Macroeconomics Principles and Policy (with InfoTrac)

by Baumol, William J.; Blinder, Alan S.

Edition: 10th

ISBN13: 9780324221145

ISBN10: 0324221142

Format: Paperback

Pub. Date: 2005-06-20

Publisher(s): South-Western College Pub

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Summary

This macroeconomics text is well known for using the Keynesian model in the teaching of economics; yet in recent editions, the authors have expanded coverage of the growth model considerably to achieve more balanced coverage. The text uses the aggregate supply/ aggregate demand model as a fundamental tool for learning macroeconomics. It achieves the right level of rigor and detail, presenting complicated concepts in a relatively straightforward manner and using timely economic data. Using puzzles, issues, and well-developed examples, the authors provide a good balance of theory to application. Homework Xpress and Aplia are available with the Anniversary Tenth Edition and two new sets of end of chapter questions have been added as well to help students prepare for exams: Test Yourself” and Discussion Questions”.

Preface	p. xvii
Getting Acquainted With Economics	p. 1
What is Economics?	p. 3
Ideas for Beyond the Final Exam	p. 4
How Much Does It Really Cost?	p. 4
Attempts to Repeal the Laws of Supply and Demand-The Market Strikes Back	p. 5
The Surprising Principle of Comparative Advantage	p. 5
Trade Is a Win-Win Situation	p. 5
Government Policies Can Limit Economic Fluctuations-But Don't Always Succeed	p. 6
The Short-Run Trade-Off between Inflation and Unemployment	p. 6
Productivity Growth Is (Almost) Everything in the Long Run	p. 6
Epilogue	p. 7
Inside The Economist's Tool Kit	p. 7
Economics as a Discipline	p. 7
The Need for Abstraction	p. 7
The Role of Economic Theory	p. 9
What Is an Economic Model?	p. 10
Reasons for Disagreements: Imperfect Information and Value Judgments	p. 11
Summary	p. 12
Key Terms	p. 12
Discussion Questions	p. 12
Using Graphs: A Review	p. 12
Graphs Used In Economic Analysis	p. 13
Two-Variable Diagrams	p. 13
The Definition and Measurement of Slope	p. 14
Rays Through the Origin and 45[degree] Lines	p. 14
Squeezing Three Dimensions Into Two: Contour Maps	p. 16
Summary	p. 17
Key Terms	p. 17
Test Yourself	p. 18
The Economy: Myth and Reality	p. 19
The American Economy: A Thumbnail Sketch	p. 20
A Private-Enterprise Economy	p. 21
A Relatively "Closed" Economy	p. 21
A Growing Economy...	p. 22
But with Bumps along the Growth Path	p. 22
The Inputs: Labor and Capital	p. 23
The American Workforce: Who Is in It?	p. 23
The American Workforce: What Does It Do?	p. 25
The American Workforce: What It Earns	p. 27
Capital and Its Earnings	p. 27
The Outputs: What Does America Produce?	p. 28
The Central Role of Business Firms	p. 28
What's Missing From the Picture? Government	p. 29
The Government as Referee	p. 30
The Government as Business Regulator	p. 30
Government Expenditures	p. 31
Part 3: The Goal of Low Inflation	p. 109
Inflation: The Myth and the Reality	p. 109
Inflation and Real Wages	p. 109
The Importance of Relative Prices	p. 111
Inflation as a Redistributor of Income and Wealth	p. 112
Real Versus Nominal Interest Rates	p. 112
Inflation Distorts Measurements	p. 113
Confusing Real and Nominal Interest Rates	p. 113
The Malfunctioning Tax System	p. 114
Other Costs of Inflation	p. 114
The Costs of Low Versus High Inflation	p. 115
Low Inflation Does Not Necessarily Lead to High Inflation	p. 116
Summary	p. 117
Key Terms	p. 118
Test Yourself	p. 118
Discussion Questions	p. 118
How Statisticians Measure Inflation	p. 119
Index Numbers for Inflation	p. 119
The Consumer Price Index	p. 119
Using A Price Index to "Deflate" Monetary Figures	p. 120
Using A Price Index to Measure Inflation	p. 120
The GDP Deflator	p. 120
Summary	p. 121
Key Terms	p. 121
Test Yourself	p. 121
Economic Growth: Theory and Policy	p. 123
Puzzle: Why Does College Education Keep Getting More Expensive?	p. 124
The Three Pillars of Productivity Growth	p. 124
Capital	p. 125
Technology	p. 125
Labor Quality: Education and Training	p. 126
Levels, Growth Rates, and the Convergence Hypothesis	p. 126
Growth Policy: Encouraging Capital Formation	p. 128
Growth Policy: Improving Education and Training	p. 130
Growth Policy: Spurring Technological Change	p. 132
The Productivity Slowdown and Speed-Up in The United States	p. 133
The Productivity Slowdown, 1973-1995	p. 134
The Productivity Speed-up, 1995-??	p. 135
Puzzle Resolved: Why the Relative Price of College Tuition Keeps Rising	p. 136
Growth in the Developing Countries	p. 137
The Three Pillars Revisited	p. 137
Some Special Problems of the Developing Countries	p. 139
From the Long Run to the Short Run	p. 140
Summary	p. 140
Key Terms	p. 140
Test Yourself	p. 141
Discussion Questions	p. 141
Aggregate Demand and the Powerful Consumer	p. 143
Issue: Demand Management and the Ornery Consumer	p. 144
Aggregate Demand, Domestic Product, and National Income	p. 144
The Circular Flow of Spending, Production, and Income	p. 145
Consumer Spending and Income: The Important Relationship	p. 147
The Consumption Function and the Marginal Propensity to Consume	p. 150
Factors That Shift the Consumption Function	p. 151
Issue Revisited: Why the Tax Rebates Failed in 1975 and 2001	p. 152
The Extreme Variability of Investment	p. 154
The Determinants of Net Exports	p. 154
National Incomes	p. 155
Relative Prices and Exchange Rates	p. 155
How Predictable is Aggregate Demand?	p. 155
Summary	p. 156
Key Terms	p. 157
Test Yourself	p. 157
Discussion Questions	p. 157
National Income Accounting	p. 158
Defining Gdp: Exceptions to the Rules	p. 158
Gdp as the Sum of Final Goods and Services	p. 158
Gdp as the Sum of All Factor Payments	p. 159
Gdp as the Sum of Values Added	p. 161
Summary	p. 162
Key Terms	p. 162
Test Yourself	p. 162
Discussion Questions	p. 163
Demand-Side Equilibrium: Unemployment or Inflation?	p. 165
Issue: Why Does the Market Permit Unemployment?	p. 166
The Meaning of Equilibrium Gdp	p. 166
The Mechanics of Income Determination	p. 167
The Aggregate Demand Curve	p. 170
Demand-Side Equilibrium and Full Employment	p. 172
The Coordination of Saving and Investment	p. 173
Changes on the Demand Side: Multiplier Analysis	p. 174
The Magic of the Multiplier	p. 175
Demystifying the Multiplier: How It Works	p. 176
Algebraic Statement of the Multiplier	p. 177
The Multiplier is a General Concept	p. 179
The Multiplier and the Aggregate Demand Curve	p. 180
Summary	p. 181
Key Terms	p. 182
Test Yourself	p. 182
Discussion Questions	p. 183
The Simple Algebra of Income Determination and the Multiplier	p. 183
Test Yourself	p. 184
Discussion Questions	p. 184
The Multiplier With Variable Imports	p. 184
Summary	p. 187
Test Yourself	p. 187
Discussion Question	p. 187
Supply-side Equilibrium: Unemployment and Inflation?	p. 189
Puzzle: Why Did Inflation Fall While the Economy Boomed?	p. 190
The Aggregate Supply Curve	p. 190
Why the Aggregate Supply Gurve Slopes Upward	p. 190
Shifts of the Agregate Supply Curve	p. 191
Equilibrium of Aggregate Demand and Supply	p. 193
Inflation and the Multiplier	p. 194
Recessionary and Inflationary Gaps Revisited	p. 195
Adjusting to a Recessionary Gap: Deflation or Unemployment?	p. 197
Does the Economy Have a Self-Correcting Mechanism?	p. 198
An example from Recent History: Deflation in Japan	p. 198
Adjusting to an Inflationary Gap: Inflation	p. 198
Demand Inflation and Stagflation	p. 199
A U.S. Example	p. 200
Stagflation from a Supply Shock	p. 201
Applying the Model to a Growing Economy	p. 202
Demand-Side Fluctuations	p. 202
Supply-Side Fluctuation	p. 203
Puzzle Resolved: Explaining The Roaring Nineties	p. 205
A Role for Stabilization Policy	p. 205
Summary	p. 205
Key Terms	p. 206
Test Yourself	p. 206
Discussion Questions	p. 206
Fiscal and Monetary Policy	p. 207
Managing Aggregate Demand: Fiscal Policy	p. 209
Issue: Aggregate Demand, Aggregate Supply, and The Tax-Cut Debate of 2004	p. 210
Income Taxes and the Consumption Schedule	p. 210
The Multiplier Revisited	p. 211
The Tax Multiplier	p. 211
Income Taxes and the Multiplier	p. 211
Automatic Stabilizers	p. 212
Government Transfer Payments	p. 213
Issue Revisited: The Bush-Kerry Debate over Taxes and Spending	p. 214
Planning Expansionary Fiscal Policy	p. 214
Planning Contractionary Fiscal Policy	p. 215
The Choice Between Spending Policy and Tax Policy	p. 215
Issue Redux: Bush versus Kerry	p. 216
Some Harsh Realities	p. 216
The Idea Behind Supply-Side Tax Cuts	p. 217
Some Flies in the Ointment	p. 218
Issue: Kerry and Bush Once More	p. 219
Toward an Assessment of Supply-Side Economics	p. 220
Summary	p. 221
Key Terms	p. 221
Test Yourself	p. 221
Discussion Questions	p. 222
Graphical Treatment of Taxes and Fiscal Policy	p. 222
Multipliers for Tax Policy	p. 224
Summary	p. 225
Key Terms	p. 225
Test Yourself	p. 225
Discussion Questions	p. 225
Algebraic Treatment of Fiscal Policy	p. 225
Test Yourself	p. 227
Money and the Banking System	p. 229
Issue: Why Are Banks so Heavily Regulated?	p. 230
The Nature of Money	p. 230
Barter versus Monetary Exchange	p. 231
The Conceptual Definition of Money	p. 232
What Serves as Money?	p. 232
How the Quantity of Money Is Measured	p. 234
M1	p. 234
M2	p. 235
Other Definitions of the Money Supply	p. 235
The Banking System	p. 236
How Banking Began	p. 236
Principles of Bank Management: Profits versus Safety	p. 237
Bank Regulation	p. 238
The Origins of the Money Supply	p. 239
How Bankers Keep Books	p. 239
Banks and Money Creation	p. 240
The Limits to Money Creation by a Single Bank	p. 240
Multiple Money Creation by a Series of Banks	p. 241
The Process in Reverse: Multiple Contractions of the Money Supply	p. 244
Why the Money Creation Formula is Oversimplified	p. 245
The Need for Monetary Policy	p. 246
Summary	p. 247
Key Terms	p. 247
Test Yourself	p. 248
Discussion Questions	p. 248
Managing Aggregate Demand: Monetary Policy	p. 249
Issue: Just Why Is Alan Greenspan so Important?	p. 250
Money and Income: The Important Difference	p. 250
America's Central Bank: The Federal Reserve System	p. 251
Origins and Structure	p. 251
Central Bank Independence	p. 252
Implementing Monetary Policy: Open-Market Operations	p. 253
The Market for Bank Reserves	p. 253
The Mechanics of an Open-Market Operation	p. 254
Open-Market Operations, Bond Prices, and Interest Rates	p. 256
Other Methods of Monetary Control	p. 256
Lending to Banks	p. 257
Changing Reserve Requirements	p. 258
How Monetary Policy Works	p. 258
Investment and Interest Rates	p. 259
Monetary Policy and Total Expenditure	p. 259
Money and the Price Level in the Keynesian Model	p. 260
Application: Why the Aggregate Demand Curve Slopes Downward	p. 261
From Models to Policy Debates	p. 262
Summary	p. 262
Key Terms	p. 263
Test Yourself	p. 263
Discussion Questions	p. 264
The Debate over Monetary and Fiscal Policy	p. 265
Issue: Should We Forsake Stabilization Policy?	p. 266
Velocity and the Quantity Theory of Money	p. 266
Some Determinants of Velocity	p. 268
Monetarism: The Quantity Theory Modernized	p. 269
Fiscal Policy, Interest Rates, and Velocity	p. 269
Application: The Multiplier Formula Revisited	p. 270
Application: The Government Budget and Investment	p. 271
Debate: Should We Rely on Fiscal or Monetary Policy?	p. 271
Debate: Should the Fed Control the Money Supply or Interest Rates?	p. 272
Two Imperfect Alternatives	p. 274
What Has the Fed Actually Done?	p. 274
Debate: The Shape of the Aggregate Supply Curve	p. 275
Debate: Should the Government Intervene?	p. 277
Lags and the Rules-versus-Discretion Debate	p. 279
Dimensions of the Rules-Versus-Discretion Debate	p. 279
How Fast Does the Economy's Self-Correcting Mechanism Work?	p. 279
How Long Are the Lags in Stabilization Policy?	p. 280
How Accurate Are Economic Forcasts?	p. 280
The Size of Government	p. 280
Uncertainties Caused by Government Policy	p. 280
A Political Business Cycle?	p. 281
Issue Revisited: What Should Be Done?	p. 282
Summary	p. 283
Key Terms	p. 284
Test Yourself	p. 284
Discussion Questions	p. 284
Budget Deficits in the Short and Long Run	p. 287
Issue: Did the September 2001 Terrorist Attacks Warrant Fiscal Stimulus?	p. 288
Should the Budget be Balanced? The Short Run	p. 288
The Importance of the Policy Mix	p. 289
Surpluses and Deficits: The Long Run	p. 290
Deficits and Debt: Terminology and Facts	p. 291
Some Facts about the National Debt	p. 291
Interpreting the Budget Deficit or Surplus	p. 293
The Structural Deficit or Surplus	p. 293
On-Budget versus Off-Budget Surpluses	p. 295
Conclusion: What Happened after 1981?	p. 295
Why Is the National Debt Considered a Burden?	p. 296
Budget Deficits and Inflation	p. 297
The Monetization Issue	p. 297
Debt, Interest Rates, and Crowding Out	p. 298
The Bottom Line	p. 300
The Main Burden of the National Debt: Slower Growth	p. 300
Issue Revisited: Was Fiscal Stimulus Warranted in 2001?	p. 301
The Economics and Politics of the U.S. Budget Deficit	p. 302
Summary	p. 303
Key Terms	p. 303
Test Yourself	p. 304
Discussion Questions	p. 304
The Trade-Off Between Inflation and Unemployment	p. 305
Issue: Is the Trade-off Between Inflation and Unemployment a Relic of the Past?	p. 306
Demand-Side Inflation Versus Supply-Side Inflation: A Review	p. 306
Origins of the Phillips Curve	p. 307
Supply-Side Inflation and the Collapse of the Phillips Curve	p. 309
Explaining the Fabulous 1990s	p. 309
Issue Resolved: Why Inflation and Unemployment Both Declined	p. 310
What the Phillips Curve Is Not	p. 310
Fighting Unemployment With Fiscal and Monetary Policy	p. 312
What Should Be Done?	p. 313
The Costs of Inflation and Unemployment	p. 313
The Slope of the (Short-Run) Phillips Curve	p. 313
The Efficiency of the Economy's Self-Correcting Mechanism	p. 313
Inflationary Expections and the Phillips Curve	p. 314
The Theory of Rational Expecations	p. 316
What Are Rational Expectations?	p. 316
Rational Expectations and the Trade-Off	p. 317
An Evaluation	p. 317
Why Economists (And Politicians) Disagree	p. 318
The Dilemma of Demand Management	p. 319
Attempts to Reduce the Natural Rate of Unemployment	p. 319
Indexing	p. 320
Summary	p. 321
Key Terms	p. 322
Test Yourself	p. 322
Discussion Questions	p. 322
The United States in the World Economy	p. 323
Intenational Trade and Comparative Advantage	p. 325
ISSUE: How Can Americans Compete with "Cheap Foreign Labor"?	p. 326
Why Trade?	p. 327
Mutual Gains from Trade	p. 327
International Versus Intranational Trade	p. 328
Political Factors in International Trade	p. 328
The many Currencies Involved in International Trade	p. 328
Impediments to Mobility of Labor and Capital	p. 328
The Law of Comparative Advantage	p. 329
The Arithmetic of Comparative Advantage	p. 329
The Graphics of Comparative Advantage	p. 330
ISSUE RESOLVED: Comparative Advantage Exposes the "Cheap Foreign Labor" Fallacy	p. 333
Tariffs, Quotas, and Other Interferences With Trade	p. 333
Tariffs versus Quotas	p. 335
Why Inhibit Trade?	p. 335
Gaining a Price Advantage for Domestic Firms	p. 335
Protecting Particular Industries	p. 336
National Defense and Other Noneconomic Considerations	p. 337
The Infant-Industry Argument	p. 338
Strategic Trade Policy	p. 338
Can Cheap Imports Hurt a Country?	p. 339
A Last Look at the "Cheap Foreign Labor" Argument	p. 340
Summary	p. 341
Key Terms	p. 342
Test Yourself	p. 342
Discussion Questions	p. 342
Supply, Demand, and pricing in World Trade	p. 343
How Tariffs and Quotas Work	p. 344
Summary	p. 345
Test Yourself	p. 345
The International Monetary System: Order or Disorder?	p. 347
PUZZLE: Why Has the Dollar Been Sagging?	p. 348
What are Exchange Rates?	p. 348
Exchange Rate Determination in a Free Market	p. 349
Interest Rates and Exchange Rates: The Short Run	p. 351
Economic Activity and Exchange Rates: The Medium Run	p. 352
The Purchasing-Power Parity Theory: The Long Run	p. 352
Market Determination of Exchange Rates: Summary	p. 354
When Governments Fix Exchange Rates: The Balance of Payments	p. 355
A Bit of History: The Gold Standard and the Bretton Woods System	p. 356
The Classical Gold Standard	p. 356
The Bretton Woods System	p. 357
Adjustment Mechanisms Under Fixed Exchange Rates	p. 358
Why Try to Fix Exchange Rates?	p. 358
The Current "Nonsystem"	p. 359
The Role of the IMF	p. 360
The Volatile Dollar	p. 360
The Birth of the Euro	p. 362
PUZZLE RESOLVED: Why the Dollar Rose and then Fell	p. 362
Summary	p. 363
Key Terms	p. 363
Test Yourself	p. 364
Discussion Questions	p. 364
Exchange Rates and the Macroeconomy	p. 365
ISSUE: Should the U.S. Government Try to Stop the Dollar from Falling?	p. 366
International Trade, Exchange Rates, and Aggregate Demand	p. 366
Relative Prices, Exports, and Imports	p. 366
The Effects of Changes in Exchange Rates	p. 367
Aggregate Supply in an Open Economy	p. 368
The Macroeconomic Effects of Exchange Rates	p. 368
Interest Rates and International Capital Flows	p. 369
Fiscal and Monetary Policies in an Open Economy	p. 370
Fiscal Policy Revisited	p. 370
Monetary Policy Revisited	p. 371
International Aspects of Deficit Reduction	p. 372
The Loose Link between the Budget Deficit and the Trade Deficit	p. 373
Is the Trade Deficit a Problem?	p. 374
On Curing the Trade Deficit	p. 374
Change the Mix of Fiscal and Monetary Policy	p. 374
More Rapid Economic Growth Abroad	p. 375
Raise Domestic Saving or Reduce Domestic Investment	p. 375
Protectionism	p. 375
Conclusion: No Nation is an Island	p. 376
ISSUE REVISITED: Should the Dollar Be Allowed to Fall?	p. 376
Summary	p. 377
Key Terms	p. 377
Test Yourself	p. 378
Discussion Questions	p. 378
Glossary	p. 379
Index	p. 387
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Macroeconomics Principles and Policy (with InfoTrac)

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