Macroeconomics: Canada in the Global Environment

Cover
Prepare, Apply, Assess and Develop Employability Skills with MyLab Economics
Title Page
Copyright Page
About the Authors
Brief Contents
Detailed Contents
Preface
Acknowledgments
Part One: Introduction
Chapter 1: What is Economics?
Definition of Economics
Two Big Economic Questions
What, How, and For Whom?
Do Choices Made in the Pursuit of Self-Interest also Promote the Social Interest?
The Economic Way of Thinking
A Choice Is a Tradeoff
Making a Rational Choice
Benefit: What You Gain
Cost: What You Must Give Up
How Much? Choosing at the Margin
Choices Respond to Incentives
Economics as Social Science and Policy Tool
Economist as Social Scientist
Economist as Policy Adviser
Economists in the Economy
Jobs for an Economics Major
Will Jobs for Economics Majors Grow?
Earnings of Economics Majors
Skills Needed for Economics Jobs
Appendix: Graphs in Economics
Graphing Data
Graphing Economic Data
Scatter Diagrams
Graphs Used in Economic Models
Variables That Move in the Same Direction
Variables That Move in Opposite Directions
Variables That Have a Maximum or a Minimum
Variables That Are Unrelated
The Slope of a Relationship
The Slope of a Straight Line
The Slope of a Curved Line
Graphing Relationships Among More Than Two Variables
Ceteris Paribus
When Other Things Change
Mathematical Note: Equations of Straight Lines
At Issue
Economics in the News
Chapter 2: The Economic Problem
Production Possibilities and Opportunity Cost
Production Possibilities Frontier
Production Efficiency
Tradeoff Along the PPF
Opportunity Cost
Using Resources Efficiently
The PPF and Marginal Cost
Preferences and Marginal Benefit
Allocative Efficiency
Gains from Trade
Comparative Advantage and Absolute Advantage
Achieving the Gains from Trade
The Liz–Joe Economy and Its PPF
Economic Growth
The Cost of Economic Growth
A Nation’s Economic Growth
Changes in What We Produce
Economic Coordination
Firms
Markets
Property Rights
Money
Circular Flows Through Markets
Coordinating Decisions
Economics in Action
Economics in the News
Chapter 3: Demand and Supply
Markets and Prices
Demand
The Law of Demand
Demand Curve and Demand Schedule
A Change in Demand
A Change in the Quantity Demanded Versus a Change in Demand
Supply
The Law of Supply
Supply Curve and Supply Schedule
A Change in Supply
A Change in the Quantity Supplied Versus a Change in Supply
Market Equilibrium
Price as a Regulator
Price Adjustments
Predicting Changes in Price and Quantity
An Increase in Demand
A Decrease in Demand
An Increase in Supply
A Decrease in Supply
Changes in Both Demand and Supply
Mathematical Note: Demand, Supply, and Equilibrium
Economics in the News
Understanding the Scope of Economics Your Economic Revolution
Talking with Esther Duflo
Part Two: Monitoring Macroeconomic Performance
Chapter 4: Monitoring the Value of Production: GDP
Gross Domestic Product
GDP Defined
GDP and the Circular Flow of Expenditure and Income
Why Is Domestic Product “Gross”?
Measuring Canada’s GDP
The Expenditure Approach
The Income Approach
Nominal GDP and Real GDP
Calculating Real GDP
The Uses and Limitations of Real GDP
The Standard of Living over Time
The Standard of Living Across Countries
Limitations of Real GDP
Appendix: Graphs in Macroeconomics
The Time-Series Graph
Making a Time-Series Graph
Reading a Time-Series Graph
Ratio Scale Reveals Trend
A Time-Series with a Trend
Using a Ratio Scale
Mathematical Note: Chained-Dollar Real GDP
Economics in Action
At Issue
Economics in the News
Chapter 5: Monitoring Jobs and Inflation
Employment and Unemployment
Why Unemployment Is a Problem
Labour Force Survey
Four Labour Market Indicators
Other Definitions of Unemployment
Most Costly Unemployment
Alternative Measures of Unemployment
Unemployment and Full Employment
Frictional Unemployment
Structural Unemployment
Cyclical Unemployment
“Natural” Unemployment
Real GDP and Unemployment over the Cycle
The Changing Natural Unemployment Rate
The Price Level, Inflation, and Deflation
Why Inflation and Deflation Are Problems
The Consumer Price Index
Reading the CPI Numbers
Constructing the CPI
Measuring the Inflation Rate
Distinguishing High Inflation from a High Price Level
The Biased CPI
The Magnitude of the Bias
Some Consequences of the Bias
Alternative Price Indexes
Core Inflation
The Real Variables in Macroeconomics
Economics in Action
Economics in the News
Monitoring Macroeconomic Performance the Big Picture
Talking with David Card
Part Three: Macroeconomic Trends
Chapter 6: Economic Growth
The Basics of Economic Growth
Calculating Growth Rates
Economic Growth Versus Business Cycle Expansion
The Magic of Sustained Growth
Applying the Rule of 70
Long-Term Growth Trends
Long-Term Growth in Canada
Real GDP Growth in the World Economy
How Potential GDP Grows
What Determines Potential GDP?
What Makes Potential GDP Grow?
Why Labour Productivity Grows
Preconditions for Labour Productivity Growth
Physical Capital Growth
Human Capital Growth
Technological Advances
Is Economic Growth Sustainable? Theories, Evidence, and Policies
Classical Growth Theory
Neoclassical Growth Theory
New Growth Theory
New Growth Theory Versus Malthusian Theory
Sorting Out the Theories
The Empirical Evidence on the Causes of Economic Growth
Policies for Achieving Faster Growth
Economics in Action
Economics in the News
Chapter 7: Finance, Saving, and Investment
Financial Markets and Financial Institutions
Finance and Money
Physical Capital and Financial Capital
Capital and Investment
Wealth and Saving
Financial Capital Markets
Financial Institutions
Insolvency and Illiquidity
Interest Rates and Asset Prices
Funds that Finance Investment
The Real Interest Rate
The Loanable Funds Market
The Demand for Loanable Funds
The Supply of Loanable Funds
Equilibrium in the Loanable Funds Market
Changes in Demand and Supply
Government in the Loanable Funds Market
A Government Budget Surplus
A Government Budget Deficit
Economics in Action
Economics in the News
Chapter 8: Money, the Price Level, and Inflation
What Is Money?
Medium of Exchange
Unit of Account
Store of Value
Money in Canada Today
Depository Institutions
Types of Depository Institutions
What Depository Institutions Do
Economic Benefits Provided by Depository Institutions
How Depository Institutions Are Regulated
Financial Innovation
The Bank of Canada
Banker to Banks and Government
Lender of Last Resort
Sole Issuer of Bank Notes
The Bank of Canada’s Balance Sheet
The Bank of Canada’s Policy Tools
How Banks Create Money
Creating Deposits by Making Loans
The Money Creation Process
The Money Multiplier
The Money Market
The Influences on Money Holding
The Demand for Money
Shifts in the Demand for Money Curve
Money Market Equilibrium
The Quantity Theory of Money
Mathematical Note: The Money Multiplier
Economics in Action
At Issue
Economics in the News
Chapter 9: The Exchange Rate and the Balance Of Payments
The Foreign Exchange Market
Trading Currencies
Exchange Rates
Questions About the Canadian Dollar Exchange Rate
An Exchange Rate Is a Price
The Demand for One Money Is the Supply of Another Money
Demand in the Foreign Exchange Market
Demand Curve for Canadian Dollars
Supply in the Foreign Exchange Market
Supply Curve for Canadian Dollars
Market Equilibrium
Changes in the Demand for Canadian Dollars
Changes in the Supply of Canadian Dollars
Changes in the Exchange Rate
Arbitrage, Speculation, and Market Fundamentals
Arbitrage
Speculation
Market Fundamentals
Exchange Rate Policy
Flexible Exchange Rate
Fixed Exchange Rate
Crawling Peg
Financing International Trade
Balance of Payments Accounts
Borrowers and Lenders
The Global Loanable Funds Market
Debtors and Creditors
Is Canadian Borrowing for Consumption?
Current Account Balance
Net Exports
Where Is the Exchange Rate?
Economics in Action
Economics in the News
Understanding Macroeconomic Trends Expanding the Frontier
Talking with Xavier Sala-i-Martin
Part Four: Macroeconomic Fluctuations
Chapter 10: Aggregate Supply and Aggregate Demand
Aggregate Supply
Quantity Supplied and Supply
Long-Run Aggregate Supply
Short-Run Aggregate Supply
Changes in Aggregate Supply
Aggregate Demand
The Aggregate Demand Curve
Changes in Aggregate Demand
Explaining Macroeconomic Trends and Fluctuations
Short-Run Macroeconomic Equilibrium
Long-Run Macroeconomic Equilibrium
Economic Growth and Inflation in the AS-AD Model
The Business Cycle in the AS-AD Model
Fluctuations in Aggregate Demand
Fluctuations in Aggregate Supply
Macroeconomic Schools of Thought
The Classical View
The Keynesian View
The Monetarist View
The Way Ahead
Economics in Action
Economics in the News
Chapter 11: Expenditure Multipliers
Fixed Prices and Expenditure Plans
Expenditure Plans
Consumption and Saving Plans
Marginal Propensities to Consume and Save
Slopes and Marginal Propensities
Consumption as a Function of Real GDP
Import Function
Real GDP with a Fixed Price Level
Aggregate Planned Expenditure
Actual Expenditure, Planned Expenditure, and Real GDP
Equilibrium Expenditure
Convergence to Equilibrium
The Multiplier
The Basic Idea of the Multiplier
The Multiplier Effect
Why Is the Multiplier Greater Than 1?
The Size of the Multiplier
The Multiplier and the Slope of the AE Curve
Imports and Income Taxes
The Multiplier Process
Business Cycle Turning Points
The Multiplier and the Price Level
Adjusting Quantities and Prices
Aggregate Expenditure and Aggregate Demand
Deriving the Aggregate Demand Curve
Changes in Aggregate Expenditure and Aggregate Demand
Equilibrium Real GDP and the Price Level
Mathematical Note: The Algebra of the Keynesian Model
Economics in Action
Economics in the News
Chapter 12: The Business Cycle, Inflation, and Deflation
The Business Cycle
Mainstream Business Cycle Theory
Real Business Cycle Theory
Inflation Cycles
Demand-Pull Inflation
Cost-Push Inflation
Expected Inflation
Forecasting Inflation
Inflation and the Business Cycle
Deflation
What Causes Deflation?
What Are the Consequences of Deflation?
How Can Deflation Be Ended?
The Phillips Curve
The Short-Run Phillips Curve
The Long-Run Phillips Curve
Economics in Action
Economics in the News
Understanding Macroeconomic Fluctuations Boom and Bust
Talking with Peter Howitt
Part Five: Macroeconomic Policy
Chapter 13: Fiscal Policy
The Federal Budget
Budget Making
The Federal Budget in 2016
The Budget in Historical Perspective
Supply-Side Effects of Fiscal Policy
Full Employment and Potential GDP
The Effects of the Income Tax
Taxes on Expenditure and the Tax Wedge
Taxes and the Incentive to Save and Invest
Tax Revenues and the Laffer Curve
The Supply-Side Debate
Fiscal Stimulus
Automatic Fiscal Policy and Cyclical and Structural Budget Balances
Discretionary Fiscal Stimulus
Economics in Action
Economics in the News
Chapter 14: Monetary Policy
Monetary Policy Objectives and Framework
Monetary Policy Objective
Responsibility for Monetary Policy
The Conduct of Monetary Policy
The Monetary Policy Instrument
The Bank’s Interest Rate Decision
Hitting the Overnight Loans Rate Target
Monetary Policy Transmission
Quick Overview
Interest Rate Changes
Exchange Rate Fluctuations
Money and Bank Loans
The Long-Term Real Interest Rate
Expenditure Plans
Change in Aggregate Demand, Real GDP, and the Price Level
The Bank of Canada Fights Recession
The Bank of Canada Fights Inflation
Loose Links and Long and Variable Lags
Financial Crisis: Cure and Prevention
The Anatomy of the Financial Crisis
The U.S. Fed’s Policy Actions
Congress Crisis Policy Action
Macroprudential Regulation
Canadian Macroprudential Policy
Policy Strategies and Clarity
Economics in Action
Economics in the News
Chapter 15: International Trade Policy
How Global Markets Work
International Trade Today
What Drives International Trade?
Why Canada Imports T-Shirts
Why Canada Exports Regional Jets
Winners, Losers, and the Net Gain from Trade
Gains and Losses from Imports
Gains and Losses from Exports
Gains for All
International Trade Restrictions
Tariffs
Import Quotas
Other Import Barriers
Export Subsidies
The Case Against Protection
Helps an Infant Industry Grow
Counteracts Dumping
Saves Domestic Jobs
Allows Us to Compete with Cheap Foreign Labour
Penalizes Lax Environmental Standards
Prevents Rich Countries from Exploiting Developing Countries
Reduces Offshore Outsourcing That Sends Good Canadian Jobs to Other Countries
Avoiding Trade Wars
Why Is International Trade Restricted?
Compensating Losers
Economics in Action
At Issue
Economics in the News
Understanding Macroeconomic Policy Tradeoffs and Free Lunches
Talking with Pierre Siklos
Glossary
Index
Credits
Back Cover