Essentials of Economics

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ISBN: 9780030292712 | 0030292719
Cover: Paperback
Copyright: 6/8/2000

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With an easy-to-understand writing style, ESSENTIALS OF ECONOMICS is the most popular and widely used economics textbook in college Economics classes. Author Greg Mankiw has created a textbook that's accessible to everyone, particularly students encountering economics for the first time -- emphasizing real-life scenarios and engaging facts on the economy and its fundamental principles.

Preface to the Instructor

Preface to the Student

xxix

PART ONE INTRODUCTION

(62)

Ten Principles of Economics

(16)

How People Make Decisions

(4)

People Face Tradeoffs

(1)

The Cost of Something Is What You Give Up to Get It

(1)

Rational People Think at the Margin

(1)

People Respond to Incentives

(1)

How People Interact

(4)

Trade Can Make Everyone Better Off

(1)

Markets Are Usually a Good Way to Organize Economic Activity

(1)

FYI: Adam Smith and the Invisible Hand

(1)

Governments Can Sometimes Improve Market Outcomes

(1)

How the Economy as a Whole Works

(3)

A Country's Standard of Living Depends on Its Ability to Produce Goods and Services

(1)

Prices Rise When the Government Prints Too Much Money

(1)

Society Faces a Short-Run Tradeoff between Inflation and Unemployment

(1)

Conclusion

(1)

Summary

(1)

Key Concepts

(1)

Questions for Review

(1)

Problems and Applications

(3)

Thinking Like an Economist

(28)

The Economist as Scientist

(8)

The Scientific Method: Observation, Theory, and More Observation

(1)

The Role of Assumptions

(1)

Economic Models

(1)

Our First Model: The Circular-Flow Diagram

(2)

Our Second Model: The Production Possibilities Frontier

(2)

Microeconomics and Macroeconomics

(1)

The Economist as Policy Adviser

(3)

Positive versus Normative Analysis

(1)

Economists in Washington

(2)

Why Economists Disagree

(2)

Differences in Scientific Judgments

(1)

Differences in Values

(1)

Perception versus Reality

(1)

Let's Get Going

(1)

Summary

(1)

Key Concepts

(1)

Questions for Review

(1)

Problems and Applications

(1)

Appendix: Graphing---A Brief Review

(11)

Graphs of Single Variable

(1)

Graphs of Two Variables: The Coordinate System

(1)

Curves in the Coordinate System

(3)

Slope

(1)

Cause and Effect

(1)

Omitted Variables

(1)

Reverse Causality

(3)

Interdependence and the Gains from Trade

(16)

A Parable for the Modern Economy

(4)

Production Possibilities

(2)

Specialization and Trade

(2)

The Principle of Comparative Advantage

(3)

Absolute Advantage

(1)

Opportunity Cost and Comparative Advantage

(1)

Comparative Advantage and Trade

(1)

FYI: The Legacy of Adam Smith and David Ricardo

(1)

Applications of Comparative Advantage

(3)

Should Tiger Woods Mow His Own Lawn?

(1)

In the News: Who Has a Comparative Advantage in Producing Lamb?---Lamb Tariffs Fleece U.S. Consumers

(1)

Should the United States Trade with Other Countries?

(1)

Conclusion

(1)

Summary

(1)

Key Concepts

(1)

Questions for Review

(1)

Problems and Applications

(4)

PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK

(76)

The Market Forces of Supply and Demand

(28)

Markets and Competition

(1)

Competitive Markets

(1)

Competition: Perfect and Otherwise

(1)

Demand

(8)

What Determines the Quantity and Individual Demands?

(1)

Price

(1)

Income

(1)

Prices of Related Goods

(1)

Tastes

(1)

Expectations

(1)

The Demand Schedule and the Demand Curve

(1)

Ceteris Paribus

(1)

Market Demand versus Individual Demand

(2)

Shifts in the Demand Curve

(1)

Case Study: Two Ways to Reduce the Quantity of Smoking Demanded

(2)

Supply

(3)

What Determines the Quantity an Individual Supplies?

(1)

Price

(1)

Input Prices

(1)

Technology

(1)

Expectations

(1)

The Supply Schedule and the Supply Curve

(1)

Market Supply versus Individual Supply

(1)

Shifts in the Supply Curve

(1)

Supply and Demand Together

(10)

Equilibrium

(3)

Three Steps to Analyzing Changes in Equilibrium

(2)

Example: A Change in Demand

(1)

Shifts in Curves versus Movements along Curves

(1)

Example: A Change in Supply

(1)

Example: A Change in Both Supply and Demand

(1)

In the News: Mother Nature Shits the Supply Curve---4-Day Cold Spell Slams California: Crops Devastated; Price of Citrus to Rise

(1)

Summary

(2)

Conclusion: How Prices Allocate Resources

(1)

Summary

(1)

Key Concepts

(1)

Questions for Review

(1)

Problems and Applications

(3)

Elasticity and Its Application

(24)

The Elasticity of Demand

(10)

The Price Elasticity of Demand and Its Determinants

(1)

Necessites versus Luxuries

(1)

Availability of Close Substitutes

(1)

Definition of the Market

(1)

Time Horizon

(1)

Computing the Price Elasticity of Demand

(1)

the Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities

(2)

The Variety of Demand Curves

(1)

Total Revenue and the Price Elasticity of Demand

(3)

Elasticity and Total Revenue along a Linear Demand Curve

101

(1)

Case Study: Pricing Admission to a Museum

102

(1)

Other Demand Elasticities

102

(1)

The Income Elasticity of Demand

102

(1)

In the News: On the Road with Elasticity---For Whom the Both Tolls, Price Really Does Matter

103

(1)

The Cross-Price Elasticity of Demand

104

(1)

The Elasticity of Supply

104

(4)

The Price Elasticity of Supply and Its Determinants

104

(1)

Computing the Price Elasticity of Supply

105

(1)

The Variety of Supply Curves

105

(3)

Three Applications of Supply, Demand, and Elasticity

108

(5)

Can Good News for Farming Be Bad News for Farmers?

108

(2)

Why Did OPEC Fail to Keep the Price of Oil High?

110

(2)

Does Drug Interdiction Increase or Decrease Drug-Related Crime?

112

(1)

Conclusion

113

(1)

Summary

114

(1)

Key Concepts

114

(1)

Questions for Review

114

(1)

Problems and Applications

115

(2)

Supply, Demand, and Government Policies

117

(22)

Controls on Prices

118

(10)

How Price Ceilings Affect Market Outcomes

118

(2)

Case Study: Lines at the Gas Pump

120

(1)

In the News: Does a Drought Need to Cause a Water Shortage?---Trickle-Down Economics

121

(1)

Case Study: Rent Control in the Short Run and Long Run

122

(1)

How Price Floors Affect Market Outcomes

123

(1)

In the News: Rent Control in New York---Threat to End Rent Control Stirs Up NYC

124

(2)

Case Study: The Minimum Wage

126

(1)

Evaluating Price Controls

127

(1)

Taxes

128

(7)

How Taxes on Buyers Affect Market Outcomes

129

(1)

How Taxes on Sellers Affect Market Outcomes

130

(1)

Case Study: Can Congress Distribute the Burden of a Payroll Tax?

131

(2)

Elasticity and Tax Incidence

133

(1)

Case Study: Who Pays the Luxury Tax?

134

(1)

Conclusion

135

(1)

Summary

135

(1)

Key Concepts

136

(1)

Questions for Review

136

(1)

Problems and Applications

136

(3)

PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE

139

(64)

Consumers, Producers, and The Efficiency of Markets

141

(20)

Consumer Surplus

142

(5)

Willingness to Pay

142

(1)

Using the Demand Curve to Measure Consumer Surplus

143

(3)

How a Lower Price Raises Consumer Surplus

146

(1)

What Does Consumer Surplus Measures?

147

(1)

Producer Surplus

147

(5)

Cost and the Willingness to Sell

148

(1)

Using the Supply Curve to Measure Producer Surplus

149

(2)

How a Higher Price Raises Producer Surplus

151

(1)

Market Efficiency

152

(3)

The Benevolent Social Planner

152

(1)

Evaluating the Market Equilibrium

153

(3)

In the News: Ticket Scalping---Tickets? Supply Meets Demand on Sidewalk

156

Conclusion: Market Efficiency and Market Failure

155

(3)

Summary

158

(1)

Key Concepts

158

(1)

Questions for Review

158

(1)

Problems and Applications

158

(3)

Application: The Costs of Taxation

161

(18)

The Deadweight Loss of Taxation

162

(4)

How A Tax Affects Market Participants

163

(1)

Welfare without a Tax

164

(1)

Welfare with a Tax

165

(1)

Changes in Welfare

165

(1)

Deadweight Losses and the Gains from Trade

165

(1)

The Determinants of the Deadweight Loss

166

(4)

Case Study: The Deadweight Loss Debate

168

(2)

FYI: Henry George and the Land Tax

170

(1)

Deadweight Loss and Tax Revenue as Taxes Vary

170

(5)

Case Study: The Laffer Curve and Supply-Side Economics

172

(2)

In the News: How to Be Master of the Universe---Supply-Side Is a Winning Strategy

174

(1)

Conclusion

175

(1)

Summary

175

(1)

Key Concepts

176

(1)

Questions for Review

176

(1)

Problems and Applications

176

(3)

Application: International Trade

179

(24)

The Determinants of Trade

180

(2)

The Equilibrium without Trade

180

(1)

The World Price and Comparative Advantage

181

(1)

The Winners and Losers from Trade

182

(10)

The Gains and Losses of an Exporting Country

182

(2)

The Gains and Losses of an Importing Country

184

(2)

The Effects of a Tariff

186

(1)

In the News: Life in Isoland---Clinton Warns U.S. Will Fight Cheap Imports

187

(2)

The Effects of an Import Quota

189

(2)

The Lessons for Trade Policy

191

(1)

The Arguments for Restricting Trade

192

(5)

FYI: Other Benefits of International Trade

193

(1)

The Jobs Argument

193

(1)

The National-Security Argument

194

(1)

The Infant-Industry Argument

194

(1)

The Unfair-Competition Argument

195

(1)

The Protection-as-a-Bargaining-Chip Argument

195

(1)

Case Study: Trade Agreements

195

(1)

In the News: A Chicken Invasion---U.S. Chicken in Every Pot? Nyet! Russians Cry Foul

196

(1)

Conclusion

197

(3)

In the News: The Case for Unilateral Disarmament in the Trade Wars---Free Trade without Treaties

198

(2)

Summary

200

(1)

Key Concepts

200

(1)

Questions for Review

200

(1)

Problems and Applications

201

(2)

PART FOUR THE ECONOMICS OF THE PUBLIC SECTOR

203

(40)

Externalities

205

(20)

Externalities and Market Inefficiency

207

(5)

Welfare Economics: A Recap

207

(1)

Negative Externalities in Production

208

(1)

Positive Externalities in Production

209

(1)

Case Study: The Debate over Technology Policy

210

(1)

Externalities in Consumption

211

(1)

Private Solutions to Externalities

212

(3)

The Types of Private Solutions

212

(1)

The Coase Theorem

213

(1)

Why Private Solutions Do Not Always Work

214

(1)

Public Policies toward Externalities

215

(5)

Regulation

215

(1)

Pigovian Taxes and Subsidies

216

(1)

Case Study: Why is Gasoline Taxed So Heavily?

217

(1)

Tradable Pollution Permits

218

(1)

Objectives to the Economic Analysis of Pollution

219

(2)

In the News: Children as Externalities---Mum's the Word: When Children Should Be Screened and Not Head

221

Conclusion

220

(2)

Summary

222

(1)

Key Concepts

222

(1)

Questions for Review

222

(1)

Problems and Applications

222

(3)

Public Goods and Common Resources

225

(18)

The Different Kinds of Goods

226

(1)

Public Goods

227

(6)

The Free-Rider Problem

228

(1)

Some Important Public Goods

228

(1)

National Defense

228

(1)

Basic Research

228

(1)

Figthing Poverty

229

(1)

Case Study: Are Lighthouses Public Goods?

230

(1)

The Difficult Job of Cost-Benefit Analysis

231

(1)

Case Study: How Much Is a Life Worth?

231

(2)

In the News: Existence Value---They Exist. Therefore They Are. But, Do You Care?

233

(1)

Common Resources

233

(6)

The Tragedy of the Commons

234

(1)

Som Important Common Resources

235

(1)

Clean Air and Water

235

(1)

Oil Pools

235

(1)

Congested Roads

235

(1)

In the News: The Singapore Solution---Economics of Road Pricing

236

(1)

Fish, Whales, and Other Wildlife

237

(1)

In the News: Should Yellowstone Charge as Much as Disney World?---Save the Parks, and Make a Profit

238

(1)

Case Study: Why the Cow Is Not Extinct

238

(1)

Conclusion: The Importance of Property Rights

239

(1)

Summary

240

(1)

Key Concepts

240

(1)

Questions for Review

240

(1)

Problems and Applications

241

(2)

PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY

243

(82)

The Costs of Production

245

(22)

What Are Costs?

246

(3)

Total Revenue, Total Cost, and Profit

246

(1)

Costs as Opportunity Costs

247

(1)

The Cost of Capital as an Opportunity Cost

247

(1)

Economic Profit versus Accounting Profit

248

(1)

Production and Costs

249

(3)

The Production Function

249

(2)

From the Production Function to the Total-Cost Curve

251

(1)

The Various Measures of Cost

252

(7)

Fixed and Variable Costs

253

(1)

Average and Marginal Cost

254

(1)

Cost Curves and Their Shapes

255

(1)

Rising Marginal Cost

255

(1)

U-Sjhaped Average Total Cost

256

(1)

The Relationship between Marginal Cost and Average Total Cost

256

(1)

Typical Cost Curves

256

(3)

Costs in the Short Run and in the Long Run

259

(2)

The Relationship Between Short-Run and Long-Run Average Total Cost

259

(1)

Economies and Diseconomies of Scale

260

(1)

FYI: Lessons from a Pin Factory

261

(1)

Conclusion

261

(1)

Summary

262

(1)

Key Concepts

263

(1)

Questions for Review

263

(1)

Problems and Applications

263

(4)

Firms in Competitive Markets

267

(24)

What Is a Competitive Market?

268

(2)

The Meaning of Competition

268

(1)

The Revenue of a Competitive Firm

269

(1)

Profit Maximization and the Competitive Firm's Supply Curve

270

(10)

A Simple Example of Profit Maximization

270

(1)

The Marginal-Cost Curve and the Firm's Supply Decision

271

(2)

The Firm's Short-Run Decision to Shut Down

273

(1)

Spilt Milk and Other Sunk Costs

274

(2)

Case Study: Near-Empty Restaurants and Off-Season Miniature Golf

276

(1)

The Firm's Long-Run Decision to Exit or Enter a Market

276

(1)

Measuring Profit in Our Graph for the Competitive Firm

277

(1)

In the News: Entry and Exit in Transition Economies---Russia Is Not Poland, and That's Too Bad

278

(2)

Supply Curve in a Competitive Market

280

(7)

The Short Run: Market Supply with a Fixed Number of Firms

280

(1)

The Long Run: Market Supply with Entry and Exit

281

(2)

Why Do Competitive Firms Stay in Business If They Make Zero Profit?

283

(1)

A Shift in Demand in the Short Run and Long Run

284

(1)

Why the Long-Run Supply Curve Might Slope Upward

284

(2)

In the News: Entry or Overinvestment?---In Some Industries, Executives Foresee Tough Times Ahead; A Key Culprit: High Profits

286

(1)

Conclusion: Behind the Supply Curve

287

(1)

Summary

287

(1)

Key Concepts

288

(1)

Questions for Review

288

(1)

Problems and Applications

288

(3)

Monopoly

291

(34)

Why Monopolies Arise

292

(4)

Monopoly Resources

293

(1)

Case Study: The DeBeers Diamond Monopoly

293

(1)

Government-Created Monopolies

294

(1)

Natural Monopolies

294

(2)

How Monopolies Make Production and Pricing Decisions

296

(7)

Monopoly versus Competition

296

(1)

A Monopoly's Revenue

296

(3)

Profit Maximization

299

(2)

FYI: Why a Monopoly Does Not Have a Supply Curve

301

(1)

A Monopoly's Profit

301

(1)

Case Study: Monopoly Drugs versus Generic Drugs

302

(1)

The Welfare Cost of Monopoly

303

(3)

The Deadweight Loss

304

(2)

The Monopoly's Profit: A Social Cost?

306

(1)

Public Policy toward Monopolies

306

(6)

Increasing Competition with Antitrust Laws

307

(1)

Regulation

308

(1)

Public Ownership

309

(1)

In the News: Public Transport and Private Enterprise---Man with a Van

310

(1)

Doing Nothing

310

(2)

Price Discrimination

312

(7)

A Parable about Pricing

312

(1)

The Moral of the Story

313

(1)

The Analytics of Price Discrimination

314

(1)

Examples of Price Discrimination

315

(1)

Movie Tickets

315

(1)

In the News: The Best Monopolist---Let's Play Monopoly

316

(2)

Airline Prices

318

(1)

Discount Coupons

318

(1)

Financial Aid

318

(1)

Quantity Discounts

318

(1)

Conclusion: The Prevalence of Monopoly

319

(1)

Summary

319

(1)

Key Concepts

320

(1)

Questions for Review

320

(1)

Problems and Applications

320

(5)

PART SIX THE DATA OF MACROECONOMICS

325

(36)

Measuring a Nation's Income

327

(18)

The Economy's Income and Expenditure

328

(2)

The Measurement of Gross Domestic Product

330

(3)

``GDP Is the Market Value...''

330

(1)

``Of All...''

330

(1)

``Final...''

331

(1)

``Goods and Services...''

331

(1)

``Produced...''

331

(1)

``Within a Country...''

331

(1)

FYI: Other Measures of Income

332

(1)

``...In a Given Period of Time.''

332

(1)

The Components of GDP

333

(1)

Real versus Nominal GDP

334

(4)

A Numerical Example

335

(1)

The GDP Deflator

336

(1)

Case Study: Real GDP over Recent History

337

(1)

GDP and Economic Well-Being

338

(4)

In the News: GDP Lightens Up---From Greenspan, a (Truly) Weighty Idea

339

(1)

Case Study: International Differences in GDP and the Quality of Life

340

(1)

In the News: Hidden GDP---The Russian Economy: Notes from Underground

341

(1)

Conclusion

342

(1)

Summary

342

(1)

Key Concepts

343

(1)

Questions for Review

343

(1)

Problems and Applications

343

(2)

Measuring the Cost of Living

345

(16)

The Consumer Price Index

346

(8)

How to Consumer Price Index Is Calculated

346

(2)

FYI: What is in the CPI's Basket?

348

(1)

Problems in Measuring the Cost of Living

349

(1)

In the News: Shopping for the CPI---Is the CPI Accurate? Ask the Sleuths Who Get the Numbers

350

(2)

In the News: A CPI for Senior Citizens---Prices That Don't Fit the Profile: Is Index Mismatched to Retirees' Reality?

352

(1)

The GDP Deflator versus the Consumer Price Index

353

(1)

Correctomg Economic Variables for the Effects of Inflation

354

(4)

Dollar Figures from Different Times

354

(1)

Case Study: Mr. Index Goes to Hollywood

355

(1)

Imdexatopm

355

(1)

Real and Nominal Interest Rates

356

(2)

Conclusion

358

(1)

Summary

358

(1)

Key Concepts

359

(1)

Questions for Review

359

(1)

Problems and Applications

359

(2)

PART SEVEN THE REAL ECONOMY IN THE LONG RUN

361

(78)

Production and Growth

364

(23)

Economic Growth around the World

364

(2)

FYI: The Magic of Compounding and the Rule of 70

366

(1)

Productivity: Its Role and Determinants

366

(5)

Why Productivity Is So Important

367

(1)

How Productivity Is Determined

367

(1)

Physical Capital

368

(1)

Human Capital

368

(1)

Natural Resources

368

(1)

Technological Knowledge

369

(1)

FYI: The Production Function

369

(1)

Case Study: The Natural Resources a Limit to Growth?

370

(1)

Economic Growth and Public Policy

371

(10)

The Important of Saving and Investment

371

(2)

Diminishing Returns and the Catch-Up Effect

373

(1)

Investment from Abroad

374

(1)

Education

375

(1)

Property Rights and Political Stability

375

(1)

Free Trade

376

(1)

The Control of Population Growth

377

(1)

FYI: Thomas Malthus on Population Growth

378

(1)

Research and Development

379

(1)

Case Study: The Productivity Slowdown

379

(2)

Conclusion: The Importance of Long-Run Growth

381

(3)

In the News: A Solution to Africa's Problems---Growth in Africa: It Can Be Done

382

(2)

Summary

384

(1)

Key Concepts

384

(1)

Questions for Review

384

(1)

Problems and Applications

384

(3)

Saving, Investment, and The Financial System

387

(26)

Financial Institutions in the U.S. Economy

388

(5)

Financial Markets

389

(1)

The Bond Market

389

(1)

The Stock Market

390

(1)

Financial Intermediaries

390

(1)

FYI: How to Read the Newspaper's Stock Tables

391

(1)

Banks

391

(1)

Mutual Funds

392

(1)

Summing Up

393

(1)

Saving and Investment in the National Income Accounts

393

(5)

In the News: The Stock Market Boom of the 1990s---Are Stocks Overvalued? Not a Chance

394

(1)

Some Important Identities

394

(3)

The Meaning of Saving and Investment

397

(1)

The Market for Loanable Funds

398

(10)

Supply and Demand for Loanable Funds

398

(3)

FYI: Present Value

401

(1)

Policy 1: Taxes and Saving

402

(1)

Policy 2: Taxes and Investment

403

(1)

Policy 3: Government Budget Deficits and Surpluses

404

(2)

Case Study: The Debate over the Budget Surplus

406

(1)

Case Study: The History of U.S. Government Debt

407

(1)

Conclusion

408

(1)

Summary

409

(1)

Key Concepts

409

(1)

Questions for Review

409

(1)

Problems and Applications

410

(3)

Unemployment and Its Natural Rate

413

(26)

Identifying Unemployment

414

(7)

How Is Unemployment Measures?

414

(4)

Case Study: Labor-Force Participation of Men and Women in the U.S. Economy

418

(1)

Does the Unemployment Rate Measure What We Want It To?

419

(1)

How Long Are the Unemployed without Work?

420

(1)

Why Are There Always Some People Unemployed?

421

(1)

Job Search

421

(4)

Why Some Frictional Unemployment Is Inevitable

422

(1)

Public Policy and Job Search

422

(1)

Unemployment Insurance

423

(1)

In the News: German Unemployment---For Germany, Benefits Are Also a Burden

424

(1)

Minimum-Wage Laws

425

(1)

Unions and Collective Bargaining

426

(4)

The Economics of Unions

427

(1)

Are Unions Good or Bad for the Economy?

428

(1)

In the News: Should You Join a Union?---On Payday, Union Jobs Stack Up Very Well

429

(1)

The Theory of Efficiency Wages

430

(5)

Worker Health

431

(1)

Worker Turnover

431

(1)

Worker Effort

431

(1)

Worker Quality

432

(1)

FYI: The Economics of Asymmetric Information

433

(1)

Case Study: Henry Ford and the Very Generous $5-a-Day Wage

434

(1)

Conclusion

435

(1)

Summary

436

(1)

Key Concepts

436

(1)

Questions for Review

436

(1)

Problems and Applications

437

(2)

PART EIGHT MONEY AND PRICES IN THE LONG RUN

439

(50)

The Meaning of Money

442

(19)

The Functions of Money

443

(4)

The Kinds of Money

443

(1)

In the News: Money on the Island of Yap---Fixed Assets, or Why a Loan in Yap Is Hard to Roll Over

444

(1)

Money in the U.S. Economy

445

(1)

FYI: Credit Cards, Debit Cards, and Money

446

(1)

Case Study: Where Is All the Currency?

446

(1)

The Federal Reserve System

447

(2)

The Fed's Organization

448

(1)

The Federal Open Market Committee

448

(1)

Banks and the Money Supply

449

(8)

The Simple Case of 100-Percent-Reserve Banking

450

(1)

Money Creation with Fractional-Reserve Banking

451

(1)

The Money Multiplier

452

(1)

The Fed's Tools of Monetary Control

453

(1)

Open-Market Operations

454

(1)

Reserve Requirements

454

(1)

The Discount Rate

454

(1)

Problems in Controlling the Money Supply

455

(1)

Case Study: Bank Runs and the Money Supply

456

(1)

Conclusion

457

(1)

Summary

457

(1)

Key Concepts

458

(1)

Questions for Review

458

(1)

Problems and Applications

458

(3)

Money Growth and Inflation

461

(28)

The Classical Theory of Inflation

463

(12)

The Level of Prices and the Value of Money

463

(1)

Money Supply, Money Demand, and Monetary Equilibrium

464

(2)

The Effect of a Monetary Injection

466

(1)

A Brief Look at the Adjustment Process

466

(1)

The Classical Dichotomy and Monetary Neutrality

467

(2)

Velocity and the Quantity Equation

469

(2)

Case Study: Money and Prices during Four Hyperinflations

471

(1)

The Inflation Tax

472

(1)

In the News: Russia Turns to the Inflation Tax---Russia's New Leaders Plan to Pay Debts by Printing Money

473

(1)

The Fisher Effect

473

(2)

The Costs of Inflation

475

(8)

A Fall in Purchasing Power? The Inflation Fallacy

475

(1)

Shoeleather Costs

476

(1)

In the News: The Hyperinflation in Serbia---Special, Today Only: 6 Million Dinars for a Snickers Bar

477

(1)

Menu Costs

478

(1)

Relative-Price Variability and the Misallocation of Resources

478

(1)

Inflation-Induced Tax Distortions

478

(2)

Confusion and Inconvenience

480

(1)

A Special Cost of Unexpected Inflation: Arbitrary Redistributions of Wealth

481

(1)

Case Study: The Wizard of Oz and the Free-Silver Debate

481

(2)

Conclusion

483

(1)

In the News: How to Protect Your Savings from Inflation---Inflation Fighters for the Long Term

484

(1)

Summary

484

(2)

Key Concepts

486

(1)

Questions for Review

486

(1)

Problems and Applications

486

(3)

PART NINE SHORT-RUN ECONOMIC FLUCUATIONS

489

(322)

Aggregate Demand and Aggregate Supply

491

(32)

Three Key Facts about Economic Fluctuations

492

(3)

Economic Fluctuations Are Irregular and Unpredictable

492

(2)

Most Macroeconomic Quantities Fluctuate Together

494

(1)

As Output Falls, Unemployment Rises

495

(1)

Explaining Short-Run Economic Fluctuations

495

(2)

How the Short Run Differs from the Long Run

495

(1)

The Basic Model of Economic Fluctuations

496

(1)

The Aggregate-Demand Curve

497

(5)

Why the Aggregate-Demand Curve Slopes Downward

497

(1)

The Price Level and Consumption: The Wealth Effect

498

(1)

The Price Level and Investment: The Interest-Rate Effect

498

(1)

The Price Level and Net Exports: The Exchange-Rate Effect

499

(1)

Summary

499

(1)

Why the Aggregate-Demand Curve Might Shift

499

(1)

Shifts Arising from Consumption

499

(1)

Shifts Arising from Investment

500

(1)

Shifts Arising from Government Purchases

500

(1)

Shifts Arising from Net Exports

500

(1)

Summary

501

(1)

The Aggregate-Supply Curve

502

(8)

Why the Aggregate-Supply Curve Is Vertical in the Long Run

502

(1)

Why the Long-Run Aggregate-Supply Curve Might Shift

503

(1)

Shifts Arising from Labor

503

(1)

Shifts Arising from Capital

504

(1)

Shifts Arising from Natural Resources

504

(1)

Shifts Arising from Technological Knowledge

504

(1)

Summary

504

(1)

A New Way to Depict Long-Run Growth and Inflation

505

(1)

Why the Aggregate-Supply Curve Slopes Upward in the Short Run

506

(1)

The Misperceptions Theory

507

(1)

The Sticky-Wage Theory

507

(1)

The Sticky-Price Theory

507

(1)

Summary

508

(1)

Why the Short-Run Aggregate-Supply Curve Might Shift

508

(2)

Two Causes of Economic Fluctuations

510

(8)

The Effects of a Shift in Aggregate Demand

511

(2)

Case Study: Two Big Shifts in Aggregate Demand: The Great Depression and World War II

513

(2)

In the News: How Consumers Shift Aggregate Demand---Consumers Get the Credit for Expanding Economy

515

(1)

The Effect of a Shift in Aggregate Supply

515

(2)

Case Study: Oil and the Economy

517

(1)

Conclusion: The Origins of Aggregate Demand and Aggregate Supply

518

(1)

Summary

519

(1)

Key Concepts

520

(1)

Questions for Review

520

(1)

Problems and Applications

520

(3)

The Influence of Monetary and Fiscal Policy on Aggregate Demand

523

(288)

How Monetary Policy Influences Aggregate Demand

524

(10)

The Theory of Liquidity Preference

525

(1)

Money Supply

525

(1)

Money Demand

526

(1)

Equilibrium in the Money Market

527

(1)

The Downward Slope of the Aggregate-Demand Curve

527

(2)

FYI: Interest Rates in the Long Run and the Short Run

529

(1)

Changes in the Money Supply

530

(1)

The Role of Interest-Rate Targets in Fed Policy

530

(2)

Case Study: Why the Fed Watches the Stock Market (and Vice Versa)

532

(1)

In the News: European Central Bankers Expand Aggregate Demand---European Banks, Acting in Unison, Cut Interest Rate: 11 Nations Decide That Growth, Not Inflation, Is Top Concern

533

(1)

How Fiscal Policy Influences Aggregate Demand

534

(7)

Changes in Government Purchases

534

(1)

The Multiplier Effect

535

(1)

A Formula for the Spending Multiplier

535

(2)

Other Applications of the Multiplier Effect

537

(1)

The Crowding-Out Effect

538

(1)

Changes in Taxes

538

(2)

In the News: Japan Tries a Fiscal Stimulus---The Land of the Rising Outlook: Public Spending May Have Reversed Japan's Downturn

540

(1)

FYI: How Fiscal Policy Might Affect Aggregate Supply

541

(1)

Using Policy to Stabilize the Economy

541

(4)

The Case for Active Stabilization Policy

541

(1)

Case Study: Keynesians in the White House

542

(2)

The Case against Active Stabilization Policy

544

(1)

Automatic Stabilizers

544

(1)

Conclusion

545

(1)

In the News: The Independence of the Federal Reserve---Don't Tread on the Fed

546

(1)

Summary

546

(2)

Key Concepts

548

(1)

Questions for Review

548

(1)

Problems and Applications

548

(263)

Glossary

811

Credits

555

(2)

Index

557

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