Economics Principles and Applications (with InfoTrac)

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ISBN: 9780324260342 | 0324260342
Cover: Hardcover
Copyright: 1/7/2004

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Economics: Principles and Applications is a straightforward, no-nonsense Principles book that emphasizes economic theory and applications. This textbook is a study tool for students, and the pedagogical approach and in-text features were chosen to reinforce this theme.

PART I: PRELIMINARIES

What Is Economics?

(20)

Economics, Scarcity, and Choice

(4)

Scarcity and Individual Choice

(1)

Scarcity and Social Choice

(1)

Scarcity and Economics

(1)

The World of Economics

(1)

Microeconomics and Macroeconomics

(1)

Positive and Normative Economics

(1)

Why Study Economics?

(2)

To Understand the World Better

(1)

To Gain Self-confidence

(1)

To Achieve Social Change

(1)

To Help Prepare for Other Careers

(1)

To Become an Economist

(1)

The Methods of Economics

(3)

The Art of Building Economic Models

(1)

Assumptions and Conclusions

(1)

The Three-Step Process

(1)

Math, Jargon, and Other Concerns

(1)

How to Study Economics

(3)

Appendix: Graphs and Other Useful Tools

(7)

Tables and Graphs

(2)

Linear Equations

(2)

How Straight Lines and Curves Shift

(2)

Solving Equations

(1)

Scarcity, Choice, and Economic Systems

(31)

The Concept of Opportunity Cost

(13)

Opportunity Cost for Individuals

(4)

Opportunity Cost and Society

(1)

Production Possibilities Frontiers

(3)

The Search for a Free Lunch

(5)

Economic Systems

(12)

Specialization and Exchange

(5)

Resource Allocation

(4)

Resource Ownership

(1)

Types of Economic Systems

(2)

Using the Theory: Are We Saving Lives Efficiently?

(6)

Supply and Demand

(37)

Markets

(4)

How Broadly Should We Define the Market?

(1)

Buyers and Sellers

(1)

Competition in Markets

(1)

Using Supply and Demand

(1)

Demand

(8)

The Law of Demand

(1)

The Demand Schedule and the Demand Curve

(1)

Shifts vs. Movements Along the Demand Curve

(2)

Factors That Shift the Demand Curve

(4)

Supply

(8)

The Law of Supply

(1)

The Supply Schedule and the Supply Curve

(1)

Shifts vs. Movements Along the Supply Curve

(1)

Factors That Shift the Supply Curve

(4)

Putting Supply and Demand Together

(3)

What Happens When Things Change?

(4)

Income Rises, Causing an Increase in Demand

(1)

An Ice Storm Causes a Decrease in Supply

(1)

Handheld PCs in 2003: Both Curves Shift

(2)

The Three-Step Process

(2)

Using the Theory: College Administrators Make a Costly Mistake

(6)

Appendix: Solving for Equilibrium Algebraically

(1)

Working with Supply and Demand

(43)

Government Intervention in Markets

(5)

Price Ceilings

(2)

Price Floors

(2)

Price Elasticity of Demand

(16)

The Problem with Rate of Change

(1)

The Elasticity Approach

(1)

Calculating Price Elasticity of Demand

(2)

Elasticity and Straight-Line Demand Curves

(1)

Categorizing Goods by Elasticity

(2)

Elasticity and Total Revenue

101

(2)

Determinants of Elasticity

103

(4)

Using Price Elasticity of Demand

107

(3)

Other Elasticities

110

(7)

Income Elasticity of Demand

110

(3)

Cross-Price Elasticity of Demand

113

(2)

Price Elasticity of Supply

115

(2)

Taxes and Market Equilibrium

117

(6)

Example: The Tax on Airline Travel

117

(3)

Tax Incidence and Demand Elasticity

120

(1)

Tax Incidence and Supply Elasticity

121

(2)

Using the Theory: The Story of Two Markets

123

(9)

The Market for Food

123

(3)

Health Insurance and the Market for Health Care

126

(6)

PART II: MICROECONOMIC DECISION MAKERS

Consumer Choice

132

(40)

The Budget Constraint

133

(4)

Changes in the Budget Line

135

(2)

Preferences

137

(2)

Rationality

137

(1)

More Is Better

137

(2)

Consumer Decisions: The Marginal Utility Approach

139

(10)

Utility and Marginal Utility

139

(2)

Combining the Budget Constraint and Preferences

141

(3)

What Happens When Things Change?

144

(5)

The Individual's Demand Curve

149

(1)

Income and Substitution Effects

149

(3)

The Substitution Effect

149

(1)

The Income Effect

150

(1)

Combining Substitution and Income Effects

150

(2)

Consumers in Markets

152

(1)

Consumer Theory in Perspective

153

(3)

Extensions of the Model

154

(1)

Challenges to the Model

154

(2)

Using the Theory: Improving Education

156

(8)

Appendix: The Indifference Curve Approach

164

(8)

An Indifference Curve

164

(2)

The Indifference Map

166

(1)

Consumer Decision Making

167

(1)

What Happens When Things Change?

168

(4)

Production and Cost

172

(38)

The Nature of the Firm

173

(5)

Types of Business Firms

174

(2)

Why Employees?

176

(1)

The Limits to the Firm

177

(1)

Thinking About Production

178

(1)

The Short Run and the Long Run

178

(1)

Production in the Short Run

179

(3)

Marginal Returns to Labor

181

(1)

Thinking About Costs

182

(3)

The Irrelevance of Sunk Costs

183

(1)

Explicit Versus Implicit Costs

184

(1)

Costs in the Short Run

185

(7)

Measuring Short-Run Costs

185

(4)

Explaining the Shape of the Marginal Cost Curve

189

(1)

The Relationship Between Average and Marginal Costs

190

(2)

Production and Cost in the Long Run

192

(9)

The Relationship Between Long-Run and Short-Run Costs

194

(3)

Explaining the Shape of the LRATC Curve

197

(4)

Using the Theory: Long-Run Costs, Market Structure, and Mergers

201

(9)

LRATC and the Size of Firms

201

(3)

The Urge to Merge

204

(6)

How Firms Make Decisions: Profit Maximization

210

(24)

The Goal of Profit Maximization

211

(1)

Understanding Profit

212

(2)

Two Definitions of Profit

212

(2)

Why Are There Profits?

214

(1)

The Firm's Constraints

214

(3)

The Demand Constraint

215

(1)

The Cost Constraint

216

(1)

The Profit-Maximizing Output Level

217

(8)

The Total Revenue and Total Cost Approach

217

(1)

The Marginal Revenue and Marginal Cost Approach

218

(2)

Profit Maximization Using Graphs

220

(3)

What About Average Costs?

223

(2)

The Marginal Approach to Profit

225

(1)

Dealing with Losses

225

(3)

The Short Run and the Shutdown Rule

225

(3)

The Long Run: The Exit Decision

228

(1)

Using the Theory: Getting It Wrong and Getting It Right

228

(6)

Getting It Wrong: The Failure of Franklin National Bank

228

(2)

Getting It Right: The Success of Continental Airlines

230

(4)

PART III: PRODUCT MARKETS

Perfect Competition

234

(35)

What Is Perfect Competition?

235

(3)

The Three Requirements of Perfect Competition

236

(1)

Is Perfect Competition Realistic?

237

(1)

The Perfectly Competitive Firm

238

(9)

Goals and Constraints of the Competitive Firm

239

(1)

Cost and Revenue Data for a Competitive Firm

240

(2)

Finding the Profit-Maximizing Output Level

242

(1)

Measuring Total Profit

243

(2)

The Firm's Short-Run Supply Curve

245

(2)

Competitive Markets in the Short Run

247

(4)

The (Short-Run) Market Supply Curve

247

(1)

Short-Run Equilibrium

248

(3)

Competitive Markets in the Long Run

251

(6)

Profit and Loss and the Long Run

251

(1)

Long-Run Equilibrium

252

(3)

The Notion of Zero Profit in Perfect Competition

255

(1)

Perfect Competition and Plant Size

255

(1)

A Summary of the Competitive Firm in the Long Run

256

(1)

What Happens When Things Change?

257

(5)

A Change in Demand

257

(4)

Market Signals and the Economy

261

(1)

Using the Theory: Changes in Technology

262

(7)

Monopoly

269

(36)

What Is a Monopoly?

270

(1)

The Sources of Monopoly

271

(5)

Economies of Scale

271

(2)

Legal Barriers

273

(2)

Network Externalities

275

(1)

Monopoly Goals and Constraints

276

(1)

Monopoly Price or Output Decision

277

(5)

Profit and Loss

280

(2)

Equilibrium in Monopoly Markets

282

(5)

Short-Run Equilibrium

282

(1)

Long-Run Equilibrium

282

(1)

Comparing Monopoly to Perfect Competition

283

(3)

Why Monopolies Often Earn Zero Economic Profit

286

(1)

What Happens When Things Change?

287

(4)

An Increase in Demand

288

(1)

A Cost-Saving Technological Advance

288

(3)

Price Discrimination

291

(7)

Requirements for Price Discrimination

291

(2)

Effects of Price Discrimination

293

(5)

The Decline of Monopoly?

298

(1)

Using the Theory: Price Discrimination at Colleges and Universities

299

(6)

Monopolistic Competition and Oligopoly

305

(35)

The Concept of Imperfect Competition

306

(1)

Monopolistic Competition

306

(8)

Monopolistic Competition in the Short Run

309

(1)

Monopolistic Competition in the Long Run

310

(1)

Excess Capacity Under Monopolistic Competition

311

(2)

Nonprice Competition

313

(1)

Oligopoly

314

(15)

Oligopoly in the Real World

314

(2)

Why Oligopolies Exist

316

(1)

Oligopoly Versus Other Market Structures

317

(1)

The Game Theory Approach

318

(4)

Cooperative Behavior in Oligopoly

322

(5)

The Future of Oligopoly

327

(2)

Using the Theory: Advertising in Monopolistic Competition and Oligopoly

329

(5)

Advertising and Market Equilibrium Under Monopolistic Competition

329

(3)

Advertising and Collusion in Oligopoly

332

(2)

The Four Market Structures: A Postscript

334

(6)

PART IV: LABOR, CAPITAL, AND FINANCIAL MARKETS

The Labor Market

340

(44)

Factor Markets in General

341

(1)

Labor Markets in Particular

342

(3)

Defining a Labor Market

343

(1)

Competitive Labor Markets

344

(1)

Firms in Labor Markets

345

(1)

Demand for Labor by a Single Firm

345

(9)

Labor as a Derived Demand

345

(1)

Resource Demand: A General Rule

346

(1)

The Firm's Employment Decision When Only Labor Is Variable

347

(5)

The Firm's Employment Decision When Several Inputs Are Variable

352

(2)

The Market Demand for Labor

354

(5)

Shifts in the Market Labor Demand Curve

355

(4)

Labor Supply

359

(9)

Individual Labor Supply

359

(2)

Market Labor Supply

361

(1)

Shifts in the Market Labor Supply Curve

361

(4)

Short-run Versus Long-run Labor Supply

365

(3)

Labor Market Equilibrium

368

(1)

What Happens When Things Change?

369

(5)

A Change in Labor Demand

369

(2)

A Change in Labor Supply

371

(1)

Labor Shortages and Surpluses

372

(2)

Using the Theory: Understanding the Market for College-Educated Labor

374

(6)

Appendix: Monopsony

380

(4)

Spotless Car Wash as a Monopsony

380

(2)

The Profit-Maximizing Employment Level

382

(1)

Comparative Monopsony to Perfectly Competitive Labor Markets

382

(2)

Income Inequality

384

(44)

Why Do Wages Differ?

385

(16)

An Imaginary World

387

(1)

Compensating Differentials

388

(3)

Differences in Ability

391

(3)

Barriers to Entry

394

(7)

Discrimination and Wages

401

(6)

Employer Prejudice

402

(1)

Employee and Customer Prejudice

403

(1)

Statistical Discrimination

403

(1)

Dealing with Discrimination

404

(1)

Discrimination and Wage Differentials

404

(3)

Income Inequality

407

(8)

The Poverty Rate

407

(1)

The Lorenz Curve

408

(2)

Growing Income in Equality

410

(2)

Problems with Inequality Measures

412

(3)

Economic Inequality and Fairness

415

(2)

Using the Theory: CEOs in the 1990s and 2000s

417

(8)

Appendix: The Minimum Wage and Union Bargaining Under Monopsony

425

(3)

Monopsony and the Minimum Wage

425

(1)

Monopsony and Union Bargining

426

(2)

Capital and Financial Markets

428

(36)

Physical Capital and the Firm's Investment Decision

429

(9)

A First, Simple Approach

429

(2)

The Value of Future Dollars

431

(4)

The Firm's Demand for Capital

435

(1)

What Happens When Things Change: The Investment Curve

436

(2)

Investment in Human Capital

438

(3)

General Versus Specific Human Capital

439

(1)

The Decision to Invest in General Human Capital

440

(1)

Financial Markets

441

(15)

The Bond Market

442

(4)

The Stock Market

446

(7)

The Economic Role of Financial Markets

453

(3)

Using the Theory: Can Anyone Predict Stock Prices?

456

(8)

Predicting Stock Prices: Fundamental Analysis

456

(1)

Predicting Stock Prices: Technical Analysis

456

(1)

The Economist's View: Efficient Markets Theory

457

(7)

PART V: EFFICIENCY, GOVERNMENT, AND THE GLOBAL ECONOMY

Economic Efficiency and the Role of Government

464

(49)

The Meaning of Efficiency

465

(1)

Pareto Improvements

466

(2)

Side Payments and Pareto Improvements

467

(1)

Markets and Economic Efficiency

468

(5)

Reinterpreting the Demand Curve

468

(1)

Reinterpreting the Supply Curve

469

(1)

The Efficient Quantity of a Good

470

(2)

Perfect Competition and Efficiency

472

(1)

Measuring Market Gains

473

(8)

Consumer Surplus

473

(2)

Producer Surplus

475

(2)

Total Net Benefits in a Market

477

(1)

Perfect Competition and Efficiency: The Total Benefits View

477

(1)

A Price Ceiling

478

(2)

A Price Floor

480

(1)

The Efficiency Role of Government

481

(1)

The Institutional Infrastructure of a Market Economy

482

(6)

The Legal System

483

(3)

Regulation

486

(1)

Law and Regulation in Perspective

487

(1)

Market Failures

488

(1)

Monopoly and Monopoly Power

488

(5)

Antitrust Law as a Remedy

490

(1)

The Special Case of Natural Monopoly

490

(2)

Regulation of Natural Monopoly

492

(1)

Externalities

493

(8)

The Private Solution to a Negative Externality

494

(2)

Market Externalities and Government Solutions

496

(5)

Public Goods

501

(5)

Mixed Goods

504

(2)

Efficiency and Government in Perspective

506

(2)

Using the Theory: Traffic as a Market Failure

508

(5)

Comparative Advantage and the Gains from International Trade

513

(32)

The Logic of Free Trade

514

(1)

The Theory of Comparative Advantage

515

(5)

Opportunity Cost and Comparative Advantage

516

(1)

Specialization and World Production

517

(1)

How Each Nation Gains from International Trade

518

(1)

The Terms of Trade

519

(1)

How Potential Gains Turn into Actual Gains

520

(5)

Some Important Provisos

523

(2)

The Sources of Comparative Advantage

525

(2)

Why Some People Object to Free Trade

527

(5)

The Impact of Trade in the Exporting Country

528

(1)

The Impact of Trade in the Importing Country

529

(1)

Attitudes and Influence on Trade Policy

529

(3)

How Free Trade Is Restricted

532

(2)

Tariffs

532

(1)

Quotas

533

(1)

Protectionism

534

(5)

Myths About International Trade

534

(2)

Sophisticated Arguments for Protection

536

(1)

Protectionism in the United States

537

(2)

Using the Theory: The U.S. Sugar Quota

539

(6)

USING ALL THE THEORY: THE MICROECONOMICS OF DOMESTIC SECURITY

545

(416)

The Opportunity Cost of Domestic Security

547

(6)

The Ongoing Cost of Domestic Security: The Narrow (Optimistic) Approach

549

(2)

The Ongoing Cost of Domestic Security: The Broad (Pessimistic) Approach

551

(2)

Using the Three-Step Process

553

(1)

Changes in Product Markets

554

(7)

Changes in Demand

554

(3)

Changes in Supply

557

(2)

Air Travel: A Special Case

559

(2)

Changes in Labor Markets

561

(3)

An Example: Strategic Language Speakers

561

(3)

Financial and Capital Markets

564

(5)

An Example: The Defense Industry and the Stock Market

565

(4)

Public Goods and Government Involvement

569

(2)

International Trade and Domestic Security

571

(6)

PART VI: MACROECONOMICS: BASIC CONCEPTS

What Macroeconomics Tries to Explain

577

(14)

Macroeconomic Goals

577

(7)

Economic Growth

578

(2)

High Employment (or Low Unemployment)

580

(3)

Stable Prices

583

(1)

The Macroeconomic Approach

584

(2)

Aggregation in Macroeconomics

585

(1)

Macroeconomic Controversies

586

(1)

As You Study Macroeconomics...

587

(4)

Production, Income, and Employment

591

(34)

Production and Gross Domestic Product

592

(16)

GDP: A Definition

592

(3)

The Expenditure Approach to GDP

595

(6)

Other Approaches to GDP

601

(3)

Measuring GDP: A Summary

604

(1)

Real Versus Nominal GDP

604

(1)

How GDP Is Used

605

(1)

Problems with GDP

606

(2)

Employment and Unemployment

608

(9)

Types of Unemployment

608

(3)

The Costs of Unemployment

611

(3)

How Unemployment Is Measured

614

(1)

Problems in Measuring Unemployment

615

(2)

Using the Theory: GDP After September 11

617

(8)

The Direct Impact on GDP

618

(1)

Indirect Impacts on GDP

618

(7)

The Monetary System, Prices, and Inflation

625

(26)

The Monetary System

626

(2)

History of the Dollar

626

(1)

Why Paper Currency Is Accepted as a Means of Payment

627

(1)

Measuring the Price Level and Inflation

628

(5)

Index Numbers

628

(1)

The Consumer Price Index

629

(1)

How the CPI Has Behaved

630

(1)

From Price Index to Inflation Rate

630

(1)

How the CPI Is Used

630

(1)

Real Variables and Adjustment for Inflation

631

(2)

Inflation and the Measurement of Real GDP

633

(1)

The Costs of Inflation

633

(6)

The Inflation Myth

634

(1)

The Redistributive Cost of Inflation

635

(3)

The Resource Cost of Inflation

638

(1)

A Preliminary Word About Deflation

639

(1)

Is the CPI Accurate?

639

(3)

Sources of Bias in the CPI

640

(2)

Using the Theory: The Use and Misuse of an Imperfect CPI

642

(7)

Indexing

642

(1)

Long-Run Comparisons

643

(1)

The Bigger, Conceptual Problem

644

(1)

What the CPI Does Well

645

(4)

Appendix: Calculating the Consumer Price Index

649

(2)

PART VII: LONG-RUN MACROECONOMICS

The Classical Long-Run Model

651

(30)

Macroeconomic Models: Classical Versus Keynesian

652

(3)

Assumptions of the Classical Model

654

(1)

How Much Output Will We Produce?

655

(4)

The Labor Market

655

(2)

Determining the Economy's Output

657

(2)

The Role of Spending

659

(7)

Total Spending in a Very Simple Economy

660

(2)

Total Spending in a More Realistic Economy

662

(4)

The Loanable Funds Market

666

(6)

The Supply of Funds Curve

667

(1)

The Demand for Funds Curve

668

(1)

Equilibrium in the Loanable Funds Market

669

(1)

The Loanable Funds Market and Say's Law

670

(2)

The Classical Model: A Summary

672

(1)

Using the Theory: Fiscal Policy in the Classical Model

673

(8)

Fiscal Policy with a Budget Deficit

674

(2)

Fiscal Policy with a Budget Surplus

676

(5)

Economic Growth and Rising Living Standards

681

(35)

The Importance of Growth

682

(2)

What Makes Economies Grow?

684

(3)

Economic Growth and Living Standards

686

(1)

Growth in the Labor Force Participation Rate (LFPR)

687

(5)

How to Increase Employment

690

(2)

Growth in Productivity

692

(9)

Growth in the Capital Stock

692

(2)

Investment and the Capital Stock

694

(1)

How to Increase Investment

694

(6)

Human Capital and Economic Growth

700

(1)

Technological Change

701

(2)

Growth Policies: A Summary

703

(1)

The Cost of Economic Growth

703

(5)

Budgetary Costs

705

(1)

Consumption Costs

706

(1)

Opportunity Costs of Workers' Time

707

(1)

Sacrifice of Other Social Goals

708

(1)

Using the Theory: Economic Growth in the Less-Developed Countries

708

(8)

PART VIII: SHORT-RUN MACROECONOMICS

Economic Fluctuations

716

(12)

Can the Classical Model Explain Economic Fluctuations?

718

(4)

Shifts in Labor Demand

719

(1)

Shifts in Labor Supply

720

(1)

Verdict: The Classical Model Cannot Explain Economic Fluctuation

721

(1)

What Triggers Economic Fluctuations?

722

(3)

A Very Simple Economy

722

(1)

The Real-World Economy

723

(1)

Shocks That Push the Economy Away from Equilibrium

724

(1)

Where Do We Go from Here?

725

(3)

The Short-Run Macro Model

728

(43)

Consumption Spending

730

(9)

Consumption and Disposable Income

732

(3)

Consumption and Income

735

(1)

Shifts in the Consumption-Income Line

736

(3)

Getting to Total Spending

739

(4)

Investment Spending

739

(1)

Government Purchases

740

(1)

Net Exports

740

(1)

Summing Up: Aggregate Expenditure

741

(1)

Income and Aggregate Expenditure

742

(1)

Finding Equilibrium GDP

743

(8)

Inventories and Equilibrium GDP

744

(1)

Finding Equilibrium GDP with a Graph

745

(4)

Equilibrium GDP and Employment

749

(2)

What Happens When Things Change?

751

(8)

A Change in Investment Spending

751

(2)

The Expenditure Multiplier

753

(2)

The Multiplier in Reverse

755

(1)

Other Spending Shocks

755

(1)

A Graphical View of the Multiplier

756

(1)

Automatic Stabilizers and the Multiplier

757

(2)

Comparing Models: Long Run and Short Run

759

(2)

The Role of Saving

760

(1)

The Effect of Fiscal Policy

760

(1)

Using the Theory: The Recession of 2001

761

(7)

Appendix 1: Finding Equilibrium GDP Algebraically

768

(1)

Appendix 2: The Special Case of the Tax Multiplier

769

(2)

PART IX: MONEY, PRICES, AND THE MACROECONOMY

The Banking System and the Money Supply

771

(29)

What Counts as Money

771

(1)

Measuring the Money Supply

772

(4)

Assets and Their Liquidity

773

(1)

M1 and M2

774

(2)

The Banking System

776

(3)

Financial Intermediaries

776

(1)

Commercial Banks

777

(1)

A Bank's Balance Sheet

778

(1)

The Federal Reserve System

779

(4)

The Structure of the Fed

780

(2)

The Federal Open Market Committee

782

(1)

The Functions of the Federal Reserve

782

(1)

The Fed and the Money Supply

783

(11)

How the Fed Increases the Money Supply

783

(3)

The Demand Deposit Multiplier

786

(2)

The Fed's Influence on the Banking System as a Whole

788

(1)

How the Fed Decreases the Money Supply

789

(2)

Some Important Provisos About the Demand Deposit Multiplier

791

(1)

Other Tools for Controlling the Money Supply

792

(2)

Using the Theory: Bank Failures and Banking Panics

794

(6)

The Money Market and the Interest Rate

800

(27)

The Demand for Money

800

(4)

An Individual's Demand for Money

801

(1)

The Economy-Wide Demand for Money

802

(2)

The Supply of Money

804

(1)

Equilibrium in the Money Market

805

(5)

How the Money Market Reaches Equilibrium

807

(3)

What Happens When Things Change?

810

(8)

How the Fed Changes the Interest Rate

810

(1)

How Do Interest Rate Changes Affect the Economy?

811

(1)

Monetary Policy and the Economy

812

(3)

Fiscal Policy (and Other Spending Changes) Revisited

815

(3)

Are There Two Theories of the Interest Rate?

818

(1)

Expectations and the Money Market

819

(2)

Using the Theory: The Fed and the Recession of 2001

821

(6)

Aggregate Demand and Aggregate Supply

827

(36)

The Aggregate Demand Curve

828

(6)

Deriving the Aggregate Demand Curve

830

(1)

Understanding the AD Curve

830

(1)

Movements Along the AD Curve

831

(1)

Shifts of the AD Curve

831

(3)

The Aggregate Supply Curve

834

(7)

Costs and Prices

835

(1)

GDP, Costs, and the Price Level

836

(2)

Deriving the Aggregate Supply Curve

838

(1)

Movements Along the AS Curve

839

(1)

Shifts of the AS Curve

839

(2)

AD and AS Together: Short-Run Equilibrium

841

(2)

What Happens When Things Change?

843

(10)

Demand Shocks in the Short Run

843

(4)

Demand Shocks: Adjusting to the Long Run

847

(3)

The Long-Run Aggregate Supply Curve

850

(1)

Supply Shocks

851

(2)

Some Important Provisos About the AS Curve

853

(1)

Using the Theory: The Story of Two Recessions and ``Jobless'' Expansions

854

(9)

The Recession of 1990--91

854

(1)

The Recession of 2001

855

(2)

Jobless Expansions

857

(6)

PART X: MACROECONOMIC POLICY

Inflation and Monetary Policy

863

(29)

The Objectives of Monetary Policy

864

(2)

Low, Stable Inflation

864

(1)

Full Employment

864

(2)

The Fed's Performance

866

(1)

Federal Reserve Policy: Theory and Practice

867

(8)

Responding to Changes in Money Demand

868

(2)

Responding to Other Demand Shocks

870

(3)

Responding to Supply Shocks

873

(2)

Expectations and Ongoing Inflation

875

(7)

How Ongoing Inflation Arises

876

(3)

Ongoing Inflation and the Phillips Curve

879

(2)

Why the Fed Allows Ongoing Inflation

881

(1)

Using the Theory: Challenges for Monetary Policy

882

(10)

Information Problems

883

(1)

The Natural Rate of Unemployment

884

(1)

Rules Versus Discretion and the ``Taylor Rule''

885

(1)

Deflation

886

(6)

Fiscal Policy: Taxes, Spending, and the Federal Budget

892

(33)

Thinking About Spending, Taxes, and the Budget

893

(1)

Spending, Taxes, and the Budget: Some Background

894

(12)

Government Outlays

894

(6)

Federal Tax Revenues

900

(4)

The Federal Budget and the National Debt

904

(2)

The Effects of Fiscal Changes in the Short Run

906

(5)

How Economic Fluctuations Affect the Federal Budget

907

(1)

How the Budget Affects Economic Fluctuations

908

(1)

Countercyclical Fiscal Policy

909

(2)

The Effects of Fiscal Changes in the Long Run

911

(5)

The National Debt

912

(4)

Using the Theory: The Bush Tax Cuts of 2001 and 2003

916

(9)

The Short Run: Countercyclical Fiscal Policy?

916

(1)

The Long Run: The Tax Cuts and the National Debt

917

(8)

Exchange Rates and Macroeconomic Policy

925

(36)

Foreign Exchange Markets and Exchange Rates

926

(2)

Dollars per Pound or Pounds per Dollar?

926

(2)

The Demand for British Pounds

928

(2)

The Demand for Pounds Curve

928

(1)

Shifts in the Demand for Pounds Curve

929

(1)

The Supply of British Pounds

930

(3)

The Supply of Pounds Curve

931

(1)

Shifts in the Supply of Pounds Curve

932

(1)

The Equilibrium Exchange Rate

933

(1)

What Happens When Things Change?

934

(6)

How Exchange Rates Change Over Time

935

(1)

The Very Short Run: ``Hot Money''

936

(1)

The Short Run: Macroeconomic Fluctuations

937

(1)

The Long Run: Purchasing Power Parity

938

(2)

Government Intervention and Foreign Exchange Markets

940

(7)

Managed Float

940

(1)

Fixed Exchange Rates

941

(2)

Foreign Currency Crises, the IMF, and Moral Hazard

943

(2)

The Euro

945

(2)

Exchange Rates and the Macroeconomy

947

(2)

Exchange Rates and Demand Shocks

947

(1)

Exchange Rates and Monetary Policy

947

(2)

Using the Theory: The Stubborn U.S. Trade Deficit

949

(12)

From a Financial Inflow to a Trade Deficit

951

(3)

The Growing Trade Deficit with China

954

(7)

USING ALL THE THEORY: THE STOCK MARKET AND THE MACROECONOMY

961

(1)

Basic Background

962

(3)

Why Do People Hold Stock?

963

(1)

Tracking the Stock Market

963

(2)

Explaining Stock Prices

965

(4)

Step 1: Characterize the Market

965

(1)

Step 2: Find the Equilibrium

965

(2)

Step 3: What Happens When Things Change?

967

(2)

The Stock Market and the Macroeconomy

969

(4)

How the Stock Market Affects the Economy

969

(3)

How the Economy Affects the Stock Market

972

(1)

What Happens When Things Change?

973

(1)

A Shock to the Economy

974

(1)

A Shock to the Economy and the Stock Market: The High-Tech Boom of the 1990s

975

(1)

A Shock to the Economy and the Market: The High-Tech Bust of 2000 and 2001

976

(1)

The Fed and the Stock Market

977

Glossary

(1)

Index

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