ECONOMICS FOURTH EDITIONPDF电子书下载

Ⅰ INTRODUCTION: THINKINGLIKE AN ECONOMIST 4

1. Economics and Economic Reasoning 4

Appendix A: Graphish: The Language of Graphs 20

2. The Economic Organization of Society 27

Appendix A: The History of Economic Systems 49

3. The U.S. Economy in a Global Setting 55

Appendix A: Valuing Stocks and Bonds 77

4. Supply and Demand 82

5. Using Supply and Demand 103

Appendix A: Algebraic Representation of Supply,Demand, and Equilibrium 124

Ⅱ MICROECONOMICS 132

I MICROECONOMICS: THE BASICS 132

6. Describing Supply and Demand: Elasticities 132

7. Taxation and Government Intervention 156

Ⅱ FOUNDATIONS OF SUPPLY AND DEMAND 176

8. The Logic of Individual Choice: The Foundationof Supply and Demand 176

Appendix A: Indifference Curve Analysis 194

9. Production and Cost Analysis Ⅰ 200

10. Production and Cost Analysis Ⅱ 217

Appendix A: Isocost/Isoquant Analysis 233

Ⅲ MARKET STRUCTURE AND POLICY 238

11. Perfect Competition 238

12. Monopoly 261

Appendix A: The Algebra of Competitive andMonopolistic Firms 280

13. Monopolistic Competition, Oligopoly, and Strategic Pricing 282

14. Globalization, Technology, and Real-World Competition 305

Ⅳ APPLYING ECONOMIC REASONING TO POLICY 326

15. Government Policy and MarketFailures 326

16. Antitrust Policy and Regulation 346

17. Microeconomic Policy, Economic Reasoning,and Beyond 371

V POLICY ISSUES IN DEPTH 390

18. Politics and Economics: The Case ofAgricultural Markets 390

19. International Trade Policy 405

Appendix A: The Geomet of Absolute Advantageand Comparative Advantage 422

Ⅵ FACTOR MARKETS 428

20. Who Gets What? The Distribution of Income 428

21. Work and the Labor Market 451

Appendix A: Derived Demand 474

Appendix B: Nonwage Income and PropertyRights 479

Ⅲ MACROECONOMICS 484

Ⅰ MACROECONOMIC PROBLEMS 484

22. Economic Growth, Business Cycles,Unemployment, and Inflation 484

23. National Income Accounting 512

Ⅱ THE MACROECONOMIC FRAMEWORK 533

24. Growth, Productivity, and the Wealthof Nations 533

25. Aggregate Demand, Aggregate Supply,and Modern Macroeconomics 566

26. The Multiplier Model 580

Appendix A: An Algebraic Presentation of theExpanded Multiplier Model 600

Appendix B: The Multiplier Model and the AS/ADModel 601

Ⅲ POLICY ISSUES 604

27. Demand Management Policy 604

28. Politics, Surpluses, Deficits, and Debt 626

29. Money, Banking, and the Financial Sector 647

Appendix A: A Closer Look at Financial Institutionsand Financial Markets 667

Appendix B: Creation of MoneyUsing T -Accounts 677

30. Monetary Policy and the Debate aboutMacro Policy 680

Appendix A: The Effect of Monetary PolicyUsing T-Accounts 700

31. Inflation and Its Relationship to Unemploymentand Growth 702

Ⅳ INTERNATIONAL POLICY ISSUES 724

32. Open Economy Macro: Exchange Rate andTrade Policy 724

Appendix A: History of Exchange Rate Systems 747

33. International Dimensions of Monetary and FiscalPolicies 750

V COMBINING THE FRAMEWORK WITH POLICY 766

34. Tools, Rules, and Policy 766

Ⅰ INTRODUCTION: THINKINGLIKE AN ECONOMIST 4

1. ECONOMICS AND ECONOMICREASONING 4

What Economics Is 5

A Guide to Economic Reasoning 6

Marginal Costs and Marginal Benefits 6

KNOWING THE TOOLS: Economic Knowledge inOne Sentence: TANSTAAFL 7

Economics and Passion 8

Opportunity Cost 8

Economic and Market Forces 9

BEYOND THE TOOLS: Economics in Perspective 10

Economic Terminology 12

Economic Insights 12

The Invisible Hand Theory 12

APPLYING THE TOOLS: Winston Churchill andLady Astor 13

Economic Theory and Stories 13

KNOWING THE TOOLS: Dealing withMath Anxiety 14

Microeconomics and Macroeconomics 14

Economic Institutions 15

Economic Policy Options 15

Objective Policy Analysis 16

Policy and Social and Political Forces 17

Conclusion 17

Chapter Summary 18

Key Terms 18

Questions for Thought and Review 18

Problems and Exercises 19

Web Questions 19

Answers to Margin Questions 20

Appendix A: Graphish: The Language of Graphs 20

2. THE ECONOMIC ORGANIZATION OFSOCIETY 27

Capitalism 28

Reliance on the Market 28

What's Good about the Market? 29

Socialism 29

Socialism in Theory 30

Socialism in Practice 30

Evolving Economic Systems 30

APPLYING THE TOOLS: Tradition and Today'sEconomy 31

BEYOND THE TOOLS: The Rise of Markets inPerspective 32

The Need for Coordination in an Economic System 32

Evolutionary Changes within Systems 33

A Blurring of the Distinction between Capitalism andSocialism 33

The Production Possibility Curve and EconomicReasoning 33

The Production Possibility Table 34

The Production Possibility Curve 34

KNOWING THE TOOLS: Production PossibiliCurves 37

Some Examples of Shifts in the Production PossibilityCurve 39

The Production Possibili Curve and EconomicSystems 40

The Production Possibili Curve andTough Choices 41

Comparative Advantage, Specialization, and Trade 42

The Division of Labor 44

Markets, Specialization, and Growth 44

Conclusion 45

Chapter Summary 45

Key Terms 46

Questions for Thought and Review 46

Problems and Exercises 46

Web Questions 47

Answers to Margin Questions 47

Appendix A: The History of Economic Systems 49

3. THE U.S. ECONOMY IN A GLOBALSETTING 55

The U.S. Economy 56

Business 57

Consumer Sovereignty and Business 57

Forms of Business 57

BEYOND THE TOOLS: Is the United States aPostindustrial Society? 58

KNOWING THE TOOLS: The Stock Market 60

Finance and Business 60

E-Commerce and the Digital Economy 61

Households 61

The Power of Households 62

Suppliers of Labor 62

Government 62

Government as an Actor 63

Government as a Referee 63

The Global Setting 64

Global Corporations 65

International Trade 66

APPLYING THE TOOLS: A World EconomicGeography Quiz 67

How International Trade Differs from Domestic Trade 69

BEYOND THE TOOLS: International Issues inPerspective 70

KNOWING THE TOOLS: Our InternationalCompetitors 71

Institutions Supporting Free Trade 72

Free Trade Organizations 73

International Economic Policy Organizations 73

Conclusion 74

Chapter Summary 74

Key Terms 75

Questions for Thought and Review 75

Problems and Exercises 76

Web Questions 76

Answers to Margin Questions 76

Appendix A: Valuing Stocks and Bonds 77

4 SUPPLY AND DEMAND 82

Demand 83

The Law of Demand 83

The Demand Curve 84

Shifts in Demand versus Movements along a DemandCurve 84

Shift Factors of Demand 85

A Review 86

The Demand Table 86

From a Demand Table to a Demand Curve 87

Individual and Market Demand Curves 88

KNOWING THE TOOLS: Six Things to RememberWhen Considering a Demand Curve 89

Supply 89

The Law of Supply 90

The Supply Curve 90

Shifts in Supply versus Movements along a SupplyCurve 91

Shift Factors of Supply 91

Shift in Supply versus a Movement along a SupplyCurve 92

A Review 93

The Supply Table 93

KNOWING THE TOOLS: Six Things to RememberWhen Considering a Supply Curve 94

From a Supply Table to a Supply Curve 94

Individual and Market Supply Curves 94

The Marriage of Supply and Demand 95

Excess Supply 95

Excess Demand 95

Price Adjusts 95

The Graphical Marriage of Supply and Demand 96

Equilibrium 97

What Equilibrium Is 97

What Equilibrium Isn't 97

Desirable Characteristics of Supply/DemandEquilibrium 97

APPLYING THE TOOLS: The Supply and Demand forChildren 99

Conclusion 99

Chapter Summary 99

Key Terms 100

Questions for Thought and Review 100

Problems and Exercises 101

Web Questions 102

Answers to Margin Questions 102

5. USING SUPPLY AND DEMAND 103

The Power of Supply and Demand 103

Six Real-World Examples 105

KNOWING THE TOOLS: Supply andDemand in Action 108

A Review 108

Government Interferences: Price Ceilings and Floors 110

Price Ceilings 110

Price Floors 111

Government Interferences: Taxes, Tariffs, and Quotas 113

Excise Taxes and Tariffs 113

Quotas 114

The Relationship between a Quota and a Tariff 115

The Limitations of Supply and Demand Analysis 115

Other Things Don't Remain Constant 115

The Fallacy of Composition 116

The Roles of Government 116

BEYOND THE TOOLS: Laissez-Faire Is NotAnarchy 117

Provide a Stable Set of Institutions and Rules 117

Promote Effective and Workable Competition 117

Correct for Externalities 118

Ensure Economic Stability and Growth 118

Provide for Public Goods 119

Adjust for Undesired Market Results 119

Market Failures and Government Failures 120

Conclusion 120

Chapter Summary 120

Key Terms 121

Questions for Thought and Review 121

Problems and Exercises 121

Web Questions 122

Answers to Margin Questions 123

Appendix A: Algebraic Representation of Supply, Demand,and Equilibrium 124

Ⅱ MICROECONOMICS 132

Ⅰ MICROECONOMICS: THE BASICS 132

6 DESCRIBING SUPPLY AND DEMAND:ELASTICITIES 132

Price Elasticity 133

Classifying Demand and Supply as Elastic or Inelastic 133

What Information Price Elasticity Provides 134

Elasticity Is Independent of Units 134

Calculating Elasticities 135

The End-Point Problem 135

The Arc Convention 136

KNOWING THE TOOLS: Calculating Elasticity at a Point 137

Elasticity and Supply and Demand Curves 137

Elasticity Is Not the Same as Slope 137

Elasticity Changes along Straight-Line Curves 139

Substitution and Elasticity 139

KNOWING THE TOOLS: Geometric Tricks forEstimating Price Elasticity 140

Substitution and Demand 140

Substitution and Supply 141

How Substitution Factors Affect Specific Decisions 142

Empirical Estimates of Elasticities 142

Elasticity, Total Revenue, and Demand 144

Total Revenue along a Demand Curve 145

Elasticity of Individual and Market Demand 146

Other Elasticity Concepts 146

APPLYING THE TOOLS: Empirically MeasuringElasticities 147

Income Elasticity of Demand 147

Cross-Price Elasticity of Demand 148

KNOWING THE TOOLS: A Review of the AlternativeElasticity Terms 149

Some Examples 150

The Power of Supply and Demand Analysis 150

When Should a Supplier Not Raise Price? 150

Elasticity and Shifting Supply and Demand 151

Conclusion 152

Chapter Summary 152

Key Terms 153

Questions for Thought and Review 153

Problems and Exercises 154

Web Questions 155

Answers to Margin Questions 155

7. TAXATION AND GOVERNMENTINTERVENTION 156

Taxation and Government 156

How Much Should Government Tax? 157

KNOWING THE TOOLS: Consumer and ProducerSurplus 158

Two Principles of Taxation 160

Who Bears the Burden of a Tax? 161

APPLYING THE TOOLS: What Goods Should BeTaxed? 163

Tax Incidence and Current Policy Debates 163

Government Intervention 164

Government Intervention as Implicit Taxation 164

Rent Seeking, Politics, and Elasticities 167

KNOWING THE TOOLS: Elasticity and Whether aPrice Increase Is Significant 169

Conclusion 171

Chapter Summary 172

Key Terms 172

Questions for Thought and Review 172

Problems and Exercises 173

Web Questions 174

Answers to Margin Questions 174

Ⅱ FOUNDATIONS OF SUPPLY ANDDEMAND 176

8. THE LOGIC OF INDIVIDUAL CHOICE:THE FOUNDATION OF SUPPLY ANDDEMAND 176

Utility Theory and Individual Choice 177

Measuring Pleasure 177

Total Utility and Marginal Utility 178

Diminishing Marginal Utility 179

Rational Choice and Marginal Utility 180

Some Choices 180

The Principle of Rational Choice 181

Simultaneous Decisions 181

Maximizing Utility and Equilibrium 182

An Example of Maximizing Utility 182

Extending the Principle of Rational Choice 184

Rational Choice and the Laws of Demand and Supply 184

KNOWING THE TOOLS: Income and SubstitutionEffects 185

The Law of Supply 186

Opportunity Cost 187

Applying Economists' Theo of Choice to theReal World 188

The Cost of Decision Making 188

Given Tastes 189

Tastes and Individual Choice 189

APPLYING THE TOOLS: Making Stupid Decisions 190

Conclusion 190

Chapter Summary 191

Key Terms 191

Questions for Thought and Review 192

Problems and Exercises 192

Web Questions 193

Answers to Margin Questions 193

Appendix A: Indifference Curve Analysis 194

9. PRODUCTION AND COSTANALYSIS Ⅰ 200

The Role of the Firm 201

The Firm and the Market 201

APPLYING THE TOOLS: Value Added and theCalculation of Total Production 202

Firms Maximize Profit 202

The Production Process 203

The Long Run and the Short Run 203

Production Tables and Production Functions 204

The Law of Diminishing Marginal Productivity 204

The Costs of Production 206

Fixed Costs, Variable Costs, and Total Costs 206

Average Total Cost, Average Fixed Cost, and AverageVariable Cost 207

Marginal Cost 207

Graphing Cost Curves 208

Total Cost Curves 208

Average and Marginal Cost Curves 208

Downward-Sloping Shape of the Average FixedCost Curve 208

The U Shape of the Average and MarginalCost Curves 209

The Relationship between the Marginal Productivityand Marginal Cost Curves 210

The Relationship between the Marginal Cost andAverage Cost Curves 211

KNOWING THE TOOLS: Review of Costs 212

Intermission 213

Chapter Summary 213

Key Terms 213

Questions for Thought and Review 214

Problems and Exercises 214

Web Questions 215

Answers to Margin Questions 215

10. PRODUCTION AND COSTANALYSIS Ⅱ 217

Making Long-Run Production Decisions 217

Technical Efficiency and Economic Efficiency 218

APPLYING THE TOOLS: Producing the MazdaMiata 219

Determinants of the Shape of the Long-RunCost Curve 219

Economies of Scale 219

Diseconomies of Scale 221

Constant Returns to Scale 221

KNOWING THE TOOLS: Distinguishing Diseconomiesof Scale from Diminishing Marginal Productivity 222

The Importance of Economies and Diseconomies ofScale 222

Envelope Relationship 223

APPLYING THE TOOLS: Why Are TextbooksSo Long? 224

Entrepreneurial Activity and the Supply Decision 224

Using Cost Analysis in the Real World 225

Economies of Scope 225

Learning by Doing and Technological Change 226

Many Dimensions 229

Unmeasured Costs 229

APPLYING THE TOOLS: New Approaches in CostAnalysis 230

The Standard Model as a Framework 230

Conclusion and a Look Ahead 230

Chapter Summary 231

Key Terms 231

Questions for Thought and Review 231

Problems and Exercises 232

Web Questions 232

Answers to Margin Questions 233

Appendix A: Isocost/Isoquant Analysis 233

Ⅲ MARKET STRUCTURE AND POLICY 238

11. PERFECT COMPETITION 238

A Perfectly Competitive Market 239

The Necessa Conditions for Perfect Competition 239

The Definition of Supply and Perfect Competition 240

APPLYING THE TOOLS: The Internet and thePerfectly Competitive Model 241

Demand Curves for the Firm and the Industry 241

The Profit-Maximizing Level of Output 242

Marginal Revenue 242

Marginal Cost 243

Profit Maximization: MC = MR 244

The Marginal Cost Curve Is the Supply Curve 244

Firms Maximize Total Profit 245

Profit Maximization Using Total Revenueand Total Cost 245

APPLYING THE TOOLS: The Broader Importance ofthe MR = MC Equilibrium Condition 246

Total Profit at the Profit-Maximizing Level of Output 247

Determining Profit from a Table of Costsand Revenue 247

Determining Profit from a Graph 248

APPLYING THE TOOLS: Profit Maximization andReal-World Firms 250

The Shutdown Point 250

Short-Run Market Supply and Demand 251

KNOWING THE TOOLS: Finding Price, Output,and Profit 252

Long-Run Competitive Equilibrium 252

APPLYING THE TOOLS: The Shutdown Decision andthe Relevant Costs 253

Adjustment from the Short Run to the Long Run 253

An Increase in Demand 253

Long-Run Market Supply 254

KNOWING THE TOOLS: A Summary of a PerfectlyCompetitive Industry 255

An Example in the Real World 255

Conclusion 256

Chapter Summary 256

Key Terms 257

Questions for Thought and Review 257

Problems and Exercises 258

Web Questions 259

Answers to Margin Questions 259

12. MONOPOLY 261

The Key Difference between a Monopolist and a PerfectCompetitor 262

A Model of Monopoly 263

Determining the Monopolist's Price and OutputNumerically 263

KNOWING THE TOOLS: A Trick in Graphing theMarginal Revenue Curve 264

Determining the Monopolist's Price and OutputGraphically 264

Comparing Monopoly and Perfect Competition 266

An Example of Finding Output and Price 266

Profits and Monopoly 267

A Monopolist Making a Profit 267

A Monopolist Breaking Even and Making a Loss 268

KNOWING THE TOOLS: Finding a Monopolist'sOutput, Price, and Profit 269

The Price-Discriminating Monopolist 269

BEYOND THE TOOLS: Monopsony 270

The Welfare Loss from Monopoly 270

Barriers to Entryand Monopoly 271

Natural Ability 271

APPLYING THE TOOLS: Can Price Controls IncreaseOutput and Lower Market Price? 272

Economies of Scale 272

Government-Created Monopolies 274

Normative Views of Monopoly 274

Government Policy and Monopoly: AIDS Drugs 275

Conclusion 276

Chapter Summary 276

Key Terms 277

Questions for Thought and Review 277

Problems and Exercises 277

Web Questions 278

Answers to Margin Questions 279

Appendix A: The Algebra of Competitive and MonopolisticFirms 280

13. MONOPOLISTIC COMPETITION, OLIGO-POLY, AND STRATEGIC PRICING 282

The Problems of Determining Industry Structure 283

Classifying Industries 283

Determining Industry Structure 284

Conglomerate Firms and Bigness 285

The Importance of Classifying Indust Structure 285

APPLYING THE TOOLS: Foreign CompetitiveOligopolies 286

Characteristics of Monopolistic Competition 286

Many Sellers 286

Product Differentiation 287

Multiple Dimensions of Competition 287

Ease of Entry of New Firms in the Long Run 287

Output, Price, and Profit of a MonopolisticCompetitor 288

Comparing Monopolistic Competition with PerfectCompetition 289

Comparing Monopolistic Competition with Monopoly 290

Advertising and Monopolistic Competition 290

Characteristics of Oligopoly 291

Models of Oligopoly Behavior 292

The Cartel Model 292

The Contestable Market Model 294

Comparison of the Contestable Market Model and theCartel Model 294

Strategic Pricing and Oligopoly 295

Game Theory, Oligopoly, and StrategicDecision Making 296

Prisoner's Dilemma and a Duopoly Example 296

Duopoly and a Payoff Matrix 298

BEYOND THE TOOLS: Game Theory andExperimental Economics 299

Oligopoly Models, Structure, and Performance 299

KNOWING THE TOOLS: A Comparison of VariousMarket Stctures 300

Conclusion 301

Chapter Summary 301

Key Terms 302

Questions for Thought and Review 302

Problems and Exercises 302

Web Questions 303

Answers to Margin Questions 304

14. GLOBALIZATION, TECHNOLOGY, ANDREAL-WORLD COMPETITION 305

The Goals of Real-World Firms and the Monitoring Problem 306

Short-Run versus Long-Run Profit 306

The Problem with Profit Maximization 306

What Do Real-World Firms Maximize? 308

The Lazy Monopolist and X-Inefficiency 308

How Competition Limits the Lazy Monopolist 308

Motivations for Efficiency other than theProfit Incentive 309

The Fight between Competitive and MonopolisticForces 310

How Monopolistic Forces Affect PerfectCompetition 310

Economic Insights and Real-World Competition 311

How Competitive Forces Affect Monopoly 311

Competition and Natural Monopoly 312

How Firms Protect Their Monopolies 314

Cost-Benefit Analysis of Creating and MaintainingMonopolies 314

Establishing Market Position 315

Driving Forces in Today's Economy 315

Globalization 315

Technology 318

Technology, Efficiency, and Market Structure 318

Perfect Competition and Technology 319

Monopolistic Competition and Technology 319

Monopoly and Technology 319

Oligopoly and Technology 319

Network Externalities, Standards, and TechnologicalLock-In 320

Conclusion 322

Chapter Summary 322

Key Terms 322

Questions for Thought and Review 323

Problems and Exercises 323

Web Questions 324

Answers to Margin Questions 324

Ⅳ APPLYING ECONOMIC REASONINGTO POLICY 326

15. GOVERNMENT POLICY AND MARKETFAILURES 326

KNOWING THE TOOLS: Pareto Optimality and thePerfectly Competitive Benchmark 327

Market Failures 327

Externalities 328

A Negative Externality Example 328

A Positive Externality Example 329

APPLYING THE TOOLS: Common Resources and theTragedy of the Commons 330

Alternative Methods of Dealing with Externalities 330

Direct Regulation 330

Incentive Policies 330

Voluntary Reductions 332

APPLYING THE TOOLS: Marketable Permits forPollution 333

The Optimal Policy 333

Public Goods 334

Informational Problems 336

Policies to Deal with Informational Problems 337

A Market in Information 337

Licensing of Doctors 337

The Informational Alternative to Licensure 339

Government Failure and Market Failures 341

Conclusion 342

Chapter Summary 342

Key Terms 342

Questions for Thought and Review 343

Problems and Exercises 343

Web Questions 344

Answers to Margin Questions 344

16. ANTITRUST POLICY ANDREGULATION 346

Antitrust Policy: Judgment by Performanceor Structure? 347

History of U.S. Antitrust Laws 347

The Sherman Antitrust Act 348

The Standard Oil and American Tobacco Cases:Judging Market Competitiveness byPerformance 349

The Clayton Act and the Federal Trade CommissionAct 349

The ALCOA Case: Judging Market Competitivenessby Structure 350

Judging Markets by Structure and Performance:The Reality 350

APPLYING THE TOOLS: Wal-Mart, State Laws, andCompetition 351

Recent Antitrust Enforcement 352

APPLYING THE TOOLS: Nefarious BusinessPractices 353

Three Recent Antitrust Cases 353

The IBM Case 353

The AT&T Case 354

The Microsoft Case 356

Assessment of Antitrust Policy 359

Mergers, Acquisitions, and Takeovers 359

Acquisitions and Takeovers 359

Mergers 360

BEYOND THE TOOLS: White Knights and GoldenParachutes 361

Recent Merger Activity and Deacquisitions 362

Assessment of Mergers and Acquisitions 363

International Competition and Antitrust Policy in OtherCountries 363

APPLYING THE TOOLS: Antitrust Agencies in SomeOther Countries 364

Regulation, Government Ownership, and IndustrialPolicies 365

Regulation 365

Government Ownership 365

Industrial Policies 367

Conclusion 367

Chapter Summary 368

Key Terms 368

Questions for Thought and Review 368

Problems and Exercises 369

Web Questions 369

Answers to Margin Questions 370

17. MICROECONOMIC POLICY, ECONOMICREASONING, AND BEYOND 371

Economists' Differing Views about Social Policy 372

How Economists' Value Judgments Creep into PolicyProposals 372

The Need for a Worldview 374

Agreement among Economists about Social Policy 374

Economists' Cost/Benefit Approach to GovernmentRegulation 375

The Value of Life 375

Comparing Costs and Benefits of DifferentDimensions 377

Putting Cost/Benefit Analysis in Perspective 378

The Problem of Other Things Changing 378

The Cost/Benefit Approach in Context 378

KNOWING THE TOOLS: Economic Efficiency and theGoals of Society 379

Failure of Market Outcomes 379

Distribution 380

Examples of Distributional Issues 380

BEYOND THE TOOLS: The Ambiguity of TotalSurplus 381

Consumer Sovereignty and Rationality Problems 382

Inalienable Rights 382

APPLYING THE TOOLS: Elasticity and Taxation toChange Behavior 383

Government Failure 384

APPLYING THE TOOLS: The Conventional PolicyWisdom among Economists 385

Politics and Economic Policy 385

Conclusion 386

Chapter Summary 386

Key Terms 387

Questions for Thought and Review 387

Problems and Exercises 387

Web Questions 388

Answers to Margin Questions 389

V POLICY ISSUES IN DEPTH 390

18. POLITICS AND ECONOMICS: THE CASEOF AGRICULTURAL MARKETS 390

APPLYING THE TOOLS: The Cost of a Box ofWheaties 391

The Nature of Agricultural Markets 391

The Good/Bad Paradox in Agriculture 392

The Long-Run Decline of Farming 392

The Short-Run Cyclical Problem Facing Farmers 393

The Difficulty of Coordinating Farm Production 393

Ways around the Good/Bad Paradox 393

The General Rule of Political Economy 394

Four Price Support Options 394

Supporting the Price by Regulato Measures 395

Providing Economic Incentives to Reduce Supply 397

Subsidizing the Sale of the Good 398

Buying Up and Storing, Giving Away, or Destroyingthe Good 398

Which Group Prefers Which Option? 399

Economics, Politics, and Real-World Policies 399

Interest Groups 399

APPLYING THE TOOLS: Changes in U.S. AgriculturalPolicy 400

International Issues 400

Conclusion 401

Chapter Summary 401

Key Terms 402

Questions for Thought and Review 402

Problems and Exercises 402

Web Questions 403

Answers to Margin Questions 403

19. INTERNATIONAL TRADE POLICY 405

APPLYING THE TOOLS: The Gains to InternationalTraders 406

The Principle of Comparative Advantage 406

The Gains from Trade 406

BEYOND THE TOOLS: International Issues inPerspective 407

Dividing Up the Gains from Trade 407

Reasons for Trade Restrictions 408

Unequal Internal Distribution of the Gains fromTrade 409

Haggling by Companies over the Gains from Trade 410

Haggling by Countries over Trade Restrictions 411

Specialized Production 411

Macroeconomic Aspects of Trade 412

National Security 413

International Politics 413

Increased Revenue Brought In by Tariffs 413

Why Economists Generally Oppose TradeRestrictions 413

Varieties of Trade Restrictions 414

Tariffs 415

Quotas 416

Voluntary Restraint Agreements 417

Embargoes 417

Regulatory Trade Restrictions 417

APPLYING THE TOOLS: Hormones andEconomics 418

Nationalistic Appeals 418

Free Trade Associations 418

APPLYING THE TOOLS: Dumping 419

Conclusion 419

Chapter Summary 420

Key Terms 420

Questions for Thought and Review 420

Problems and Exercises 421

Web Questions 422

Answers to Margin Questions 422

Appendix A: The Geometry of Absolute Advantage andComparative Advantage 422

Ⅵ FACTOR MARKETS 428

20. WHO GETS WHAT? THE DISTRIBUTIONOF INCOME 428

Ways of Considering the Distribution of Income 429

The Share Distribution of Income 430

The Lorenz Curve 430

U.S. Income Distribution over Time 431

Defining Poverty 432

The Official Definition of Poverty 432

Debates about the Definition of Poverty 433

The Costs of Poverty 434

International Dimensions of Income Inequality 434

Comparing U.S. Income Distribution with That inOther Countries 434

KNOWING THE TOOLS: The Gini Coefficient 435

Income Distribution among Countries 436

The Total Amount of Income in VariousCountries 436

The Distribution of Wealth 436

A Lorenz Curve of the Distribution of Wealth 437

How Much Wealth Do the Wealthy Have? 437

Socioeconomic Dimensions of Income Inequality 438

Income Distribution according to SocioeconomicCharacteristics 438

Income Distribution according to Class 439

Income Distribution and Fairness 440

Philosophical Debates about Equality andFairness 440

Fairness and Equality 441

Fairness as Equality of Opportunity 442

The Problems of Redistributing Income 442

Three Important Side Effects of RedistributivePrograms 442

Politics, Income Redistribution, and Fairness 443

Income Redistribution Policies 443

Taxation to Redistribute Income 443

Expenditure Programs to Redistribute Income 445

How Successful Have Income Redistribution ProgramsBeen? 446

Conclusion 447

Chapter Summary 448

Key Terms 448

Questions for Thought and Review 448

Problems and Exercises 449

Web Questions 449

Answers to Margin Questions 450

21. WORK AND THE LABOR MARKET 451

The Supply of Labor 452

Real Wages and the Opportunity Cost of Work 453

KNOWING THE TOOLS: Income and SubstitutionEffects 454

The Supply of Labor and Nonmarket Activities 454

Income Taxation, Work, and Leisure 455

The Elasticity of the Supply of Labor 455

Immigration and the International Supplyof Labor 456

The Derived Demand for Labor 456

Factors Influencing the Elasticity of Demandfor Labor 457

Labor as a Factor of Production 458

Shift Factors of Demand 458

The Role of Other Forces in Wage Determination 460

Imperfect Competition and the Labor Market 461

Monopsony 461

Union Monopoly Power 462

Bilateral Monopoly 462

Downsizing, Upsizing, and X-Inefficiency 462

Political and Social Forces and the Labor Market 463

Fairness and the Labor Market 463

Job Discrimination and the Labor Market 464

BEYOND THE TOOLS: Democracy in theWorkplace 465

The Evolution of Labor Markets 467

Conclusion: The Labor Market and You 469

Chapter Summary 471

Key Terms 471

Questions for Thought and Review 471

Problems and Exercises 472

Web Questions 473

Answers to Margin Questions 473

Appendix A: Derived Demand 474

APPLYING THE TOOLS: Difficulties in DeterminingMarginal Productivities 476

Appendix B: Nonwage Income and Property Rights 479

Ⅲ MACROECONOMICS 484

Ⅰ MACROECONOMIC PROBLEMS 484

22. ECONOMIC GROWTH, BUSINESSCYCLES, UNEMPLOYMENT, ANDINFLATION 484

Two Frameworks: The Long Run and the Short Run 484

Growth 485

KNOWING THE TOOLS: Your Consumption andAverage Consumption 486

Global Experiences with Growth 486

The Benefits and Costs of Growth 487

Business Cycles 488

The Phases of the Business Cycle 489

Why Do Business Cycles Occur? 490

Leading Indicators 491

Unemployment 492

Unemployment as a Social Problem 492

Unemployment as Government's Problem 493

Why the Target Rate of Unemployment Changed 493

BEYOND THE TOOLS: From Full Employment to theTarget Rate of Unemployment 494

Whose Responsibility Is Unemployment? 494

APPLYING THE TOOLS: Categories ofUnemployment 495

How Is Unemployment Measured? 496

Unemployment and Potential Output 498

Microeconomic Categories of Unemployment 499

Inflation 500

Measurement of Inflation 501

KNOWING THE TOOLS: Measurement Problems withthe Consumer Price Index 502

Real and Nominal Concepts 504

Expected and Unexpected Inflation 504

Costs of Inflation 505

Conclusion 506

Chapter Summary 506

Key Terms 507

Questions for Thought and Review 507

Problems and Exercises 507

Web Questions 508

Answers to Margin Questions 508

Appendix A: Nonmainstream Approaches to Macro 509

23. NATIONAL INCOME ACCOUNTING 512

National Income Accounting 513

Measuring Total Economic Output of Goods andServices 513

Calculating GDP 514

BEYOND THE TOOLS: Is GDP Biased againstWomen? 518

Two Methods of Calculating GDP 518

The National Income Accounting Identity 518

The Expenditures Approach 518

The Income Approach 521

Equality of Income and Expenditure 522

Other National Income Terms 523

Using GDP Figures 524

Comparing GDP among Countries 524

Economic Welfare over Time 525

Real and Nominal GDP 525

Some Limitations of National Income Accounting 526

GDP Measures Market Activity, Not Welfare 526

APPLYING THE TOOLS: The Colander HappinessIndex 527

Measurement Errors 527

Misinterpretation of Subcategories 528

Genuine Progress Indicator 528

APPLYING THE TOOLS: The UndergroundEconomy 529

Conclusion 529

Chapter Summary 530

Key Terms 531

Questions for Thought and Review 531

Problems and Exercises 531

Web Questions 532

Answers to Margin Questions 532

Ⅱ THE MACROECONOMIC FRAMEWORK 533

24. GROWTH, PRODUCTIVITY, AND THEWEALTH OF NATIONS 533

General Observations about Growth 534

Growth and the Economy's Potential Output 534

The Importance of Growth for Living Standards 534

BEYOND THE TOOLS: Is Growth Good? 535

Markets, Specialization, and Growth 536

Economic Growth, Distribution, and Markets 536

Per Capita Growth 537

The Sources of Growth 538

Investment and Accumulated Capital 538

Available Resources 539

Growth-Compatible Institutions 539

Technological Development 540

Entrepreneurship 540

Turning the Sources of Growth into Growth 541

The Production Function and Theories of Growth 541

The Standard Theory of Growth—the ClassicalGrowth Model 542

APPLYING THE TOOLS: Is the 21st Centu the Age ofTechnology or One of Many Ages of Technology? 544

New Growth Theory 545

Economic Policies to Encourage Per Capita Growth 547

Policies to Encourage Saving and Investment 548

Policies to Control Population Growth 549

Policies to Increase the Level of Education 549

Policies to Create Institutions That EncourageTechnological Innovation 550

Policies to Provide Funding for Basic Research 551

Policies to Increase the Economy's Openness toTrade 552

Conclusion 552

Chapter Summary 553

Key Terms 553

Questions for Thought and Review 553

Problems and Exercises 554

Web Questions 554

Answers to Margin Questions 555

25. AGGREGATE DEMAND, AGGREGATESUPPLY, AND MODERNMACROECONOMICS 556

The Historical Development of Modem Macro 557

From Classical to Keynesian Economics 557

Classical Economists 558

The Layperson's Explanation for Unemployment 558

The Essence of Keynesian Economics 558

KNOWING THE TOOLS: In the Long Run, We're AllDead 558

The AS/AD Model 560

The Aggregate Demand Curve 561

The Slope of the AD Curve 561

Shifts in the AD Curve 563

The Aggregate Supply Curve 565

The Slope of the AS Curve 566

Shifts in the AS Curve 566

The Potential Output Curve 567

Equilibrium in the Aggregate Economy 567

KNOWING THE TOOLS: Why Are PricesInflexible? 568

Short-Run Equilibrium 569

Long-Run Equilibrium 569

Integrating the Short-Run and Long-RunFrameworks 569

KNOWING THE TOOLS: A Review of the AS/ADModel 571

Some Additional Policy Examples 572

Why Macro Policy Is More Complicated Than theAS/AD Model Makes It Look 573

Three Policy Ranges 573

The Problem of Estimating Potential Output 574

Some Real-World Examples 575

Debates about Potential Output 576

Conclusion 576

Chapter Summary 576

Key Terms 577

Questions for Thought and Review 577

Problems and Exercises 577

Web Questions 578

Answers to Margin Questions 578

26. THE MULTIPLIER MODEL 580

BEYOND THE TOOLS: Econometric Models 581

The Multiplier Model 581

BEYOND THE TOOLS: History of the MultiplierModel 582

Aggregate Production 582

Aggregate Expenditures 583

Determining the Level of Aggregate Income 587

KNOWING THE TOOLS: Solving for EquilibriumIncome Algebraically 588

The Multiplier Equation 588

The Multiplier Process 589

The Circular Flow Model and the Intuition behind theMultiplier Process 590

The Multiplier Model in Action 591

The Steps of the Multiplier Process 592

Examples of the Effects of Shifts in AggregateExpenditures 593

KNOWING THE TOOLS: Determinants of the AECurve 595

Limitations of the Multiplier Model 595

The Multiplier Model Is Not a Complete Model of theEconomy 595

Shifts Are Not as Great as Intuition Suggests 595

The Price Level Will Often Change in Response toShifts in Demand 596

People's Forward-Looking Expectations Make theAdjustment Process Much More Complicated 596

Shifts in Expenditures Might Reflect Desired Shifts inSupply and Demand 596

Expenditures Depend on Much More Than CurrentIncome 597

Conclusion 597

Chapter Summary 597

Key Terms 598

Questions for Thought and Review 598

Problems and Exercises 598

Web Questions 599

Answers to Margin Questions 599

Appendix A: An Algebraic Presentation of the ExpandedMultiplier Model 600

Appendix B: The Multiplier Model and the AS/ADModel 601

Ⅲ POLICY ISSUES 604

27. DEMAND MANAGEMENT POLICY 604

The Story of Fiscal Policy 605

Aggregate Demand Management 605

BEYOND THE TOOLS: Keynes and Fiscal Policy 606

Fighting Recession: Expansionary Fiscal Policy 606

Fighting Inflation: Contractionary Fiscal Policy 609

The Questionable Effectiveness of Fiscal Policy 609

APPLYING THE TOOLS: Using Taxes Rather ThanExpenditures as the Tool of Fiscal Policy 610

Alternatives to Fiscal Policy 610

Directed Investment Policies: Policy AffectingExpectations 611

KNOWING THE TOOLS: Government DemandManagement Policies 612

Trade Policy and Export-Led Growth 612

Autonomous Consumption Policy 613

Real-World Examples 614

Fiscal Policy in World War Ⅱ 614

Recent Fiscal Policy 615

Problems with Fiscal and Other Activist Policies 615

1. Financing the Deficit Doesn't Have OffsettingEffects 616

2. Knowing What the Situation Is 618

3. Knowing the Level of Potential Income 618

4. The Government's Flexibility in Changing Taxesand Spending 619

APPLYING THE TOOLS: Fighting Vietnam WarInflation 620

5. Size of the Government Debt Doesn't Matter 620

6. Fiscal Policy Doesn't Negatively Affect OtherGovernment Goals 620

Summaryof the Problems 620

Building Fiscal Policies into Institutions 621

Conclusion 621

Chapter Summary 622

Key Terms 623

Questions for Thought and Review 623

Problems and Exercises 623

Web Questions 624

Answers to Margin Questions 624

28. POLITICS, SURPLUSES, DEFICITS, ANDDEBT 626

Defining Surpluses and Deficits 627

Financing the Deficit 627

Arbitrariness of Defining Surpluses and Deficits 628

Many Right Definitions 628

Surpluses and Deficits as Summary Measures 628

Nominal and Real Surpluses and Deficits 629

Structural and Passive Surpluses and Deficits 630

The Definition of Debt and Assets 631

Debt Management 631

Difference between Individual and GovernmentDebt 633

U.S. Government Deficits and Debt: The HistoricalRecord 634

The Debt Burden 635

U.S. Debt Relative to Other Countries 635

Interest Rates and Debt Burden 636

The Modern Debate about the Surplus 636

Why Did the Surplus Come About? 637

KNOWING THE TOOLS: Four Important Points aboutDeficits and Debt 638

What Should the Government Do with the Surplus? 638

Implications of the Government's Cash FlowAccounting System 638

The Social Security System 638

Why the Surplus Is Not As Large As It Looks 641

The Real Problem and the Real Solution 641

BEYOND THE TOOLS: The Stock Market Crash of2014? 643

Conclusion 644

Chapter Summary 644

Key Terms 644

Questions for Thought and Review 645

Problems and Exercises 645

Web Questions 646

Answers to Margin Questions 646

29. MONEY, BANKING, AND THEFINANCIAL SECTOR 647

Why Is the Financial Sector Important to Macro? 648

The Role of Interest Rates in the Financial Sector 649

Saving That Escapes the Circular Flow 650

The Definitions and Functions of Money 650

The U.S. Central Bank: The Fed 650

Functions of Money 651

Alternative Measures of Money 653

M1 653

KNOWING THE TOOLS: Characteristics of a GoodMoney 654

Mz 654

Beyond M2: L 654

Distinguishing between Money and Credit 655

APPLYING THE TOOLS: NOW Accounts and MoneyMarket Accounts 656

Banks and the Creation of Money 656

How Banks Create Money 656

The Money Multiplier 658

Faith as the Backing of Our Money Supply 661

APPLYING THE TOOLS: The Real-World MoneyMultiplier and Recent Reforms in Banking 662

Regulation of Banks and the Financial Sector 662

Financial Panics 662

Anatomy of a Financial Panic 663

Government Policy to Prevent Panic 663

The Benefits and Problems of Guarantees 663

The Savings and Loan Bailout 664

Conclusion 665

Chapter Summary 665

Key Terms 665

Questions for Thought and Review 666

Problems and Exercises 666

Web Questions 667

Answers to Margin Questions 667

Appendix A: A Closer Look at Financial Institutions andFinancial Markets 667

KNOWING THE TOOLS: Do Financial Assets MakeSociety Richer? 670

Appendix B: Creation of Money Using T-Accounts 677

30. MONETARY POLICY AND THE DEBATEABOUT MACRO POLICY 680

Duties and Structure of the Fed 682

Structure of the Fed 682

APPLYING THE TOOLS: Central Banks in OtherCountries 684

Duties of the Fed 684

BEYOND THE TOOLS: Histoof the U.S. BankingSystem 685

The Importance of MonetaPolicy 685

The Conduct of Monetary Policy 686

Tools of Moneta Policy 686

Changing the Reserve Requirement 686

APPLYING THE TOOLS: Three Letters 687

Changing the Discount Rate 688

KNOWING THE TOOLS: Fancy Lingo 689

Executing Open Market Operations 689

Monetary Policy in the AS/AD Model 692

Monetary Policy in the Circular Flow 693

The Emphasis on the Interest Rate 693

Real and Nominal Interest Rates 693

Real and Nominal Interest Rates and MonetaryPolicy 695

Problems in the Conduct of Monetary Policy 695

Knowing What Policy to Use 695

Understanding the Policy You're Using 696

Lags in Monetary Policy 696

Political Pressure 696

Conflicting International Goals 696

Conclusion 697

Chapter Summary 697

Key Terms 697

Questions for Thought and Review 698

Problems and Exercises 698

Web Questions 699

Answers to Margin Questions 699

Appendix A: The Effect of Monetary Policy UsingT-Accounts 700

31. INFLATION AND ITS RELATIONSHIP TOUNEMPLOYMENT AND GROWTH 702

Some Basics about Inflation 703

The Distributional Effects of Inflation 703

Expectations of Inflation 703

Productivity, Inflation, and Wages 704

Theories of Inflation 704

The Quantity Theory of Money and Inflation 704

KNOWING THE TOOLS: Demand-Pull and Cost-PushInflation 705

BEYOND THE TOOLS: The Keeper of the ClassicalFaith: Milton Friedman 709

The Institutional Theory of Inflation 710

KNOWING THE TOOLS: Dieting and FightingInflation 713

Inflation and Unemployment: The Phillips Curve 713

History of the Phillips Curve 714

The Breakdown of the Short-Run Phillips Curve 715

The Long-Run and Short-Run Phillips Curves 715

Stagflation and the Phillips Curve 717

The New Economy: The Late 1990s and Early2000s 717

The Relationship between Inflation and Growth 718

Quantity Theoryand the Inflation/GrowthTrade-Off 719

Institutional Theory and the Inflation/GrowthTrade-Off 719

Conclusion 720

Chapter Summary 720

Key Terms 720

Questions for Thought and Review 721

Problems and Exercises 721

Web Questions 722

Answers to Margin Questions 722

Ⅳ INTERNATIONAL POLICY ISSUES 724

32. OPEN ECONOMY MACRO: EXCHANGE 724

RATE AND TRADE POLICY 724

The Balance of Payments 725

The Current Account 726

The Capital Account 727

The Official Transactions Account 728

Exchange Rates 728

Exchange Rates and the Balance of Payments 730

Fundamental Forces Determining Exchange Rates 730

Why Exchange Rate Determination Is MoreComplicated Than Supply/Demand Analysis MakesIt Seem 731

International Trade Problems from Shifting Values ofCurrencies 731

How a Fixed Exchange Rate System Works 731

KNOWING THE TOOLS: Exchange Rates Set by Law:Nonconvertible Currencies and Capital Controls 732

APPLYING THE TOOLS: Determining the Causes andFluctuations in the Dollar's Value 734

Advantages and Disadvantages of Alternative ExchangeRate Systems 736

Fixed Exchange Rates 736

Flexible Exchange Rates 737

Partially Flexible Exchange Rates 738

Which View Is Right? 738

APPLYING THE TOOLS: The Euro 739

Adjusting the Economy to the Exchange Rate via TradePolicy 739

Varieties of Trade Restrictions 739

Economists' Dislike of Trade RestrictionPolicies 742

Strategic Trade Policies 742

Conclusion 743

Chapter Summary 743

Key Terms 744

Questions for Thought and Review 744

Problems and Exercises 745

Web Questions 745

Answers to Margin Questions 746

Appendix A: History of Exchange Rate Systems 747

33. INTERNATIONAL DIMENSIONS OFMONETARY AND FISCAL POLICIES 750

The Ambiguous Inteational Goals of MacroeconomicPolicy 751

The Exchange Rate Goal 751

The Trade Balance Goal 751

APPLYING THE TOOLS: The U.S. Trade Deficit 752

International versus Domestic Goals 752

Monetary and Fiscal Policy with Fixed ExchangeRates 753

Increase the Private Demand for Francs viaContractionary Monetary Policy 753

Decrease the Private Supply of Francs viaContractionary Monetary and Fiscal Policy 754

Monetary and Fiscal Policy with Flexible or PartiallyFlexible Exchange Rate Regimes 754

Monetary Policy's Effect on Exchange Rates 754

Monetary Policy's Effect on the Trade Balance 756

Fiscal Policy's Effect on Exchange Rates 758

Fiscal Policy's Effect on the Trade Deficit 759

International Phenomena and Domestic Goals 760

International Monetary and Fiscal Coordination 760

KNOWING THE TOOLS: Monetary and Fiscal Policy'sEffect on International Goals 761

Coordination Is a Two-Way Street 761

Crowding Out and International Considerations 761

Conclusion 762

Chapter Summary 763

Questions for Thought and Review 763

Problems and Exercises 764

Web Questions 764

Answers to Margin Questions 764

V COMBINING THE FRAMEWORK WITHPOLICY 766

34. TOOLS, RULES, AND POLICY 766

Models 767

Micro Models 767

Macro Models 769

KNOWING THE TOOLS: Key Models in IntroductoMacroeconomics 773

Using Models to Understand and Discuss Policy 773

Policies and Institutions 773

Worldviews and Policy 775

Keynesian and Classical Policy Views 776

Monetaryand Fiscal Policy 776

Policy Process and Credibility 779

Has the Economy Entered a New Era? 781

BEYOND THE TOOLS: The Stock Market Boom andthe Economy 783

Conclusion 784

Chapter Summary 784

Key Terms 785

Questions for Thought and Review 785

Problems and Exercises 785

Web Questions 786

Answers to Margin Questions 786