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Copyright, ii
About the Authors, v
Global Coverage, xv
Preface, xvii
I. Introduction to Economics, 1
1. The Scope and Method of Economics, 1
Why Study Economics?, 2
The Scope of Economics, 7
The Method of Economics, 10
An Invitation, 16
Summary, 16
Review Terms and Concepts, 16
Problem Set, 17
Appendix: How to Read and Understand Graphs, 17
Time Series Graphs, 17
Graphing Two Variables on a Cartesian Coordinate System, 18
Plotting Income and Consumption Data for Households, 19
Slope, 20
Some Precautions, 21
Summary, 22
Review Terms and Concepts, 22
Problem Set, 23
2. The Economic Problem: Scarcity and Choice, 25
Scarcity, Choice, and Opportunity Cost, 26
Economic Systems, 39
Looking Ahead, 42
Summary, 42
Review Terms and Concepts, 43
Problem Set, 43
3. Demand, Supply, and Market Equilibrium, 47
Firms and Households: The Basic Decision-Making Units, 48
Input Markets and Output Markets: The Circular Flow, 48
Demand in Product/Output Markets, 50
Supply in Product/Output Markets, 59
Market Equilibrium, 64
Demand and Supply in Product Markets: A Review, 70
Looking Ahead: Markets and the Allocation of Resources, 70
Summary, 72
Review Terms and Concepts, 73
Problem Set, 73
4. Demand and Supply Applications, 77
The Price System: Rationing and Allocating Resources, 77
Supply and Demand Analysis: An Oil Import Fee, 85
Supply and Demand and Market Efficiency, 86
Looking Ahead, 91
Summary, 91
Review Terms and Concepts, 92
Problem Set, 92
II. Concepts and Problems in Macroeconomics, 94
5. Introduction to Macroeconomics, 95
The Roots of Macroeconomics, 96
Macroeconomic Concerns, 98
Government in the Macroeconomy, 100
The Components of the Macroeconomy, 102
The Methodology of Macroeconomics, 104
The U.S. Economy Since 1900: Trends and Cycles, 106
Summary, 110
Review Terms and Concepts, 110
Problem Set, 111
6. Measuring National Output and National Income, 113
Gross Domestic Product, 113
Calculating GDP, 115
Nominal Versus Real GDP, 122
Limitations of the GDP Concept, 125
Looking Ahead, 127
Summary, 127
Review Terms and Concepts, 128
Problem Set, 128
7. Long-Run and Short-Run Concerns: Growth, Productivity, Unemployment, and Inflation, 131
Long-Run Output and Productivity Growth, 132
Recessions, Depressions, and Unemployment, 134
Inflation, 143
Summary, 148
Review Terms and Concepts, 149
Problem Set, 149
III. The Goods and Money Markets, 151
8. Aggregate Expenditure and Equilibrium Output, 151
Aggregate Output and Aggregate Income (Y), 152
Equilibrium Aggregate Output (Income), 160
The Multiplier, 165
Looking Ahead, 171
Summary, 171
Review Terms and Concepts, 171
Problem Set, 172
Appendix: Deriving the Multiplier Algebraically, 173
9. The Government and Fiscal Policy, 175
Government in the Economy, 176
Fiscal Policy at Work: Multiplier Effects, 180
The Federal Budget, 186
The Economy’s Influence on the Government Budget, 189
Looking Ahead, 191
Summary, 191
Review Terms and Concepts, 192
Problem Set, 192
Appendix A: Deriving the Fiscal Policy Multipliers, 193
The Government Spending and Tax Multipliers, 193
The Balanced–Budget Multiplier, 193
Appendix B: The Case in Which Tax Revenues Depend on Income, 194
The Government Spending and Tax Multipliers Algebraically, 195
Summary, 196
Problem Set, 196
10. The Money Supply and the Federal Reserve System, 197
An Overview of Money, 197
How Banks Create Money, 202
The Federal Reserve System, 208
How the Federal Reserve Controls the Money Supply, 212
Looking Ahead, 218
Summary, 218
Review Terms and Concepts, 218
Problem Set, 219
11. Money Demand, the Equilibrium Interest Rate, and Monetary Policy, 221
The Demand for Money, 221
The Equilibrium Interest Rate, 229
Looking Ahead: The Federal Reserve and Monetary Policy, 233
Summary, 233
Review Terms and Concepts, 234
Problem Set, 234
Appendix A: The Various Interest Rates in the U.S. Economy, 235
The Term Structure of Interest Rates, 235
Types of Interest Rates, 236
Problem Set, 237
Appendix B: The Demand For Money: A Numerical Example, 237
Problem Set, 238
IV. Macroeconomic Analysis, 239
12. Money, the Interest Rate, and Output: Analysis and Policy, 239
The Links between the Goods Market and the Money Market, 239
Combining the Goods Market and the Money Market, 244
Other Determinants of Planned Investment, 250
Looking Ahead: The Price Level, 251
Summary, 251
Review Terms and Concepts, 252
Problem Set, 252
Appendix: The IS-LM Diagram, 253
The IS Curve, 253
The LM Curve, 254
The IS-LM Diagram, 254
Summary, 255
Review Terms and Concepts, 255
Problem Set, 256
13. Aggregate Demand, Aggregate Supply, and Inflation, 257
The Aggregate Demand Curve, 257
The Aggregate Supply Curve, 263
The Equilibrium Price Level, 268
The Long-Run Aggregate Supply Curve, 269
Aggregate Demand, Aggregate Supply, and Monetary and Fiscal Policy, 271
Causes of Inflation, 274
Looking Ahead, 278
Summary, 279
Review Terms and Concepts, 280
Problem Set, 280
14. The Labor Market, Unemployment, and Inflation, 281
The Labor Market: Basic Concepts, 281
The Classical View of the Labor Market, 282
Explaining the Existence of Unemployment, 286
The Short-Run Relationship between the Unemployment Rate and Inflation, 288
The Long-Run Aggregate Supply Curve, Potential GDP, and the Natural Rate of Unemployment, 294
Looking Ahead, 296
Summary, 297
Review Terms and Concepts, 297
Problem Set, 298
15. Macroeconomic Issues and Policy, 299
Time Lags Regarding Monetary and Fiscal Policy, 299
Monetary Policy, 303
Fiscal Policy: Deficit Targeting, 309
Fiscal Policy Since 1990, 313
Summary, 316
Review Terms and Concepts, 316
Problem Set, 316
16. The Stock Market and the Economy, 319
Stocks and Bonds, 319
The Stock Market Since 1948, 323
Stock Market Effects on the Economy, 325
Summary, 332
Review Terms and Concepts, 332
Problem Set, 332
17. Household and Firm Behavior in the Macroeconomy: A Further Look, 335
Households: Consumption and Labor Supply Decisions, 335
Firms: Investment and Employment Decisions, 345
Productivity and the Business Cycle, 353
The Relationship Between Output and Unemployment, 354
The Size of the Multiplier, 355
Summary, 356
Review Terms and Concepts, 357
Problem Set, 358
18. Long-Run Growth, 359
The Growth Process: From Agriculture to Industry, 359
The Sources of Economic Growth, 361
Growth and Productivity in the United States, 365
Economic Growth and Public Policy, 368
The Pros and Cons of Growth, 372
Summary: No Right Answer, 375
Summary, 375
Review Terms and Concepts, 376
Problem Set, 376
19. Debates in Macroeconomics: Monetarism, New Classical Theory, and Supply-Side Economics, 379
Keynesian Economics, 379
Monetarism, 380
New Classical Macroeconomics, 384
Supply-Side Economics, 389
Testing Alternative Macroeconomic Models, 391
Summary, 392
Review Terms and Concepts, 392
Problem Set, 393
V. The World Economy, 395
20. International Trade, Comparative Advantage, and Protectionism, 395
Trade Surpluses and Deficits, 396
The Economic Basis for Trade: Comparative Advantage, 396
The Sources of Comparative Advantage, 404
Trade Barriers: Tariffs, Export Subsidies, and Quotas, 405
Free Trade or Protection?, 409
An Economic Consensus, 413
Summary, 413
Review Terms and Concepts, 415
Problem Set, 415
21. Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates, 417
The Balance of Payments, 418
Equilibrium Output (Income) in an Open Economy, 422
The Open Economy with Flexible Exchange Rates, 426
An Interdependent World Economy, 436
Summary, 436
Review Terms and Concepts, 437
Problem Set, 437
Appendix: World Monetary Systems Since 1900, 438
The Gold Standard, 438
Problems with the Gold Standard, 439
Fixed Exchange Rates and the Bretton Woods System, 439
“Pure” Fixed Exchange Rates, 440
Problems with the Bretton Woods System, 440
Summary, 441
Review Terms and Concepts, 442
Problem Set, 442
22. Globalization, 443
The Global Circular Flow, 443
A Brief History of Economic Globalization, 445
The Benefits and Costs of Globalization, 446
Public Policy and Globalization, 454
Globalization, Capitalism, and Democracy, 456
A Final Word, 457
Summary, 457
Review Terms and Concepts, 458
Problem Set, 458
23. Economic Growth in Developing and Transitional Economies, 459
Life in the Developing Nations: Population and Poverty, 460
Economic Development: Sources and Strategies, 461
Issues in Economic Development, 467
Economies in Transition, 471
The End of the Soviet Union, 474
The Transition to a Market Economy, 474
Summary, 479
Review Terms and Concepts, 480
Problem Set, 480
Glossary, 480
Solutions to Even-Numbered Problems, S-1
Chapter 1, S-1
Chapter 1 Appendix, S-1
Chapter 2, S-1
Chapter 3, S-3
Chapter 4, S-5
Chapter 5, S-7
Chapter 6, S-7
Chapter 7, S-8
Chapter 8, S-9
Chapter 9, S-9
Chapter 10, S-10
Chapter 11, S-10
Chapter 12, S-11
Chapter 13, S-12
Chapter 14, S-13
Chapter 15, S-14
Chapter 16, S-15
Chapter 17, S-15
Chapter 18, S-16
Chapter 19, S-17
Chapter 20, S-17
Chapter 21, S-18
Chapter 22, S-18
Chapter 23, S-19
Index, I-1-1

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