PRINCIPLES OF ECONOMICSPDF电子书下载

PART Ⅰ INTRODUCTION 1

CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 3

How People Make Decisions 4

Principle #1：People Face Tradeoffs 4

Principle #2：The Cost of Something Is What You Give Up to Get It 5

Principle #3：Rational People Think at the Margin 6

Principle #4：People Respond to Incentives 7

How People Interact 8

Principle #5：Trade Can Make Everyone Better Off 8

Principle #6：Markets Are Usually a Good Way to Organize Economic Activity 9

Principle #7：Governments Can Sometimes Improve Market Outcomes 10

How the Economy as a Whole Works 10

Principle #8：A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services 11

Principle #9：Prices Rise When the Government Prints Too Much Money 12

Principle #10：Society Faces a Short-Run Tradeoff between Inflation and Unemployment 13

Conclusion 13

Summary 14

Key Concepts 14

Questions for Review 15

Problems and Applications 15

CHAPTER 2 THINKING LIKE AN ECONOMIST 17

The Economist as Scientist 18

The Scientific Method：Observation，Theory，and More Observation 19

The Role of Assumptions 19

Economic Models 20

Our First Model：The Circular-Flow Diagram 21

Our Second Model：The Production Possibilities Frontier 22

Microeconomics and Macroeconomics 25

The Economist as Policymaker 26

Positive versus Normative Analysis 26

Economists in Washington 27

Why Economists Disagree 28

Differences in Scientific Judgments 28

Differences in Values 29

Charlatans and Cranks 29

Perception versus Reality 30

Let’s Get Going 31

Summary 32

Key Concepts 32

Questions for Review 32

Problems and Applications 33

Appendix：Graphing——A Brief Review 34

Graphs of a Single Variable 34

Graphs of Two Variables：The Coordinate System 34

Curves in the Coordinate System 36

Slope and Elasticity 39

Cause and Effect 41

Omitted Variables 41

Reverse Causality 42

CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 45

A Parable for the Modern Economy 46

Production Possibilities 46

Specialization and Trade 48

The Principle of Comparative Advantage 50

Absolute Advantage 51

Opportunity Cost and Comparative Advantage 51

Comparative Advantage and Trade 52

Applications of Comparative Advantage 53

Should Michael Jordan Mow His Own Lawn？ 53

Should the United States Trade with Other Countries？ 54

FYI：The Legacy of Adam Smith and David Ricardo 54

Conclusion 55

Summary 55

Key Concepts 56

Questions for Review 56

Problems and Applications 56

PART Ⅱ SUPPLY AND DEMAND Ⅰ：HOW MARKETS WORK 59

CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND 61

Markets and Competition 62

Competitive Markets 62

Competition：Perfect and Otherwise 62

Demand 63

The Determinants of Individual Demand 63

Price 63

Income 64

Prices of Related Goods 64

Tastes 64

Expectations 64

The Demand Schedule and the Demand Curve 64

Ceteris Paribus 66

Market Demand versus Individual Demand 66

Shifts in the Demand Curve 68

CASE STUDY：Two Ways to Reduce the Quantity of Smoking Demanded 69

Supply 70

The Determinants of Individual Supply 71

Price 71

Input Prices 71

Technology 71

Expectations 71

The Supply Schedule and the Supply Curve 71

Market Supply versus Individual Supply 72

Shifts in the Supply Curve 73

Supply and Demand Together 74

Equilibrium 76

Three Steps to Analyzing Changes in Equilibrium 78

Example：A Change in Demand 78

Shifts in Curves versus Movements along Curves 80

Example：A Change in Supply 80

Example：A Change in Both Supply and Demand 81

Conclusion：How Prices Allocate Resources 81

IN THE NEWS：Supply，Demand，and the Price of Paper——Pulp Reality 83

Summary 84

Key Concepts 85

Questions for Review 85

Problems and Applications 85

CHAPTER 5 ELASTICITY AND ITS APPLICATION 89

The Elasticity of Demand 90

The Price Elasticity of Demand and Its Determinants 90

Necessities versus Luxuries 90

Availability of Close Substitutes 90

Definition of the Market 90

Time Horizon 91

Computing the Price Elasticity of Demand 91

FYI：Calculating Elasticities Using the Midpoint Method 92

The Variety of Demand Curves 92

Total Revenue and the Price Elasticity of Demand 94

CASE STUDY：Pricing Admission to a Museum 96

The Income Elasticity of Demand 96

FYI：Elasticity and Total Revenue along a Linear Demand Curve 97

IN THE NEWS：On the Road with Elasticity——For Whom the Booth Tolls，Price Really Does Matter 98

The Elasticity of Supply 99

The Price Elasticity of Supply and Its Determinants 99

Computing the Price Elasticity of Supply 99

The Variety of Supply Curves 100

Three Applications of Supply，Demand，and Elasticity 102

Can Good News for Farming Be Bad News for Farmers？ 103

Why Did OPEC Fail to Keep the Price of Oil High？ 105

Does Drug Interdiction Increase or Decrease Drug-Related Crime？ 106

Conclusion 108

Summary 108

Key Concepts 109

Questions for Review 109

Problems and Applications 109

CHAPTER 6 SUPPLY，DEMAND，AND GOVERNMENT POLICIES 111

Controls on Prices 112

How Price Ceilings Affect Market Outcomes 112

CASE STUDY：Lines at the Gas Pump 113

CASE STUDY：Rent Control in the Short Run and Long Run 115

IN THE NEWS：Rent Control in New York City——Home Free：Some Rich and Famous of New York City Bask in Shelter of Rent Law 116

How Price Floors Affect Market Outcomes 117

CASE STUDY：The Minimum Wage 118

Evaluating Price Controls 120

Taxes 121

How Taxes on Buyers Affect Market Outcomes 122

How Taxes on Sellers Affect Market Outcomes 123

CASE STUDY：Can Congress Distribute the Burden of a Payroll Tax？ 124

Elasticity and Tax Incidence 125

CASE STUDY：Who Pays the Luxury Tax？ 127

Conclusion 128

Summary 128

Key Concepts 128

Questions for Review 128

Problems and Applications 129

PART Ⅲ SUPPLY AND DEMAND Ⅱ：MARKETS AND WELFARE 131

CHAPTER 7 CONSUMERS，PRODUCERS，AND THE EFFICIENCY OF MARKETS 133

Consumer Surplus 134

Willingness to Pay 134

Using the Demand Curve to Measure Consumer Surplus 135

How a Lower Price Raises Consumer Surplus 138

What Does Consumer Surplus Measure？ 138

Producer Surplus 140

Cost and the Willingness to Sell 140

Using the Supply Curve to Measure Producer Surplus 141

How a Higher Price Raises Producer Surplus 143

Market Efficiency 144

The Benevolent Social Planner 144

FYI：The Invisible Hand of the Marketplace 145

Evaluating the Market Equilibrium 146

IN THE NEWS：Ticket Scalping——Tickets？Supply Meets Demand on Sidewalk 148

Conclusion：Market Efficiency and Market Failure 150

Summary 151

Key Concepts 151

Questions for Review 151

Problems and Applications 151

CHAPTER 8 APPLICATION：THE COSTS OF TAXATION 155

The Deadweight Loss of Taxation 156

How a Tax Affects Market Participants 156

Welfare without a Tax 157

Welfare with a Tax 158

Changes in Welfare 158

Deadweight Losses and the Gains from Trade 159

The Determinants of the Deadweight Loss 160

CASE STUDY：The Deadweight Loss of Taxes on Labor 162

CASE STUDY：Henry George and the Tax on Land 163

Deadweight Loss and Tax Revenue as Taxes Vary 164

CASE STUDY：The Laffer Curve and Supply-Side Economics 166

Conclusion 168

IN THE NEWS：Should Ukraine Cut Tax Rates to Raise Tax Revenue？——A Big Tax Cut to Lift the Economy——Not Here，in Ukraine 169

Summary 170

Key Concepts 170

Questions for Review 170

Problems and Applications 170

CHAPTER 9 APPLICATION：INTERNATIONAL TRADE 173

The Determinants of Trade 174

The Equilibrium without Trade 174

The World Price and Comparative Advantage 175

FYI：Comparing Prices and Comparative Advantage 175

The Winners and Losers from Trade 176

The Gains and Losses of an Exporting Country 176

The Gains and Losses of an Importing Country 179

The Effects of a Tariff 181

The Effects of an Import Quota 182

The Lessons for Trade Policy 185

The Arguments for Restricting Trade 186

The Jobs Argument 186

The National-Security Argument 187

The Infant-Industry Argument 187

IN THE NEWS：NAFTA and Mexican Tomatoes——President Wins Tomato Accord for Floridians：Mexico Agrees to End Low-Price Shipments 188

The Unfair-Competition Argument 189

The Protection-as-a-Bargaining-Chip Argument 189

CASE STUDY：GATT and the Multilateral Approach to Free Trade 189

IN THE NEWS：A Chicken Invasion——U.S.Chicken in Every Pot？Nyet！ Russians Cry Foul 190

Conclusion 191

Summary 192

Key Concepts 192

Questions for Review 193

Problems and Applications 193

PART Ⅳ THE ECONOMICS OF THE PUBLIC SECTOR 197

CHAPTER 10 EXTERNALITIES 199

Externalities and Market Inefficiency 201

Welfare Economics：A Recap 201

Negative Externalities in Production 202

Positive Externalities in Production 203

CASE STUDY：The Debate over Technology Policy 204

Externalities in Consumption 205

Private Solutions to Externalities 207

The Types of Private Solutions 207

IN THE NEWS：An Outraged Citizen Speaks Out——Smnokers，Pick Up Your Butts 208

The Coase Theorem 208

Why Private Solutions Do Not Always Work 209

Public Policies toward Externalities 210

Regulation 210

Pigovian Taxes and Subsidies 211

Tradable Pollution Permits 212

IN THE NEWS：Pollution Permits in Action——Smog Swapping：New Rules Harness Power of Free Markets to Curb Air Pollution 214

Objections to the Economic Analysis of Pollution 214

Conclusion 216

Summary 216

Key Concepts 216

Questions for Review 217

Problems and Applications 217

CHAPTER 11 PUBLIC GOODS AND COMMON RESOURCES 219

The Different Kinds of Goods 220

Public Goods 221

The Free-Rider Problem 222

Some Important Public Goods 222

National Defense 222

Basic Research 223

Programs to Fight Poverty 223

CASE STUDY：Are Lighthouses Public Goods？ 224

The Difficult Job of Cost-Benefit Analysis 225

CASE STUDY：How Much Is a Life Worth？ 225

Common Resources 227

The Tragedy of the Commons 227

CASE STUDY：Capitalism，Communism，and Collective Resources 228

Some Important Common Resources 229

Clean Air and Water 229

Oil Pools 229

Congested Roads 229

IN THE NEWS：The Singapore Solution——Economics of Road Pricing 230

Fish，Whales，and Other Wildlife 231

CASE STUDY：Why the Cow Is Not Extinct 232

IN THE NEWS：Should Yellowstone Charge as Much as Disney World？——Save the Parks，and Make a Profit 232

Conclusion：The Importance of Property Rights 233

Summary 234

Key Concepts 234

Questions for Review 234

Problems and Applications 234

CHAPTER 12 THE DESIGN OF THE TAX SYSTEM 237

A Financial Overview of the U.S.Government 238

The Federal Government 238

Receipts 238

Spending 240

State and Local Government 242

Receipts 242

Spending 243

Taxes and Efficiency 243

Deadweight Losses 244

CASE STUDY：Should Income or Consumption Be Taxed？ 245

Administrative Burden 246

IN THE NEWS：Small Business and the Tax Laws——Obeying the Tax Laws：Small Business’s Burden 247

Marginal Tax Rates versus Average Tax Rates 248

Lump-Sum Taxes 248

Taxes and Equity 249

The Benefits Principle 249

The Ability-to-Pay Principle 250

Vertical Equity 250

CASE STUDY：How the Burden of Taxes Is Distributed 250

Horizontal Equity 251

CASE STUDY：Horizontal Equity and the Marriage Tax 252

Tax Incidence and Tax Equity 253

CASE STUDY：Who Pays the Corporate Income Tax？ 254

CASE STUDY：The Flat Tax 255

Conclusion：The Tradeoff between Equity and Efficiency 257

Summary 257

Key Concepts 258

Questions for Review 258

Problems and Applications 258

PART Ⅴ FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY 261

CHAPTER 13 THE COSTS OF PRODUCTION 263

What Are Costs？ 264

Total Revenue，Total Cost，and Profit 264

Costs as Opportunity Costs 265

The Cost of Capital as an Opportunity Cost 265

Economic Profit versus Accounting Profit 266

Production and Costs 267

The Production Function 267

From the Production Function to the Total-Cost Curve 269

The Various Measures of Cost 270

Fixed and Variable Costs 271

Average and Marginal Cost 272

Cost Curves and Their Shapes 273

Rising Marginal Cost 273

U-Shaped Average Total Cost 274

The Relationship between Marginal Cost and Average Total Cost 274

Typical Cost Curves 275

Costs in the Short Run and in the Long Run 277

Conclusion 278

Summary 278

Key Concepts 279

Questions for Review 279

Problems and Applications 279

CHAPTER 14 FIRMS IN COMPETITIVE MARKETS 283

What Is a Competitive Market？ 284

The Meaning of Competition 284

The Revenue of a Competitive Firm 284

Profit Maximization and the Competitive Firm’s Supply Curve 286

A Simple Example of Profit Maximization 286

The Marginal-Cost Curve and the Firm’s Supply Decision 287

The Firm’s Short-Run Decision to Shut Down 288

CASE STUDY：Near-Empty Restaurants and Off-Season Miniature Golf 290

FYI：Spilt Milk and Sunk Costs 291

The Firm’s Long-Run Decision to Exit or Enter an Industry 292

Measuring Profit in Our Graph for the Competitive Firm 292

The Supply Curve in a Competitive Market 294

Market Supply with a Fixed Number of Firms 294

Market Supply with Entry and Exit 295

FYI：Why Do Competitive Firms Stay in Business If They Make Zero Profit？ 296

A Shift in Demand in the Short Run and Long Run 297

Why the Long-Run Supply Curve Might Slope Upward 298

Conclusion：Behind the Supply Curve 300

Summary 300

Key Concepts 301

Questions for Review 301

Problems and Applications 301

CHAPTER 15 MONOPOLY 303

Why Monopolies Arise 304

Monopoly Resources 305

CASE STUDY：The DeBeers Diamond Monopoly 305

Government-Created Monopolies 306

Natural Monopolies 306

How Monopolies Make Production and Pricing Decisions 308

Monopoly versus Competition 308

A Monopoly’s Revenue 308

Profit Maximization 311

FYI：Why a Monopoly Does Not Have a Supply Curve 313

A Monopoly’s Profit 313

CASE STUDY：Monopoly Drugs versus Generic Drugs 314

The Welfare Cost of Monopoly 315

The Deadweight Loss 316

The Monopoly’s Profit：A Social Cost？ 318

Public Policy toward Monopolies 319

Increasing Competition with Antitrust Laws 319

Regulation 320

IN THE NEWS：Boeing’s Market Power——Many Airlines Not Worried by Boeing-McDonnell Deal 321

Public Ownership 322

Doing Nothing 323

Price Discrimination 323

A Parable about Pricing 323

IN THE NEWS：The Future of Electricity——The End of the Last Great Monopoly 324

The Moral of the Story 326

The Analytics of Price Discrimination 327

Examples of Price Discrimination 328

Movie Tickets 328

Airline Prices 329

Discount Coupons 329

Financial Aid 329

Quantity Discounts 329

IN THE NEWS：Competing to Be the Best Monopolist——Let’s Play Monopoly 330

Conclusion：The Prevalence of Monopoly 332

Summary 332

Key Concepts 333

Questions for Review 333

Problems and Applications 333

CHAPTER 16 OLIGOPOLY 337

Between Monopoly and Perfect Competition 338

Markets with Only a Few Sellers 339

A Duopoly Example 340

Competition，Monopolies，and Cartels 340

The Equilibrium for an Oligopoly 341

How the Size of an Oligopoly Affects the Market Outcome 342

CASE STUDY：OPEC and the World Oil Market 344

IN THE NEWS：Squabbling in OPEC——OPEC Is Expected to Delay Action on New Oil Output by Iraq 345

Game Theory and the Economies of Cooperation 345

The Prisoners’ Dilemma 346

Oligopolies as a Prisoners’ Dilemma 347

Other Examples of the Prisoners’ Dilemma 348

Arms Races 348

IN THE NEWS：Modern Pirates——Ocean Shippers Break Ranks on Pricing 349

Advertising 350

Common Resources 351

The Prisoners’ Dilemma and the Welfare of Society 351

Why People Sometimes Cooperate 352

CASE STUDY：The Prisoners’ Dilemma Tournament 353

Public Policy toward Oligopolies 354

Restraint of Trade and the Antitrust Laws 354

CASE STUDY：An Illegal Phone Call 355

Controversies over Antitrust Policy 356

Resale Price Maintenance 356

IN THE NEWS：Anticompetitive “R” Us？——Toys “R” Us Is Expecting U.S.Charges of Antitrust 357

Tying 358

Conclusion 359

Summary 359

Key Concepts 359

Questions for Review 359

Problems and Applications 360

CHAPTER 17 MONOPOLISTIC COMPETITION 363

Competition with Differentiated Products 364

The Monopolistically Competitive Firm in the Short Run 364

The Long-Run Equilibrium 365

Monopolistic versus Perfect Competition 367

Excess Capacity 368

Markup over Marginal Cost 368

Monopolistic Competition and the Welfare of Society 369

FYI：Is Excess Capacity a Social Problem？ 370

Advertising 371

The Debate over Advertising 371

The Critique of Advertising 371

The Defense of Advertising 371

CASE STUDY：Advertising and the Price of Eyeglasses 372

Advertising as a Signal of Quality 373

Brand Names 374

CASE STUDY：Brand Names under Communism 375

IN THE NEWS：TV Networks as Brand Names——A TV Season When Image Is Everything 376

Conclusion 377

Summary 377

Key Concepts 377

Questions for Review 378

Problems and Applications 378

PART Ⅵ THE ECONOMICS OF LABOR MARKETS 381

CHAPTER 18 THE MARKETS FOR THE FACTORS OF PRODUCTION 383

A Firm’s Demand for Labor 384

The Competitive Profit-Maximizing Firm 385

The Production Function and the Marginal Product of Labor 385

The Value of the Marginal Product and the Demand for Labor 387

FYI：Input Demand and Output Supply：Two Sides of the Same Coin 388

Labor-Market Equilibrium 389

Marginal Productivity in Equilibrium 389

Shifts in Labor Supply 390

Shifts in Labor Demand 391

CASE STUDY：Productivity and Wages 392

The Other Factors of Production：Land and Capital 394

Equilibrium in the Markets for Land and Capital 394

FYI：The Various Forms of Capital Income 396

Linkages among the Factors of Production 396

CASE STUDY：The Economics of the Black Death 397

Conclusion 398

Summary 398

Key Concepts 399

Questions for Review 399

Problems and Applications 399

CHAPTER 19 EARNINGS AND DISCRIMINATION 401

Some Determinants of Equilibrium Wages 402

Compensating Differentials 402

Human Capital 403

CASE STUDY：The Increasing Value of Skills 404

Ability，Effort，and Chance 405

CASE STUDY：The Benefits of Beauty 406

An Alternative View of Education：Signaling 406

CASE STUDY：Human Capital，Natural Ability，and Compulsory School Attendance 407

The Superstar Phenomenon 408

The Economics of Discrimination 409

Measuring Labor-Market Discrimination 410

Discrimination by Employers 411

CASE STUDY：Segregated Streetcars and the Profit Motive 412

Discrimination by Customers and Governments 412

CASE STUDY：Discrimination in Sports 413

IN THE NEWS：Men，Women，and Wages——The Shrinking Pay Gap 414

The Debate over Comparable Worth 415

Conclusion 416

Summary 417

Key Concepts 417

Questions for Review 417

Problems and Applications 418

CHAPTER 20 THE DISTRIBUTION OF INCOME 421

The Measurement of Inequality 422

U.S.Income Inequality 422

CASE STUDY：The Women’s Movement and the Income Distribution 424

CASE STUDY：Income Inequality around the World 425

The Poverty Rate 426

Problems in Measuring Inequality 427

In-Kind Transfers 428

The Economic Life Cycle 428

Transitory versus Permanent Income 428

IN THE NEWS：Is the Poverty Rate Correctly Measured？——Old Flaws Undermine New Poverty-Level Data 429

Economic Mobility 430

The Political Philosophy of Redistributing Income 431

Utilitarianism 431

Liberalism 432

Libertarianism 433

Policies to Reduce Poverty 434

Minimum-Wage Laws 435

Welfare 435

IN THE NEWS：The 1996 Welfare Reform——What Makes the Welfare Bill a Winner 436

Negative Income Tax 436

In-Kind Transfers 438

Antipoverty Programs and Work Incentives 438

IN THE NEWS：Saving and Welfare——For Welfare Parents，Scrimping Is Legal，but Saving Is Out 439

Conclusion 440

Summary 441

Key Concepts 441

Questions for Review 441

Problems and Applications 442

PART Ⅶ ADVANCED TOPIC 445

CHAPTER 21 THE THEORY OF CONSUMER CHOICE 447

The Budget Constraint：What the Consumer Can Afford 448

Preferences：What the Consumer Wants 450

Representing Preferences with Indifference Curves 450

Four Properties of Indifference Curves 451

Two Extreme Examples of Indifference Curves 453

Perfect Substitutes 453

Perfect Complements 454

FYI：Utility：An Alternative Way to Represent a Consumer’s Preferences 455

Optimization：What the Consumer Chooses 455

The Consumer’s Optimal Choices 455

How Changes in Income Affect the Consumer’s Choices 456

How Changes in Prices Affect the Consumer’s Choices 457

Income and Substitution Effects 458

Deriving the Demand Curve 461

Four Applications 462

Do All Demand Curves Slope Downward？ 462

How Do Wages Affect Labor Supply？ 463

CASE STUDY：Income Effects on Labor Supply：Historical Trends，Lottery Winners，and the Carnegie Conjecture 466

How Do Interest Rates Affect Household Saving？ 467

Do the Poor Prefer to Receive Cash or In-Kind Transfers？ 469

Conclusion：Do People Really Think This Way？ 471

Summary 471

Key Concepts 472

Questions for Review 472

Problems and Applications 472

PART Ⅷ THE DATA OF MACROECONOMICS 475

CHAPTER 22 MEASURING A NATION’S INCOME 477

The Economy’s Income and Expenditure 478

The Measurement of Gross Domestic Product 480

“GDP Is the Market Value…” 480

“…Of All…” 480

“…Final…” 481

“…Goods and Services…” 481

“…Produced…” 481

“…Within a Country…” 481

“…In a Given Period of Time.” 482

FYI：Three Other Measures of Income 483

The Components of GDP 483

Real versus Nominal GDP 485

A Numerical Example 485

The GDP Deflator 487

CASE STUDY：Real GDP over Recent History 487

GDP and Economic Well-Being 488

CASE STUDY：International Differences in GDP and the Quality of Life 490

Conclusion 491

Summary 491

Key Concepts 492

Questions for Review 492

Problems and Applications 492

CHAPTER 23 MEASURING THE COST OF LIVING 495

The Consumer Price Index 496

How the Consumer Price Index Is Calculated 496

FYI：What Is in the CPI’s Basket？ 498

Problems in Measuring the Cost of Living 499

IN THE NEWS：Shopping for the CPI——Is the CPI Accurate？Ask the Federal Sleuths Who Get the Numbers 500

IN THE NEWS：The CPI Commission——Prisoners of Faulty Statistics 502

The GDP Deflator versus the Consumer Price Index 502

Correcting Economic Variables for the Effects of Inflation 505

Dollar Figures from Different Times 505

IN THE NEWS：Mr.Index Goes to Hollywood——Winner and Still Champ 506

Indexation 506

Real and Nominal Interest Rates 507

Conclusion 508

Summary 509

Key Concepts 509

Questions for Review 509

Problems and Applications 510

PART Ⅸ THE REAL ECONOMY IN THE LONG RUN 513

CHAPTER 24 PRODUCTION AND GROWTH 515

Economic Growth around the World 516

FYI：The Magic of Compounding and the Rule of 70 518

Productivity：Its Role and Determinants 518

Why Productivity Is So Important 519

How Productivity Is Determined 519

Physical Capital 520

Human Capital 520

Natural Resources 520

CASE STUDY：Are Natural Resources a Limit to Growth？ 521

IN THE NEWS：Computers and Productivity——What Has the Computer Done for Us Lately？ 522

Technological Knowledge 523

The Production Function 524

Economic Growth and Public Policy 525

The Importance of Saving and Investment 525

Diminishing Returns and the Catch-Up Effect 526

Investment from Abroad 527

Education 528

IN THE NEWS：The World Bank——World Bank Focusing on Areas Shunned by Western Business 529

Property Rights and Political Stability 530

CASE STUDY：What Causes Famine？ 531

Free Trade 531

IN THE NEWS：The Sachs Solution to the African Problem——Growth in Africa：It Can Be Done 532

The Control of Population Growth 534

Research and Development 535

CASE STUDY：The Productivity Slowdown 535

Conclusion：The Importance of Long-Run Growth 537

Summary 538

Key Concepts 538

Questions for Review 538

Problems and Applications 538

CHAPTER 25 SAVING，INVESTMENT，AND THE FINANCIAL SYSTEM 541

Financial Institutions in the U.S.Economy 542

Financial Markets 542

The Bond Market 542

The Stock Market 543

Financial Intermediaries 544

Banks 544

FYI：How to Read the Newspaper’s Stock Tables 545

Mutual Funds 546

Summing Up 547

Saving and Investment in the National Income Accounts 547

Some Important Identities 548

The Meaning of Saving and Investment 549

The Market for Loanable Funds 550

Supply and Demand for Loanable Funds 550

Policy 1：Taxes and Saving 552

Policy 2：Taxes and Investment 554

Policy 3：Government Budget Deficits 555

FYI：Ricardian Equivalence：An Alternative View of Government Budget Deficits 556

CASE STUDY：Government Debt and Deficits in the United States 557

Conclusion 559

IN THE NEWS：The Balanced Budget Amendment—Balanced Budget：Bad Economics 560

Summary 561

Key Concepts 562

Questions for Review 562

Problems and Applications 562

CHAPTER 26 THE NATURAL RATE OF UNEMPLOYMENT 565

Identifying Unemployment 566

How Is Unemployment Measured？ 566

CASE STUDY：Labor-Force Participation of Men and Women in the U.S.Economy 570

Is Unemployment Measured Correctly？ 571

How Long Are the Unemployed without Work？ 572

Why Is There Unemployment？ 572

Minimum-Wage Laws 573

IN THE NEWS：The Minimum-Wage Debate——Thesis：Rise in Wages Will Hurt Teenage Group 574

Unions and Collective Bargaining 575

The Economics of Unions 576

Are Unions Good or Bad for the Economy？ 577

IN THE NEWS：The UAW’s Tradeoff——New Approach for Auto Union in Ford Accord——The Deal：No Job Cuts but Less Pay for Some 578

The Theory of Efficiency Wages 578

Worker Health 579

Worker Turnover 579

Worker Effort 580

Worker Quality 580

FYI：The Economics of Asymmetric Information 581

CASE STUDY：Henry Ford and the Very Generous $5-a-Day Wage 582

Job Search 583

The Inevitability of Search Unemployment 584

Public Policy and Job Search 584

Unemployment Insurance 585

Conclusion 586

Summary 586

Key Concepts 586

Questions for Review 587

Problems and Applications 587

PART Ⅹ MONEY AND PRICES IN THE LONG RUN 589

CHAPTER 27 THE MONETARY SYSTEM 591

The Meaning of Money 592

The Functions of Money 592

The Kinds of Money 593

IN THE NEWS：Money on the Island of Yap——Fixed Assets，or Why a Loan in Yap Is Hard to Roll Over 594

Money in the U.S.Economy 595

CASE STUDY：Where Is All the Currency？ 596

FYI：Credit Cards，Debit Cards，and Money 597

The Federal Reserve 597

The Fed’s Organization 598

The Federal Open Market Committee 598

Banks and the Money Supply 599

The Simple Case of 100-Percent-Reserve Banking 600

Money Creation with Fractional-Reserve Banking 600

The Money Multiplier 602

The Fed’s Tools of Monetary Control 603

Open-Market Operations 603

Reserve Requirements 604

The Discount Rate 604

Problems in Controlling the Money Supply 604

CASE STUDY：Bank Runs and the Money Supply 605

Conclusion 606

Summary 606

Key Concepts 607

Questions for Review 607

Problems and Applications 607

CHAPTER 28 INFLATION：ITS CAUSES AND COSTS 609

The Causes of Inflation 610

The Level of Prices and the Value of Money 611

Money Supply，Money Demand，and Monetary Equilibrium 612

The Effects of a Monetary Injection 613

A Brief Look at the Adjustment Process 614

The Classical Dichotomy and Monetary Neutrality 615

Velocity and the Quantity Equation 616

CASE STUDY：Money and Prices during Four Hyperinflations 618

The Inflation Tax 619

IN THE NEWS：The Hyperinflation in Serbia——Special，Today Only：6 Million Dinars for a Snickers Bar 620

The Fisher Effect 621

The Costs of Inflation 623

A Fall in Purchasing Power？The Inflation Fallacy 623

Shoeleather Costs 623

Menu Costs 625

Relative-Price Variability and the Misallocation of Resources 625

Inflation-Induced Tax Distortions 625

Confusion and Inconvenience 627

A Special Cost of Unexpected Inflation：Arbitrary Redistributions of Wealth 628

IN THE NEWS：How to Protect Your Savings from Inflation——Inflation Fighters for the Long Term 628

CASE STUDY：The Wizard of Oz and the Free-Silver Debate 630

Conclusion 631

Summary 632

Key Concepts 632

Questions for Review 633

Problems and Applications 633

PART Ⅺ THE MACROECONOMICS OF OPEN ECONOMIES 635

CHAPTER 29 OPEN-ECONOMY MACROECONOMICS：BASIC CONCEPTS 637

The International Flows of Goods and Capital 638

The Flow of Goods：Exports，Imports，and Net Exports 638

CASE STUDY：The Increasing Openness of the U.S.Economy 639

The Flow of Capital：Net Foreign Investment 641

IN THE NEWS：Capital Flows to Russia——Foreign Buyers Look to Russia：Despite Risks，Investors Coming Up with the Cash 642

The Equality of Net Exports and Net Foreign Investment 642

Saving，Investment，and Their Relationship to the International Flows 643

IN THE NEWS：Flows between the Developing South and the Industrial North——Fantasy Economics 644

CASE STUDY：Saving，Investment，and Net Foreign Investment of the United States 646

The Prices for International Transactions：Real and Nominal Exchange Rates 647

Nominal Exchange Rates 648

Real Exchange Rates 648

IN THE NEWS：A Dollar Depreciation and an Export Boom——Weak Dollar Makes U.S.World’s Bargain Bazaar 650

A First Theory of Exchange-Rate Determination：Purchasing-Power Parity 651

The Basic Logic of Purchasing-Power Parity 652

Implications of Purchasing-Power Parity 652

CASE STUDY：The Nominal Exchange Rate during a Hyperinflation 654

Limitations of Purchasing-Power Parity 655

Conclusion 656

Summary 656

Key Concepts 656

Questions for Review 656

Problems and Applications 657

CHAPTER 30 A MACROECONOMIC THEORY OF THE OPEN ECONOMY 659

Supply and Demand for Loanable Funds and for Foreign-Currency Exchange 660

The Market for Loanable Funds 660

The Market for Foreign-Currency Exchange 662

FYI：Purchasing-Power Parity as a Special Case 664

Equilibrium in the Open Economy 664

Net Foreign Investment：The Link between the Two Markets 664

Simultaneous Equilibrium in Two Markets 665

FYI：The Classical Dichotomy Once Again 667

How Policies and Events Affect an Open Economy 668

Government Budget Deficits 668

CASE STUDY：The Twin Deficits in the United States 670

Trade Policy 671

Political Instability and Capital Flight 673

Conclusion 676

Summary 676

Key Concepts 677

Questions for Review 677

Problems and Applications 677

PART Ⅻ SHORT-RUN ECONOMIC FLUCTUATIONS 679

CHAPTER 31 AGGREGATE DEMAND AND AGGREGATE SUPPLY 681

Three Key Facts about Economic Fluctuations 682

Fact 1：Economic Fluctuations Are Irregular and Unpredictable 682

Fact 2：Most Macroeconomic Quantities Fluctuate Together 684

Fact 3：As Output Falls，Unemployment Rises 684

FYI：Okun’s Law 685

Explaining Short-Run Economic Fluctuations 685

How the Short Run Differs from the Long Run 686

The Basic Model of Economic Fluctuations 686

The Aggregate-Demand Curve 688

Why the Aggregate-Demand Curve Is Downward Sloping 688

Pigou’s Wealth Effect 689

Keynes’s Interest-Rate Effect 689

Mundell-Fleming’s Exchange-Rate Effect 689

Summary 689

Why the Aggregate-Demand Curve Might Shift 690

The Aggregate-Supply Curve 691

Why the Aggregate-Supply Curve Is Vertical in the Long Run 691

Why the Long-Run Aggregate-Supply Curve Might Shift 692

Why the Aggregate-Supply Curve Is Upward Sloping in the Short Run 693

The New Classical Misperceptions Theory 694

The Keynesian Sticky-Wage Theory 694

The New Keynesian Sticky-Price Theory 694

Summary 695

Why the Short-Run Aggregate-Supply Curve Might Shift 695

Two Causes of Recession 696

The Effects of a Shift in Aggregate Demand 696

IN THE NEWS：How Consumers Shift Aggregate Demand——Consumers Get the Credit for Expanding Economy 698

The Effects of a Shift in Aggregate Supply 699

CASE STUDY：Oil and the Economy 701

Conclusion：The Origins of Aggregate Demand and Aggregate Supply 702

Summary 703

Key Concepts 703

Questions for Review 704

Problems and Applications 704

CHAPTER 32 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND 707

How Monetary Policy Influences Aggregate Demand 708

The Theory of Liquidity Preference 709

Money Supply 709

Money Demand 709

Equilibrium in the Money Market 710

The Downward Slope of the Aggregate-Demand Curve 712

Changes in the Money Supply 712

Interest-Rate Targets and Fed Policy 715

How Fiscal Policy Influences Aggregate Demand 716

Changes in Government Purchases 716

The Multiplier Effect 717

FYI：A Formula for the Government-Purchases Multiplier 718

The Crowding-Out Effect 718

Changes in Taxes 720

FYI：How Fiscal Policy Might Affect Aggregate Supply 720

Using Policy to Stabilize the Economy 721

The Case for Active Stabilization Policy 721

CASE STUDY：Keynesians in the White House 723

The Case against Active Stabilization Policy 724

IN THE NEWS：The Independence of the Federal Reserve——Don’t Tread on the Fed 724

Automatic Stabilizers 726

The Economy in the Long Run and the Short Run 727

FYI：The Long Run and the Short Run：An Algebraic Explanation 728

Conclusion 729

Summary 729

Key Concepts 730

Questions for Review 730

Problems and Applications 730

CHAPTER 33 THE SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT 733

The Phillips Curve 734

Origins of the Phillips Curve 734

Aggregate Demand，Aggregate Supply，and the Phillips Curve 735

IN THE NEWS：The Effects of Low Unemployment——Tighter Labor Market Widens Inflation Fears 737

Shifts in the Phillips Curve：The Role of Expectations 738

The Long-Run Phillips Curve 738

Expectations and the Short-Run Phillips Curve 741

The Natural Experiment for the Natural-Rate Hypothesis 743

Shifts in the Phillips Curve：The Role of Supply Shocks 745

The Cost of Reducing Inflation 748

The Sacrifice Ratio 748

Rational Expectations and the Possibility of Costless Disinflation 749

The Volcker Disinflation 750

The Greenspan Era 752

IN THE NEWS：Unemployment and Its Natural Rate——Trying to Figure Out How Low Unemployment Can Go 753

Conclusion 754

Summary 754

Key Concepts 755

Questions for Review 755

Problems and Applications 755

PART ⅩⅢ FINAL THOUGHTS 757

CHAPTER 34 FIVE DEBATES OVER MACROECONOMIC POLICY 759

Resolved：Monetary and Fiscal Policymakers Should Try to Stabilize the Economy 760

Pro：Policymakers Should Try to Stabilize the Economy 760

Con：Policymakers Should Not Try to Stabilize the Economy 760

Resolved：Monetary Policy Should Be Made by Rule Rather Than by Discretion 762

Pro：Monetary Policy Should Be Made by Rule 762

Con：Monetary Policy Should Not Be Made by Rule 763

Resolved：The Central Bank Should Aim for Zero Inflation 764

Pro：The Central Bank Should Aim for Zero Inflation 764

Con：The Central Bank Should Not Aim for Zero Inflation 765

Resolved：The Government Should Balance Its Budget 767

Pro：The Government Should Balance Its Budget 767

Con：The Government Should Not Balance Its Budget 768

Resolved：The Tax Laws Should Be Reformed to Encourage Saving 770

Pro：The Tax Laws Should Be Reformed to Encourage Saving 770

Con：The Tax Laws Should Not Be Reformed to Encourage Saving 771

Conclusion 772

Summary 773

Questions for Review 773

Problems and Applications 774

Glossary 777

Credits 783

Index 785