Macroeconomics Principles and Policy 13th edition by William Baumol, Alan Blinder ISBN 8214357416 9798214357416

Part 1. Getting Acquainted with Economics

1. What Is Economics?

1-1. Ideas for Beyond the Final Exam

1-1a. Idea 1: How Much Does It Really Cost?

1-1b. Idea 2: Attempts to Repeal the Laws of Supply and Demand—The Market Strikes Back

1-1c. Idea 3: The Surprising Principle of Comparative Advantage

1-1d. Idea 4: Trade Is a Win–Win Situation

1-1e. Idea 5: Government Policies Can Limit Economic Fluctuations—But Don’t Always Succeed

1-1f. Idea 6: The Short-Run Trade-Off between Inflation and Unemployment

1-1g. Idea 7: Productivity Growth Is (Almost) Everything in the Long Run

1-1h. Epilogue

1-2. Inside the Economist’s Tool Kit

1-2a. Economics as a Discipline

1-2b. The Need for Abstraction

1-2c. The Role of Economic Theory

1-2d. What Is an Economic Model?

1-2e. Reasons for Disagreements: Imperfect Information and Value Judgments

Appendix. Using Graphs: A Review

Graphs Used in Economic Analysis

Summary

Key Terms

Discussion Questions

2. The Economy: Myth and Reality

2-1. The American Economy: A Thumbnail Sketch

2-1a. A Private-Enterprise Economy

2-1b. A Relatively “Closed” Economy

2-1c. A Growing Economy …

2-1d. But with Bumps along the Growth Path

2-2. The Inputs: Labor and Capital

2-2a. The American Workforce: Who Is in It?

2-2b. The American Workforce: What Does It Do?

2-2c. The American Workforce: What Does It Earn?

2-2d. Capital and Its Earnings

2-3. The Outputs: What Does America Produce?

2-4. The Central Role of Business Firms

2-5. What’s Missing from the Picture? Government

2-5a. The Government as Referee

2-5b. The Government as Business Regulator

2-5c. Government Expenditures

2-5d. Taxes in America

2-5e. The Government as Redistributor

2-6. Conclusion: It’s a Mixed Economy

Summary

Key Terms

Discussion Questions

3. The Fundamental Economic Problem: Scarcity and Choice

3-1. Scarcity, Choice, and Opportunity Cost

3-1a. Opportunity Cost and Money Cost

3-1b. Optimal Choice: Not Just Any Choice

3-2. Scarcity and Choice for a Single Firm

3-2a. The Production Possibilities Frontier

3-2b. The Principle of Increasing Costs

3-3. Scarcity and Choice for the Entire Society

3-3a. Scarcity and Choice Elsewhere in the Economy

3-4. The Concept of Efficiency

3-5. The Three Coordination Tasks of any Economy

3-6. Task 1. How the Market Fosters Efficient Resource Allocation

3-6a. The Wonders of the Division of Labor

3-6b. The Amazing Principle of Comparative Advantage

3-7. Task 2. Market Exchange and Deciding How Much of Each Good to Produce

3-8. Task 3. How to Distribute the Economy’s Outputs among Consumers

Summary

Key Terms

Test Yourself

Discussion Questions

4. Supply and Demand: An Initial Look

4-1. The Invisible Hand

4-2. Demand and Quantity Demanded

4-2a. The Demand Schedule

4-2b. The Demand Curve

4-2c. Shifts of the Demand Curve

4-3. Supply and Quantity Supplied

4-3a. The Supply Schedule and the Supply Curve

4-3b. Shifts of the Supply Curve

4-4. Supply and Demand Equilibrium

4-4a. The Law of Supply and Demand

4-5. Effects of Demand Shifts on Supply-Demand Equilibrium

4-6. Supply Shifts and Supply-Demand Equilibrium

4-6a. Application: Who Really Pays That Tax?

4-7. Battling the Invisible Hand: The Market Fights Back

4-7a. Restraining the Market Mechanism: Price Ceilings

4-7b. Case Study: Rent Controls in New York City

4-7c. Restraining the Market Mechanism: Price Floors

4-7d. Case Study: Farm Price Supports and the Case of Sugar Prices

4-7e. A Can of Worms

4-8. A Simple But Powerful Lesson

Summary

Key Terms

Test Yourself

Discussion Questions

Part 2. The Macroeconomy: Aggregate Supply and Demand

5. An Introduction to Macroeconomics

5-1. Drawing a Line Between Macroeconomics and Microeconomics

5-1a. Aggregation and Macroeconomics

5-1b. The Foundations of Aggregation

5-1c. The Line of Demarcation Revisited

5-2. Supply and Demand in Macroeconomics

5-2a. A Quick Review

5-2b. Moving to Macroeconomic Aggregates

5-2c. Inflation

5-2d. Recession and Unemployment

5-2e. Economic Growth

5-3. Gross Domestic Product

5-3a. Money as the Measuring Rod: Real versus Nominal GDP

5-3b. What Gets Counted in GDP?

5-3c. Limitations of the GDP: What GDP Is Not

5-4. The Economy on a Roller Coaster

5-4a. Growth, but with Fluctuations

5-4b. Inflation and Deflation

5-4c. The Great Depression

5-4d. From World War II to 1973

5-4e. The Great Stagflation, 1973–1980

5-4f. Reaganomics and Its Aftermath

5-4g. Clintonomics: Deficit Reduction and the “New Economy”

5-4h. Tax Cuts and the Bush Economy

5-4i. Obamanomics and the Great Recession

5-5. The Problem of Macroeconomic Stabilization: A Sneak Preview

5-5a. Combating Unemployment

5-5b. Combating Inflation

5-5c. Does It Really Work?

Summary

Key Terms

Test Yourself

Discussion Questions

6. The Goals of Macroeconomic Policy

6-1. The Goal of Economic Growth

6-2. The Capacity to Produce: Potential GDP and the production Function

6-3. The Growth Rate of Potential GDP

6-4. The Goal of Low Unemployment

6-5. The Human Costs of High Unemployment

6-6. Counting the Unemployed: The Official Statistics

The Employed

6-7. Types of Unemployment

6-8. How Much Employment Is “Full Employment”?

6-9. Unemployment Insurance: The Invaluable Cushion

6-10. The Goal of Low Inflation

6-10a. Inflation and Real Wages

6-10b. The Importance of Relative Prices

6-11. Inflation as a Redistributor of Income and Wealth

6-12. Real Versus Nominal Interest Rates

6-13. Inflation Distorts Measurements

6-13a. Confusing Real and Nominal Interest Rates

6-13b. The Malfunctioning Tax System

6-14. Other Costs of Inflation

6-15. The Costs of Low Versus High Inflation

6-16. Low Inflation Does Not Necessarily Lead to High Inflation

Appendix. How Statisticians Measure Inflation

Index Numbers for Inflation

Summary

Key Terms

Test Yourself

Discussion Questions

7. Economic Growth: Theory and Policy

7-1. The Three Pillars of Productivity Growth

7-1a. Capital

7-1b. Technology

7-1c. Labor Quality: Education and Training

7-2. Levels, Growth Rates, and the Convergence Hypothesis

7-3. Growth Policy: Encouraging Capital Formation

Real Interest Rates

7-4. Growth Policy: Improving Education and Training

7-5. Growth Policy: Spurring Technological Change

Expanding Higher Education

7-6. The Productivity Slowdown and Speed-Up in the United States

7-6a. The Productivity Slowdown, 1973–1995

7-6b. The Productivity Speed-up 1995–2010

7-7. Growth in the Developing Countries

7-7a. The Three Pillars Revisited

7-7b. Some Special Problems of Developing Countries

7-8. From the Long Run to the Short Run

Summary

Key Terms

Test Yourself

Discussion Questions

8. Aggregate Demand and the Powerful Consumer

8-1. Aggregate Demand, Domestic Product, and National Income

8-2. The Circular Flow of Spending, Production, and Income

8-3. Consumer Spending and Income: The Important Relationship

8-4. The Consumption Function and the Marginal Propensity to Consume

8-5. Factors that Shift the Consumption Function

Wealth

8-6. The Extreme Variability of Investment

8-7. The Determinants of Net Exports

8-7a. National Incomes

8-7b. Relative Prices and Exchange Rates

8-8. How Predictable Is Aggregate Demand?

Appendix. National Income Accounting

Defining GDP: Exceptions to the Rules

Summary

Key Terms

Test Yourself

Discussion Questions

9. Demand-Side Equilibrium: Unemployment or Inflation?

9-1. The Meaning of Equilibrium GDP

9-2. The Mechanics of Income Determination

9-3. The Aggregate Demand Curve

9-4. Demand-Side Equilibrium and Full Employment

9-5. The Coordination of Saving and Investment

9-6. Changes on the Demand Side: Multiplier Analysis

9-6a. The Magic of the Multiplier

9-6b. Demystifying the Multiplier: How It Works

9-6c. Algebraic Statement of the Multiplier

9-7. The Multiplier is a General Concept

9-8. The Multiplier and the Aggregate Demand Curve

Appendix A. The Simple Algebra of Income Determination and the Multiplier

Test Yourself

Appendix B. The Multiplier with Variable Imports

Summary

Summary

Key Terms

Test Yourself

Discussion Questions

10. Bringing in the Supply Side: Unemployment and Inflation?

10-1. The Aggregate Supply Curve

10-1a. Why the Aggregate Supply Curve Slopes Upward

10-1b. Shifts of the Aggregate Supply Curve

10-2. Equilibrium of Aggregate Demand and Supply

10-3. Inflation and the Multiplier

10-4. Recessionary and Inflationary Gaps Revisited

10-5. Adjusting to a Recessionary Gap: Deflation or Unemployment?

10-5a. Why Nominal Wages and Prices Won’t Fall (Easily)

10-5b. Does the Economy Have a Self-Correcting Mechanism?

10-5c. An Example from Recent History: Deflation Worries in the United States

10-6. Adjusting to an Inflationary Gap: Inflation

10-6a. Demand Inflation and Stagflation

10-6b. A U.S. Example

10-7. Stagflation from a Supply Shock

10-8. Applying the Model to a Growing Economy

10-8a. Demand-Side Fluctuations

10-8b. Supply-Side Fluctuations

10-9. A Role for Stabilization Policy

Summary

Key Terms

Test Yourself

Discussion Questions

Part 3. Fiscal and Monetary Policy

11. Managing Aggregate Demand: Fiscal Policy

11-1. Income Taxes and the Consumption Schedule

11-2. The Multiplier Revisited

11-2a. The Tax Multiplier

11-2b. Income Taxes and the Multiplier

11-2c. Automatic Stabilizers

11-2d. Government Transfer Payments

11-3. Planning Expansionary Fiscal Policy

11-4. Planning Contractionary Fiscal Policy

11-5. The Choice between Spending Policy and Tax Policy

11-6. Some Harsh Realities

11-7. The Idea behind Supply-Side Tax Cuts

Lower Personal Income-Tax Rates

11-7a. Some Flies in the Ointment

11-7b. Toward an Assessment of Supply-Side Economics

Appendix A. Graphical Treatment of Taxes and Fiscal Policy

Multipliers for Tax Policy

Appendix B. Algebraic Treatment of Taxes and Fiscal Policy

Test Yourself

Summary

Key Terms

Test Yourself

Discussion Questions

12. Money and the Banking System

12-1. The Nature of Money

12-1a. Barter versus Monetary Exchange

12-1b. The Conceptual Definition of Money

12-1c. What Serves as Money?

12-2. How the Quantity of Money Is Measured

12-2a. M1

12-2b. M2

12-2c. Other Definitions of the Money Supply

12-3. The Banking System

12-3a. How Banking Began

12-3b. Principles of Bank Management: Profits versus Safety

12-3c. Bank Regulation

12-3d. Deposit Insurance

12-3e. Bank Supervision

12-3f. Reserve Requirements

12-4. Systemic Risk and the “Too Big to Fail” Doctrine

12-5. The Origins of the Money Supply

12-5a. How Bankers Keep Books

12-6. Banks and Money Creation

12-6a. The Limits to Money Creation by a Single Bank

12-6b. Multiple Money Creation by a Series of Banks

12-6c. The Process in Reverse: Multiple Contractions of the Money Supply

12-7. Why the Money-Creation Formula is Oversimplified

12-8. The Need for Monetary Policy

Summary

Key Terms

Test Yourself

Discussion Questions

13. Monetary Policy: Conventional and Unconventional

13-1. Money and Income: The Important Difference

13-2. America’s Central Bank: The Federal Reserve System

13-2a. Origins and Structure

13-2b. Central Bank Independence

13-3. Implementing Monetary Policy in Normal Times: Open-Market Operations

13-3a. The Market for Bank Reserves

13-3b. The Mechanics of an Open-Market Operation

13-3c. Open-Market Operations, Bond Prices, and Interest Rates

13-3d. Which Interest Rate?

13-4. Other Instruments of Monetary Policy

13-4a. Lending to Banks

13-4b. Changing Reserve Requirements

13-4c. Quantitative Easing

13-5. How Monetary Policy Works in Normal Times

13-5a. Investment and Interest Rates

13-5b. Monetary Policy and Total Expenditure

13-6. Money and the Price Level

13-7. Application: Why the Aggregate Demand Curve Slopes Downward

13-8. Unconventional Monetary Policies

13-9. From Financial Distress to Recession

13-10. From Models to Policy Debates

Summary

Key Terms

Test Yourself

Discussion Questions

14. The Financial Crisis and the Great Recession

14-1. Roots of the Crisis

14-2. Leverage, Profits, and Risk

14-3. The House Price Bubble and the Subprime Mortgage Crisis

14-4. From the Housing Bubble to the Financial Crisis

14-5. From the Financial Crisis to the Great Recession

14-6. Hitting Bottom and Recovering

14-7. Lessons from the Financial Crisis

Summary

Key Terms

Test Yourself

Discussion Questions

15. The Debate over Monetary and Fiscal Policy

15-1. Velocity and the Quantity Theory of Money

15-1a. Some Determinants of Velocity

15-1b. Monetarism: The Quantity Theory Modernized

15-2. Debate: Should the Fed Use Unconventional Monetary Policies?

15-3. Debate: Should Policy Makers Fight Asset Price Bubbles?

15-4. Debate: Should We Rely on Fiscal or Monetary Policy?

15-5. Debate: the Shape of the Aggregate Supply Curve

15-6. Debate: Should the Government Intervene at All?

15-6a. Lags and the Rules-versus-Discretion Debate

15-7. Dimensions of the Rules-Versus-Discretion Debate

15-7a. How Fast Does the Economy’s Self-Correcting Mechanism Work?

15-7b. How Long Are the Lags in Stabilization Policy?

15-7c. How Accurate Are Economic Forecasts?

15-7d. The Size of Government

15-7e. Uncertainties Caused by Government Policy

15-7f. A Political Business Cycle?

Summary

Key Terms

Test Yourself

Discussion Questions

16. Budget Deficits in the Short and Long Run

16-1. Should the Budget Always Be Balanced? The Short Run

16-2. The Importance of the Policy Mix

16-2a. The Multiplier Formula Revisited

16-2b. The Government Budget and Investment

16-3. Deficits and Debt: Terminology and Facts

16-3a. Some Facts about the National Debt

16-4. Interpreting the Budget Deficit or Surplus

16-4a. The Structural Deficit or Surplus

16-4b. On-Budget versus Off-Budget Surpluses

16-4c. Conclusion: What Happened to the Deficit?

16-5. Why is the National Debt Considered a Burden?

16-6. Budget Deficits and Inflation

16-6a. The Monetization Issue

16-7. Debt, Interest Rates, and Crowding Out

16-7a. The Bottom Line

16-8. The Main Burden of the National Debt: Slower Growth

16-9. The Economics and Politics of the U.S. Budget Deficit

Summary

Key Terms

Test Yourself

Discussion Questions

17. The Trade-Off between Inflation and Unemployment

17-1. Demand-Side Inflation Versus Supply-Side Inflation: A Review

17-2. Origins of the Phillips Curve

17-3. Supply-Side Inflation and the Collapse of the Phillips Curve

17-3a. Explaining the Fabulous 1990s

17-4. What the Phillips Curve is Not

17-5. Fighting Unemployment with Fiscal and Monetary Policy

17-6. What Should be Done?

17-6a. The Costs of Inflation and Unemployment

17-6b. The Slope of the Short-Run Phillips Curve

17-6c. The Efficiency of the Economy’s Self-Correcting Mechanism

17-7. Inflationary Expectations and the Phillips Curve

17-8. The Theory of Rational Expectations

17-8a. What Are Rational Expectations?

17-8b. Rational Expectations and the Trade-Off

17-8c. An Evaluation

17-9. Why Economists (And Politicians) Disagree

17-10. The Dilemma of Demand Management

17-11. Attempts to Reduce the Natural Rate of Unemployment

Summary

Key Terms

Test Yourself

Discussion Questions

Part 4. The United States in the World Economy

18. International Trade and Comparative Advantage

18-1. Why Trade?

18-1a. Mutual Gains from Trade

18-2. International versus Intranational Trade

18-2a. Political Factors in International Trade

18-2b. The Many Currencies Involved in International Trade

18-2c. Impediments to Mobility of Labor and Capital

18-3. The Law of Comparative Advantage

18-4. The Arithmetic of Comparative Advantage

18-4a. The Graphics of Comparative Advantage

18-4b. Must Specialization Be Complete?

18-5. Tariffs, Quotas, and Other Interferences with Trade

18-5a. Tariffs versus Quotas

18-6. Why Inhibit Trade?

18-6a. Gaining a Price Advantage for Domestic Firms

18-6b. Protecting Particular Industries

18-6c. National Defense and Other Noneconomic Considerations

18-6d. The Infant-Industry Argument

18-6e. Strategic Trade Policy

18-7. Can Cheap Imports Hurt a Country?

Appendix. Supply, Demand, and Pricing in World Trade

How Tariffs and Quotas Work

Summary

Key Terms

Test Yourself

Discussion Questions

19. The International Monetary System: Order or Disorder?

19-1. What are Exchange Rates?

19-2. Exchange Rate Determination in a Free Market

Exercise

19-2a. Interest Rates and Exchange Rates: The Short Run

19-2b. Economic Activity and Exchange Rates: The Medium Run

19-2c. The Purchasing-Power Parity Theory: The Long Run

19-2d. Market Determination of Exchange Rates: Summary

19-3. When Governments Fix Exchange Rates: The Balance of Payments

19-4. A Bit of History: The Gold Standard and the Bretton Woods System

19-4a. The Classical Gold Standard

19-4b. The Bretton Woods System

19-5. Adjustment Mechanisms Under Fixed Exchange Rates

19-6. Why Try to Fix Exchange Rates?

19-7. The Current “Nonsystem”

19-7a. The Role of the IMF

19-7b. The Volatile Dollar

19-7c. The Birth and Adolescence of the Euro

Summary

Key Terms

Test Yourself

Discussion Questions

20. Exchange Rates and the Macroeconomy

20-1. International Trade, Exchange Rates, and Aggregate Demand

20-1a. Relative Prices, Exports, and Imports

20-1b. The Effects of Changes in Exchange Rates

20-2. Aggregate Supply in an Open Economy

20-3. The Macroeconomic Effects of Exchange Rates

20-3a. Interest Rates and International Capital Flows

20-4. Fiscal and Monetary Policies in an Open Economy

20-4a. Fiscal Policy Revisited

20-4b. Monetary Policy Revisited

20-5. International Aspects of Deficit Reduction

20-5a. The Loose Link between the Budget Deficit and the Trade Deficit

20-6. Should We Worry about the Trade Deficit?

20-7. On Curing the Trade Deficit

20-7a. Change the Mix of Fiscal and Monetary Policy

20-7b. More Rapid Economic Growth Abroad

20-7c. Raise Domestic Saving or Reduce Domestic Investment

20-7d. Protectionism

20-8. Conclusion: No Nation is an Island

Summary

Key Terms

Test Yourself

Discussion Questions