1 The essence of the economy: an overview 1
Business and the economy 1
Introducing the macroeconomic environment of business 2
The economic problem 6
Government and the economy 9
Government economic objectives 12
Economic targets and instruments 13
The structure of this book 13
2 Developments in the international economy 15
International economic performance: an historical perspective 15
Drivers of global economic performance 19
International economic performance in the 1990s 24
Future challenges for the global economy 29
Concluding remarks 32
3 Understanding economic flows 33
The essence of economic flows 33
The measurement of economic activity 35
Problems in calculating economic activity 38
Compilation and uses of national income accounts 41
A model of national income determination 43
Concluding remarks 49
Keynesians versus monetarists: an overview 50
4 National income determination 50
The essence of national income determination 50
The components of aggregate demand 52
Consumer spending and savings 53
Investment expenditure 56
Government expenditure 57
Export and import expenditure 58
Deflationary and inflationary gaps 59
Measuring the impact of changes in aggregate demand: the multiplier 64
The importance of the national income multiplier 67
The accelerator principle 68
The business cycle 70
Concluding remarks 72
5 Management of the economy I: Fiscal policy 74
The essence of fiscal policy 74
Problems with fine-tuning aggregate demand 76
Public finance 78
Government borrowing 86
Criticisms of fiscal policy and deficit financing 89
Concluding remarks 91
The essence of monetary policy 93
6 Management of the economy II: Monetary policy 93
Principles of monetarism 94
Measuring the money supply 97
Targeting the money supply 105
Criticisms of monetarism 109
The effects of monetary policy on business 115
Concluding remarks 117
7 Supply-side economics 119
The essence of supply--side economics 119
The principles of supply-side economics 120
Supply-side economics in practice 125
Notes 136
Concluding remarks 136
8 International trade 137
The essence of international trade 137
The principle of comparative advantage-an argument for free trade 139
Further arguments for free trade 142
Protectionism in international trade 143
The balance of payments 149
Management of current account imbalances 153
Concluding remarks 155
The essence of exchange rate policy 157
9 Exchange rate policy 157
Exchange rate systems 158
Exchange rate systems compared 165
The determination of exchange rates 169
Exchange rates and the balance of payments 172
Exchange rates and business 174
Concluding remarks 176
Note 177
10 Case studies 178
1 Determination of economic activity 178
2 The relationship between inflation and unemployment 179
3 Prospects for European Economic and Monetary Union 184
4 The international debt crisis 187
5 Analysis of the US twin deficits 190
6 Linkages between money, output, prices and interest rates 194
7 Outlook for the economy 196
Appendix: Sources of economic data for managers 204
UK sources 204
International sources 206
Further reading 208
Index 211