Principles of Economics

About this Book
Cover Page
Brief Contents
Title Page
Copyright Page
Dedication
About the Authors
A Fresh Perspective on Economics
Broad. Useful. Intuitive.
Broadly Applicable
Extraordinarily Useful
Refreshingly Intuitive
Build a Solid Foundation
Four Core Principles. Endless Applications.
Economic Intuition Begins with the Basics
From Fundamentals to "One Economics"
Useful Economics for the Real World
Teaching Modern Economics
Every Decision Is an Economic Decision
From Market Structure to Business Strategy
Micro Foundations of Macroeconomics
A Flexible Approach to Business Cycle Models
Applications That Keep It Real
Everyday Economics
Interpreting the Data
Do the Economics
Tools That Prepare and Engage
It Helps to Have a Navigation System
The Big Picture
The road ahead
Every roadmap needs landmarks
Marginal reminders
Don’t Just Summarize … Synthesize
Tying It Together
Built-in study guide
Chapter at a Glance
Questions for discussion and assessment
Practice the Process of Graphing
Step-by-step breakdowns of key graphs
Casual graphs model good economics habits
Practice, practice, practice
Technology That Supports Learning
Everything You Need in a Single Learning Path
Pre-class Tutorials
Interactive Decision Points
LearningCurve Adaptive Quizzing
Step-by-Step Graphs
End-of-Chapter Activities with Graphing Questions
Work It Out Activities
Powerful Support for Instructors
Assessment
Test Bank
End-of-Chapter Questions
Practice Quizzes
Additional Resources
Gradebook
LMS Integration
Instructor’s Resource Manual
Solutions Manual
Lecture Slides
Active Learning Resources
Acknowledgments
Organization of This Book
Contents
A Quick Review of Graphs
Graphs That Break Down Numbers
Pie Charts
Analyzing Distributions
Graphs That Show Comparisons
Bar Chart and Dot Plot
Time-Series Graphs
Graphs That Show Relationships
Scatterplot
The stylized graphs of economics
A Relationship Is Not the Same Thing as Cause and Effect
Part I: Foundations of Economics
Chapter 1: The Core Principles of Economics
1.1 A Principled Approach to Economics
The Economic Approach
A Systematic Framework for Making Decisions
1.2 The Cost-Benefit Principle
Quantifying Costs and Benefits
Maximize Your Economic Surplus
Focus on Costs and Benefits, Not How They’re Framed
Applying the Cost-Benefit Principle
1.3 The Opportunity Cost Principle
Opportunity Costs Reflect Scarcity
Calculating Your Opportunity Costs
The “Or What?” Trick
How Entrepreneurs Think About Opportunity Cost
You Should Ignore Sunk Costs
Applying the Opportunity Cost Principle
The Production Possibility Frontier
Recap: Evaluating Either/Or Decisions
1.4 The Marginal Principle
When Is the Marginal Principle Useful?
Using the Rational Rule to Maximize Your Economic Surplus
Applying the Rational Rule
1.5 The Interdependence Principle
Interdependency One: Dependencies Between Your Own Choices
Interdependency Two: Dependencies Between People (or Businesses)
Interdependency Three: Dependencies Between Markets
Interdependency Four: Dependencies Over Time
What Else?
Tying It Together
Using the Core Principles in Practice
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 2: Demand: Thinking Like a Buyer
2.1 Individual Demand: What You Want, at Each Price
An Individual Demand Curve
The Law of Demand
2.2 Your Decisions and Your Demand Curve
Choosing the Best Quantity to Buy
The Rational Rule for Buyers
How Realistic Is This Theory of Demand?
2.3 Market Demand: What the Market Wants
From Individual Demand to Market Demand
The Market Demand Curve Is Downward-Sloping
Movements Along the Demand Curve
2.4 What Shifts Demand Curves?
The Interdependence Principle and Shifting Demand Curves
Six Factors Shifting the Demand Curve
2.5 Shifts versus Movements Along Demand Curves
Movements Along the Demand Curve
Shifts in Demand
Tying It Together
Individual Demand
Market Demand
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 3: Supply: Thinking Like a Seller
3.1 Individual Supply: What You Sell, at Each Price
An Individual Supply Curve
The Law of Supply
3.2 Your Decisions and Your Individual Supply Curve
Setting Prices in Competitive Markets
Choosing the Best Quantity to Supply
The Rational Rule for Sellers in Competitive Markets
Rising Marginal Cost Explains Why Your Supply Curve Is Upward-Sloping
How Realistic Is This Theory of Supply?
3.3 Market Supply: What the Market Sells
From Individual Supply to Market Supply
The Market Supply Curve Is Upward-Sloping
Movements Along the Supply Curve
3.4 What Shifts Supply Curves?
The Interdependence Principle and Shifting Supply Curves
Five Factors Shifting the Supply Curve
3.5 Shifts versus Movements Along Supply Curves
Movements Along the Supply Curve
Shifts in Supply
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 4: Equilibrium: Where Supply Meets Demand
4.1 Understanding Markets
What Is a Market?
How Markets Are Organized
4.2 Equilibrium
Supply Equals Demand
Getting to Equilibrium
Figuring Out Whether Markets Are in Equilibrium
4.3 Predicting Market Changes
Shifts in Demand
Shifts in Supply
Predicting Market Outcomes
When Both Supply and Demand Shift
Interpreting Market Data
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part II: Analyzing Markets
Chapter 5: Elasticity: Measuring Responsiveness
5.1 Price Elasticity of Demand
Measuring Responsiveness of Demand
Determinants of the Price Elasticity of Demand
Calculating the Price Elasticity of Demand
5.2 How Businesses Use Demand Elasticity
Elasticity and Revenue
Elasticity and Business Strategy
5.3 Other Demand Elasticities
Cross-Price Elasticity of Demand
Income Elasticity of Demand
5.4 Price Elasticity of Supply
Measuring Responsiveness of Supply
Determinants of the Price Elasticity of Supply
Calculating the Price Elasticity of Supply
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 6: When Governments Intervene in Markets
6.1 How Taxes and Subsidies Change Market Outcomes
A Tax on Sellers
A Tax on Buyers
The Statutory Burden and Tax Incidence
The Economic Burden of Taxes
A Three-Step Recipe for Evaluating Taxes
Analyzing Subsidies
6.2 Price Regulations
Price Ceilings: When Regulation Forces Lower Prices
Price Floors: When Regulation Forces Higher Prices
6.3 Quantity Regulations
Quotas
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 7: Welfare and Efficiency
7.1 Evaluating Public Policies
Positive and Normative Policy Analysis
Efficiency and Equity
7.2 Measuring Economic Surplus
Consumer Surplus
Producer Surplus
Voluntary Exchange and Gains from Trade
7.3 Market Efficiency
Question One: Who Makes What?
Question Two: Who Gets What?
Question Three: How Much Gets Bought and Sold?
7.4 Market Failure and Deadweight Loss
Market Failure
Deadweight Loss
Market Failure versus Government Failure
7.5 Beyond Economic Efficiency
Critiques of Economic Efficiency
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 8: Gains from Trade
8.1 Gains from Trade
8.2 Comparative Advantage
Introducing Comparative Advantage
Comparative Advantage in Action
Markets Facilitate Gains from Trade
Comparative Advantage Drives International Trade
8.3 Prices Are Signals, Incentives, and Information
Role One: A Price Is a Signal
Role Two: A Price Is an Incentive
Role Three: A Price Aggregates Information
8.4 How Managers Can Harness Market Forces
Internal Markets Allocate Resources
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part III: Applications and Policy Issues
Chapter 9: International Trade
9.1 Comparative Advantage Is the Foundation of International Trade
Comparative Advantage and International Trade
What Gets Traded?
Choosing Your Trading Partners: Sources of Comparative Advantage
9.2 How International Trade Shapes the Economy
The World Market
The Effects of Imports
Imports Raise Economic Surplus
The Effects of Exports
Exports Raise Economic Surplus
Who Wins, and Who Loses? The Politics of International Trade
9.3 The Debate About International Trade
Five Arguments for Limiting International Trade
An Intuitive Approach to the International Trade Debate
9.4 International Trade Policy
Tools of Trade Policy
Current Trade Policy
9.5 Effects of Globalization
Globalization and the Labor Market
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 10: Externalities and Public Goods
10.1 Identifying Externalities
Types of Externalities
The Conflict Between Private Interest and Society’s Interest
10.2 The Externality Problem
The Rational Rule for Society
Consequences of Negative Externalities
Consequences of Positive Externalities
10.3 Solving Externality Problems
Solution One: Private Bargaining and the Coase Theorem
Solution Two: Corrective Taxes and Subsidies
Solution Three: Cap and Trade
Solution Four: Laws, Rules, and Regulations
10.4 Public Goods and the Tragedy of the Commons
Public Goods and the Free-Rider Problem
Solution Five: Government Support for Public Goods
Solution Six: Assign Ownership Rights for Common Resource Problems
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 11: The Labor Market
11.1 The Labor Market: Supply and Demand at Work
11.2 Labor Demand: Thinking Like an Employer
How Many Workers Should You Hire at What Price?
The Rational Rule for Employers
Analyzing Labor Demand Shifts
Will Robots Take Your Job?
11.3 Labor Supply: How to Balance Work and Leisure
Your Individual Labor Supply: Allocating Your Time Between Labor and Leisure
The Rational Rule for Workers
The Extensive Margin: Choose Whether or Not to Work
Choosing Your Occupation
The Market Labor Supply Curve
Analyzing Labor Supply Shifts
11.4 Changing Economic Conditions and Labor Market Equilibrium
A Three-Step Recipe
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 12: Wages, Workers, and Management
12.1 Labor Demand: What Employers Want
Human Capital
Efficiency Wages
The Market for Superstars
12.2 Labor Supply: What Workers Want
Compensating Differentials
12.3 Institutional Factors That Explain Why Wages Vary
Government Regulations
Unions and Workers’ Bargaining Power
Monopsony and Employers’ Bargaining Power
12.4 How Discrimination Affects Wages
Measuring Discrimination
Types of Discrimination
12.5 Personnel Economics
Ensure Your Workers Have the Right Skills for the Job
Motivate Your Workers with Incentives
Shape Your Corporate Culture
Offer the Right Benefits
Attract the Best Workers
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 13: Inequality, Social Insurance, and Redistribution
13.1 Measuring Inequality
Income Inequality
Alternative Measures of Inequality
13.2 Poverty
Defining Poverty
Absolute versus Relative Poverty
The Incidence of Poverty in the United States
13.3 Social Insurance, the Social Safety Net, and Redistributive Taxation
The Social Safety Net
Social Insurance Programs
The Tax System
13.4 The Debate About Income Redistribution
The Economic Logic of Redistribution
The Costs of Redistribution: The Leaky Bucket
The Trade-Off Between Efficiency and Equality
Fairness and Redistribution
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part IV: Market Structure and Business Strategy
Chapter 14: Market Structure and Market Power
14.1 Monopoly, Oligopoly, and Monopolistic Competition
Perfect Competition
Monopoly: No Direct Competitors
Oligopoly: Only a Few Strategic Competitors
Monopolistic Competition: Many Competitors Selling Differentiated Products
Market Structure Determines Market Power
Five Key Insights into Imperfect Competition
14.2 Setting Prices When You Have Market Power
Your Firm Demand Curve
Your Marginal Revenue Curve
The Rational Rule for Sellers
14.3 The Problem with Market Power
Market Power Leads to Worse Outcomes
Increasing Competition Can Lead to Better Outcomes
14.4 Public Policy to Restrain Market Power
Laws to Ensure Competition Thrives
Laws to Minimize the Harm from Exercising Market Power
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 15: Entry, Exit, and Long-Run Profitability
15.1 Revenues, Costs, and Economic Profits
Economic Profit versus Accounting Profit
Average Revenue, Average Cost, and Your Profit Margin
15.2 Free Entry and Exit in the Long Run
Entry Decreases Demand and Your Profits
Exit Increases Demand and Your Profits
Economic Profits Tend to Zero
Price Equals Average Cost
15.3 Barriers to Entry
Demand-Side Strategies: Create Customer Lock-In
Supply-Side Strategies: Develop Unique Cost Advantages
Regulatory Strategy: Government Policy
Entry Deterrence Strategies: Convince Your Rivals You’ll Crush Them
Overcoming Barriers to Entry
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 16: Business Strategy
16.1 The Five Forces That Determine Business Profitability
Five Forces Framework
Force One—Existing Competitors: Intensity and Type of Existing Competition
Force Two—Potential Competitors: Threat of Entry
Force Three—Competitors in Other Markets: Threat of Potential Substitutes
Force Four—Bargaining Power of Suppliers
Force Five—Bargaining Power of Buyers
Recap: The Five Forces and the Path Ahead
16.2 Non-Price Competition: Product Positioning
The Importance of Product Differentiation
Positioning Your Product
The Role of Advertising
16.3 Bargaining Power of Buyers and Sellers
Bargaining Power
The Hold-Up Problem
Contract Theory
What Should You Make, and What Should You Buy?
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 17: Sophisticated Pricing Strategies
17.1 Price Discrimination
Price Discrimination
The Efficiency of Price Discrimination
Conditions for Price Discrimination
17.2 Group Pricing
Setting Group Prices
How to Segment Your Market
17.3 The Hurdle Method
Alternative Versions and Timing
Shopping Around
Extra Hassle, Bad Service, and Imperfect Goods
Quantity Discounts
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 18: Game Theory and Strategic Choices
18.1 How to Think Strategically
Introducing Game Theory
The Four Steps for Making Good Strategic Decisions
18.2 The Prisoner’s Dilemma and the Challenge of Cooperation
Understanding the Prisoner’s Dilemma
Nash Equilibrium
The Prisoner’s Dilemma and the Failure of Cooperation
Examples of the Prisoner’s Dilemma
18.3 Multiple Equilibria and the Problem of Coordination
Coordination Games
Examples of Coordination Games
Anti-Coordination Games
Good and Bad Equilibria
Solving Coordination Problems
18.4 Advanced Strategy: First and Second Mover Advantages
Games That Play Out over Time
Using Tree Logic
First-Mover Advantage versus Second-Mover Advantage
18.5 Advanced Strategy: Repeated Games and Punishments
Collusion and the Prisoner’s Dilemma
Finitely Repeated Games
Indefinitely Repeated Games
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part V: Advanced Decisions
Chapter 19: Decisions Involving Uncertainty
19.1 Risk Aversion
Understanding Risk
Diminishing Marginal Utility
The Risk-Reward Trade-off
Expected Utility
19.2 Reducing Risk
Strategy One: Risk Spreading—Transforming Big Risks into Small Risks
Strategy Two: Diversification
Strategy Three: Insurance
Strategy Four: Hedging—Offsetting Risks
Strategy Five: Gathering Information to Reduce Risk
19.3 Behavioral Economics: How People Make Mistakes Around Uncertainty
Overconfidence
Problems Assessing Probability
Problems Evaluating Payoffs
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 20: Decisions Involving Private Information
20.1 Adverse Selection When Sellers Know More Than Buyers
Hidden Quality and the Risk of Getting a Lemon
Adverse Selection and Your Ability to Buy High-Quality Products
Solutions to Adverse Selection of Sellers
20.2 Adverse Selection When Buyers Know More Than Sellers
Hidden Quality and the Risk of Getting High-Cost Customers
Solutions to Adverse Selection of Buyers
20.3 Moral Hazard: The Problem of Hidden Actions
Hidden Actions and Your Decisions
Moral Hazard in Relationships: The Principal-Agent Problem
Solving Moral Hazard Problems
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part VI: Macroeconomic Foundations and the Long Run
Chapter 21: Sizing Up the Economy Using GDP
21.1 GDP and the Macroeconomy
From Microeconomics to Macroeconomics
The Circular Flow
Digging into the Definition of GDP
21.2 GDP Measures Total Spending, Output, and Income
Perspective One: GDP Measures Total Spending
Perspective Two: GDP Is Total Output
Perspective Three: GDP Measures Total Income
Recap: Three Perspectives on GDP
21.3 What GDP Captures and What It Misses
Limitations of GDP
GDP as a Measure of Living Standards
21.4 Real and Nominal GDP
Real and Nominal GDP
How to Calculate Real GDP
21.5 Millions, Billions, and Trillions
The Problem of Big Numbers
Four Strategies for Scaling Big Numbers
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 22: Economic Growth
22.1 Economic Growth Facts
Economic Growth Since 1 Million B.C.
Economic Growth Over the Past Two Centuries
22.2 The Ingredients of Economic Growth
The Production Function
Ingredient One: Labor and Total Hours Worked
Ingredient Two: Human Capital
Ingredient Three: Capital Accumulation
New Recipes for Combining Ingredients: Technological Progress
22.3 The Analytics of Economic Growth
Analyzing the Production Function
Capital Accumulation and the Solow Model
Technological Progress
22.4 Public Policy: Why Institutions Matter for Growth
Property Rights
Government Stability
Efficiency of Regulation
Government Policy to Encourage Innovation
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 23: Unemployment
23.1 Employment and Unemployment
The Employed and the Unemployed
Labor Force Participation
The Unemployment Rate
23.2 The Dynamics of the Labor Market
Labor Market Flows
Alternative Measures of Unemployment
23.3 Understanding Unemployment
Types of Unemployment
Frictional Unemployment: It Takes Time to Find a Job
Structural Unemployment: When Wages Are Stuck Above the Equilibrium Wage
Institutions: Additional Causes of Structural Unemployment
Recap: Frictional and Structural Unemployment
23.4 The Costs of Unemployment
The Economic Costs of Unemployment
The Social Costs of Unemployment
Protecting Yourself from the Harmful Effects of Unemployment
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 24: Inflation and Money
24.1 Measuring Inflation
The Price of a Basket of Goods and Services
Constructing the Consumer Price Index and Measuring Inflation
The Challenges of Measuring the True Cost of Living
24.2 Different Measures of Inflation
Consumer Prices
Business Prices
24.3 Adjusting for the Effects of Inflation
Comparing Dollars over Time
Real and Nominal Variables
Real and Nominal Interest Rates
Overcoming Money Illusion
24.4 The Role of Money and the Costs of Inflation
The Functions of Money
The Costs of Hyperinflation
The Costs of Expected Inflation
The Costs of Unexpected Inflation
The Inflation Fallacy
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part VII: Micro Foundations of Macroeconomics
Chapter 25: Consumption and Saving
25.1 Consumption, Saving, and Income
Consumption and Income
Saving and Income
25.2 The Micro Foundations of Consumption
Choosing How Much to Spend and How Much to Save
The Rational Rule for Consumers
Consumption Smoothing
Permanent Income Hypothesis
25.3 The Macroeconomics of Consumption
The Relationship Between Consumption and Income
Adding Behavioral Economics and Credit Constraints to Our Analysis
25.4 What Shifts Consumption?
Consumption Shifter One: Real Interest Rates
Consumption Shifter Two: Expectations
Consumption Shifter Three: Taxes
Consumption Shifter Four: Wealth
25.5 Saving
Saving Motive One: Changing Income over the Life Cycle
Saving Motive Two: Changing Needs over the Life Cycle
Saving Motive Three: Bequests
Saving Motive Four: Precautionary Saving
Smart Saving Strategies
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 26: Investment
26.1 Macroeconomic Investment
Defining Investment
Types of Investment
Investment Is a Key Economic Variable
26.2 Tools to Analyze Investments
Investment Tool One: Compounding
Investment Tool Two: Discounting
Real versus Nominal Interest Rates
26.3 Making Investment Decisions
How to Evaluate an Investment Opportunity
The Rational Rule for Investors
An Alternative Perspective: The User Cost of Capital
26.4 The Macroeconomics of Investment
The Real Interest Rate and Investment
Factors That Shift the Investment Line
26.5 The Market for Loanable Funds
Supply and Demand of Loanable Funds
Shifts in the Supply of Loanable Funds
Shifts in the Demand for Loanable Funds
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 27: The Financial Sector
27.1 Banks
What Do Banks Do?
Bank Runs
Shadow Banks and the Financial Crisis
27.2 The Bond Market
What Does the Bond Market Do?
Evaluating Risks
27.3 The Stock Market
What Do Stocks Do?
Comparing Stocks and Bonds
Understanding Stock Market Data
27.4 What Drives Financial Prices?
Valuing Stocks
The Efficient Markets Hypothesis
The Value of Expert Advice
Financial Bubbles
27.5 Personal Finance
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 28: International Finance and the Exchange Rate
28.1 International Trade and Global Financial Flows
International Trade
Global Financial Flows
28.2 Exchange Rates
Exchanging U.S. Dollars for Foreign Currencies
Exchange Rates and the Price of Foreign Goods
28.3 Supply and Demand of Currencies
The Market for U.S. Dollars
Shifts in Currency Demand
Shifts in Currency Supply
Forecasting Exchange Rate Movements
Government Intervention in Foreign Exchange Markets
28.4 The Real Exchange Rate and Net Exports
Real Exchange Rate and Competitiveness
The Real Exchange Rate Determines Net Exports
28.5 The Balance of Payments
The Current Account and The Financial Account
Saving, Investment, and the Current Account
Current Account Controversies
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part VIII: The Business Cycle
Chapter 29: Business Cycles
29.1 Macroeconomic Trends and Cycles
Trend Growth and the Output Gap
Business Cycles Are Not Cycles
29.2 Common Characteristics of Business Cycles
Recessions Are Short and Sharp; Expansions Are Long and Gradual
The Business Cycle Is Persistent
The Business Cycle Impacts Many Parts of the Economy
Okun’s Rule of Thumb Links the Output Gap and the Unemployment Rate
29.3 Analyzing Macroeconomic Data
The Basics of Macroeconomic Data
Top 10 Economic Indicators
Tracking the Economy: An Economy Watcher’s Guide
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 30: IS-MP Analysis: Interest Rates and Output
30.1 Aggregate Expenditure
Aggregate Expenditure and Short Run Fluctuations
The Demand-Driven Short Run and the Supply-Driven Long Run
30.2 The IS Curve: Output and the Real Interest Rate
Aggregate Expenditure and Interest Rates
The IS Curve Describes the Link Between the Real Interest Rate and the Output Gap
How to Use the IS Curve
30.3 The MP Curve: What Determines the Interest Rate
The Federal Reserve
The Risk Premium
The MP Curve
30.4 The IS-MP Framework
IS-MP Equilibrium
Fluctuating Demand and Business Cycles
Analyzing Monetary Policy
Analyzing Fiscal Policy and the Multiplier
30.5 Macroeconomic Shocks
Spending Shocks Shift the IS Curve
Financial Shocks Shift the MP Curve
Predicting Economic Changes
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 31: The Phillips Curve and Inflation
31.1 Three Inflationary Forces
Inflationary Force One: Inflation Expectations
Inflationary Force Two: Demand-Pull Inflation
Inflationary Force Three: Supply Shocks and Cost-Push Inflation
Understanding Inflation
31.2 Inflation Expectations
Why Inflation Expectations Matter
Measuring Inflation Expectations
31.3 The Phillips Curve
Demand-Pull Inflation
The Phillips Curve Framework
The Phillips Curve in the United States
An Alternative Illustration: The Labor Market Phillips Curve
31.4 Supply Shocks Shift the Phillips Curve
How Supply Shocks Shift the Phillips Curve
Phillips Curve Shifter One: Input Prices
Phillips Curve Shifter Two: Productivity
Phillips Curve Shifter Three: Exchange Rates
Shifts versus Movements Along the Phillips Curve
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 32: The Fed Model: Linking Interest Rates, Output, and Inflation
32.1 The Fed Model
The Fed Model Combines the IS, MP, and Phillips Curves
Forecasting Economic Outcomes
Three Types of Macroeconomic Shocks
32.2 Analyzing Macroeconomic Shocks
A Recipe for Analyzing Macroeconomic Shocks
Analyzing Financial Shocks
Analyzing Spending Shocks
Analyzing Supply Shocks
32.3 Diagnosing the Causes of Macroeconomic Changes
A Brief Recap
A Diagnosis Tool
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 33: Aggregate Demand and Aggregate Supply
33.1 The AD-AS Framework
Introducing Aggregate Demand and Aggregate Supply
Macroeconomic versus Microeconomic Forces
33.2 Aggregate Demand
Aggregate Expenditure
Why Aggregate Demand Is Downward-Sloping
Analyzing Aggregate Demand
Aggregate Demand Shifters
33.3 Aggregate Supply
Why Aggregate Supply Is Upward-Sloping
Analyzing Aggregate Supply
Shifts in Aggregate Supply
33.4 Macroeconomic Shocks and Countercyclical Policy
Monetary Policy
Fiscal Policy and the Multiplier
Forecasting Macroeconomic Outcomes
33.5 Aggregate Supply in the Short Run and the Long Run
Aggregate Supply in the Long Run with Flexible Prices
Aggregate Supply in the Very Short Run with Fixed Prices
Aggregate Supply in the Short Run and Medium Run with Sticky Prices
Getting from the Very Short Run to the Long Run
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Part IX: Macroeconomic Policy
Chapter 34: Monetary Policy
34.1 The Federal Reserve
The Federal Reserve System
The Federal Open Market Committee
34.2 The Fed’s Policy Goals and Decision-Making Framework
The Fed’s Dual Mandate: Stable Prices and Maximum Sustainable Employment
How the Fed Chooses the Interest Rate
34.3 How the Fed Sets Interest Rates
The Overnight Market for Interbank Loans
The Impact of Changing the Federal Funds Rate on the Rest of the Economy
34.4 Unconventional Monetary Policy
Monetary Policy Choices When Nominal Interest Rates Are Zero
Lender of Last Resort
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Chapter 35: Government Spending, Taxes, and Fiscal Policy
35.1 The Government Sector
Government Spending
Government Revenue
Hidden Government Spending: Tax Expenditures
Regulation
35.2 Fiscal Policy
A Countercyclical Force
Automatic Stabilizers
Fiscal Policy and Monetary Policy Interactions
35.3 Government Deficits and Debt
Government Budget Deficits
Government Debt
Reasons Not to Worry About the Debt
Reasons to Worry About Government Debt
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Appendix A: A Closer Look at Aggregate Expenditure and the Multiplier
A.1 Aggregate Expenditure and Income
Aggregate Expenditure
Aggregate Expenditure Rises with Income
How to Use the Aggregate Expenditure Line
A.2 Macroeconomic Equilibrium and the Keynesian Cross
Aggregate Expenditure in Macroeconomic Equilibrium
Shifts in Aggregate Expenditure
Predicting the State of the Economy
A.3 The Multiplier
The Multiplier Effect
The Size of the Multiplier
Tying It Together
Chapter at a Glance
End of Chapter
Key Concepts
Discussion and Review Questions
Study Problems
Glossary
Index
Back Cover