in a Recession
Long-Run Implications of Fiscal Policy
Deficits, Surpluses, and Debt
Potential Dangers Posedby Rising Government Debt
GLOBAL COMPARISON The American Way of Debt
Deficits and Debt in Practice
For InquirMinidsn gWha t Happened to the Debt from World War II?
Implicit Liabilities
ECONOMICS in Action Reducing Implicit Liabilities
BUSINESS CASE Here Comes the Sun
Chapter 28
Appendix: Taxes and the Multiplier
Chapter 29
Money, Banking, and the Federal Reserve System
Not So Funny Money
The Meaning of Money
What Is Money?
Roles of Money
GLOBAL COMPARISON The Big Moneys
Types of Money
‘Measuring the Money Supply
For Inquiring Minds From Bucks to Bitcoin
ECONOMICS in Action The History of the Dollar
The Monetary Role of Banks
What Banks Do
The Problem of Bank Runs
Bank Regulation
ECONOMICS in Action It’s a Wonderful Banking System
Determining the Money Supply
How Banks Create Money
Reserves, Bank Deposits, and the Money Multiplier
‘The Money Multiplier in Reality
ECONOMICS in Action Multiplying Money Down
‘The Federal Reserve System
The Structure of the Fed
What the Fed Does: Reserve Requirements and the Discount Rate
Open-Market Operations
For InquirMinidsn gWho Gets the Interest on the Fed’s Assets?
The European Central Bank
ECONOMICS in Action The Fed’s Balance Sheet, Normal and Abnormal
The Evolution of the American Banking System
The Crisis in American Banking in the Early Twentieth Century
Respondingto Banking Crises: The Creation of the Federal Reserve
The Savings and Loan Crisis of the 1980s
Back to the Future: The Financial Crisis of 2008 and Its Aftermath
ECONOMICS in Action Financial Regulation After the Crisis
BUSINESS CASE The Perfect Gift: Cash or a Gift Card?
Chapter 30
‘Monetary Policy
‘The Most PowerfPeurslon in Government
The Demand for Money
The Opportunity Cost of Holding Money
The Money Demand Curve
Shifts of the Money Demand Curve
ECONOMICS in Action A Yen for Cash
Money and Interest Rates
The Equilibrium Interest Rate
Two Models of Interest Rates?
Monetary Policy and the Interest Rate
Long-Term Interest Rates
ECONOMICS in Action Up the Down Staircase
‘Monetary Policy and Aggregate Demand
Expansionary and Contractionary Monetary Policy
Monetary Policy in Practice
The Taylor Rule Method of Setting Monetary Policy
Inflation Targeting
GLOBAL COMPARISON Inflation Targets
The Zero Lower Bound Problem
ECONOMICS in Action What the Fed Wants, the Fed Gets
‘Money, Output, and Prices in the Long Run.
Short-Run and Long-Run Effects of an Increase in the Money Supply
Monetary Neutrality
Changes in the Money Supply and the Interest Rate in the Long Run
ECONOMICS in Action International Evidence of Monetary Neutrality
BUSINESS CASE Parking Your Money at PayPal
Chapter 30
Appendix: Reconciling the Two Models of the Interest Rate
The Interest Rate in the Short Run
The Interest Rate in the Long Run
Chapter 31
Inflation, Disinflation, and Deflation
B ria nSuitgcasei ton theg Ba nk
‘Money and Inflation
The Classical Model of Money and Prices
The Inflation Tax
The Logic of Hyperinflation
ECONOMICS in Action Zimbabwe’s Inflation
‘Moderate Inflation and Disinflation
The Output Gap and the Unemployment Rate
For InquiMrindis ng Okun’s Law
The Short-Run Phillips Curve
For InquirMiindns gTh e Aggregate Supply Curve and the Short-Run Phillips Curve
Inflation Expectations and the Short-Run Phillips Curve
ECONOMICS in Action The Phillips Curve in the Great Recession
Inflation and Unemployment in the Long Run
The Long-Run Phillips Curve
The Natural Rate of Unemployment, Revisited
GLOBAL COMPARISON Disinflation Around the World
The Costs of Disinflation
ECONOMICS in Action The Great Disinflation of the 1980s
Deflation
Debt Deflation
Effects of Expected Deflation
ECONOMICS in Action Is Europe Turning Japanese?
BUSINESS CASE Dining and Dollars in Buenos Aires
PART 14 Events and Ideas
Chapter 32
Macroeconomics: Events and Ideas
Old Books and New Ideas
Classical Macroeconomics
Money and the Price Level
The Business Cycle
‘The Great Depression and the Keynesian Revolution
Keynes’s Theory
For InquirMiindsn gTh e Politics of Keynes
Policy to Fight Recessions
ECONOMICS in Action The End of the Great Depression
Challenges to Keynesian Economics
The Revival of Monetary Policy
Monetarism
Limits to Macroeconomic Policy: Inflation and the Natural Rate of Unemployment
The Political Business Cycle
ECONOMICS in Action The Fed’s Flirtation with Monetarism
Rational Expectations, Real Business Cycles, and New Classical Macroeconomics
Rational Expectations
Real Business Cycles
For Inquiring Minds Supply-Side Economics
ECONOMICS in Action The 1970s in Reverse
‘The Great Moderation Consensus
‘Modern Macroeconomics After the Great Recession
The Economic Environment Post Recession
Stimulus versus Austerity
The Fed’s Unconventional Monetary Policy
ECONOMICS in Action Japan’s Escape Attempt
PART 15 The International Economy
Chapter 33
International Macroeconomics
‘Switzerland Doesn’t Want Your Money
Capital Flows and the Balance of Payments
Balance of Payments Accounts
For Inquiring Minds GDP, GNP, and the Current Account
Modeling the Financial Account
GLOBAL COMPARISON Big Surpluses
Underlying Determinants of International Capital Flows
Two-Way Capital Elows
ECONOMICS in Action The Golden Age of Capital Flows
‘The Role of the Exchange Rate
Understanding Exchange Rates
The Equilibrium Exchange Rate
Inflation and Real Exchange Rates
Purchasing Power Parity
For Inquiring Minds Burgernomics
ECONOMICS in Action Strong Dollar Woes
Exchange Rate Policy
Exchange Rate Regimes
How Can an Exchange Rate Be Held Fixed?
The Exchange Rate Regime Dilemma
For Inquiring Minds From Bretton Woods to the Euro
ECONOMICS in Action China Pegs the Yuan
Exchange Rates and Macroeconomic Policy
Devaluation and Revaluation of Fixed Exchange Rates
Monetary Policy Under Floating Exchange Rates,
International Business Cycles
ECONOMICS in Action The Little Currency That Could
BUSINESS CASE A Yen for Japanese Cars
‘Macroeconomic Data Tables
Solutions to Check Your Understanding Questions
Glossary
Index