Macroeconomics for Managers

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ISBN: 9781405101448 | 140510144X
Cover: Hardcover
Copyright: 11/7/2003

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This text offers business school students an excellent practical explanation of the short-term linkages in the macroeconomic arena. While the underlying theoretical constructs are not ignored, emphasis is placed on the empirical underpinnings and managerial implications of macroeconomics. The text begins by introducing key concepts such as the GDP, National and Personal Income, and the various measures of inflation and unemployment. Building on this foundation it then analyzes the following aspects of macroeconomics: aggregate supply and demand, international financial markets, cyclical fluctuations, policy analysis, and forecasting. Engages the reader with detailed case studies and "Manager's Briefcase" discussions. Focuses on the short-term linkages in macroeconomics. Uses an empirically oriented approach, while also explaining underlying theoretical constructs. Includes chapter summaries, key concepts, and practice questions.

Preface and Acknowledgments

Part I: Introductory Concepts

(104)

Chapter 1: The Importance of Macroeconomics

(25)

Introduction

(2)

1.1 What is Macroeconomics?

(3)

1.2 Links Between Macroeconomics and Microeconomics

(2)

1.3 Current Core of Macroeconomic Theory

(1)

1.4 Macroeconomics - an Empirical Discipline

(2)

1.5 The Importance of Policy Applications

(1)

1.6 Positive and Normative Economics: Why Macroeconomists Disagree

(3)

1.7 Roadmap of this Book

(2)

Key Terms and Concepts

(1)

Summary

(1)

Questions and Problems

(2)

Appendix: Thumbnail Sketch of the Development of Macroeconomics

(5)

Notes

(1)

Chapter 2: National Income and Product Accounts (NIPA)

(37)

Introduction

(1)

2.1 How the National Income and Product Accounts are Constructed

(2)

2.2 Components of GDP: Final Goods and Services

(6)

2.3 Differences Between Final and Intermediate Goods and Services

(1)

2.4 Components of National Income

(9)

2.5 Balancing Items Linking GDP, NI, PI, and DI

(5)

2.6 Value Added by Stages of Production: An Example

(1)

2.7 Inclusions and Exclusions in the NIPA Data

(4)

2.8 Circular Flow Between Aggregate Demand and Production

(1)

Key Terms and Concepts

(1)

Summary

(1)

Questions and Problems

(3)

Appendix: Key Macroeconomic Identities

(1)

Notes

(2)

Chapter 3: Key Data Concepts: Inflation, Unemployment, and Labor Costs

(40)

Introduction

(1)

3.1 Measuring Inflation: Three Different Types of Indexes

(3)

3.2 Factors Causing the Inflation Rate to be Overstated

(7)

3.3 Could the Inflation Rate be Understated?

(3)

3.4 Different Measures of Unemployment

(2)

3.5 Collecting the Employment and Unemployment Data

(6)

3.6 The Concept of Full Employment

(5)

3.7 Unit Labor Costs

(5)

3.8 Summarizing the Economic Data: Indexes of Leading and Coincident Indicators

(1)

3.9 Methods and Flaws of Seasonally Adjusted Data

(2)

3.10 Preliminary and Revised Data

(1)

Key Terms and Concepts

100

(1)

Summary

100

(1)

Questions and Problems

101

(3)

Notes

104

(1)

Part II: Aggregate Demand and Joint Determination of Output and Interest Rates

105

(156)

Chapter 4: The Consumption Function

107

(44)

Introduction

107

(1)

4.1 Principal Determinants of Consumption

108

(3)

4.2 Short-Term Links Between Consumption and Disposable Income: The Marginal Propensity to Consume

111

(3)

4.3 Long-Term Links Between Consumption and Income: The Permanent Income Hypothesis

114

(1)

4.4 Consumer Spending and Changes in Tax Rates

115

(4)

4.5 Importance of Cost and Availability of Credit in the Consumption Function

119

(3)

4.6 Consumption, Housing Prices, and Mortgage Rates

122

(2)

4.7 Other Links Between Consumer Spending, the Rate of Interest, and the Rate of Return

124

(2)

4.8 Credit Availability and the Stock of Debt

126

(3)

4.9 The Role of Demographic Factors and the Life Cycle Hypothesis

129

(1)

4.10 The Relationship Between Consumption and Household Net Worth

130

(5)

4.11 The Effect of Changes in Consumer Confidence

135

(2)

4.12 Review

137

(1)

Key Terms and Concepts

138

(1)

Summary

138

(1)

Questions and Problems

139

(2)

Appendix: Historical Development of the Consumption Function

141

(8)

Notes

149

(2)

Chapter 5: Investment and Saving

151

(44)

Introduction

151

(1)

5.1 The Equivalence of Investment and Saving

151

(2)

5.2 Long-Term Determinants of Capital Spending

153

(2)

5.3 The Basic Investment Decision

155

(2)

5.4 The Cost of Capital

157

(2)

5.5 The Availability of Credit

159

(3)

5.6 The Role of Expectations

162

(1)

5.7 Lags in the Investment Function

163

(1)

5.8 The Effect of Changes in Tax Policy on Capital Spending Decisions

164

(9)

5.9 Determinants of Exports and Imports

173

(9)

5.10 The Role of Government Saving

182

(1)

5.11 Recap: Why Investment Always Equals Saving on an Ex Post Basis

183

(1)

Key Terms and Concepts

184

(1)

Summary

184

(1)

Questions and Problems

185

(2)

Appendix: The Theory of Optimal Capital Accumulation

187

(7)

Notes

194

(1)

Chapter 6: Determination of Interest Rates and Introduction to Monetary Policy

195

(39)

Introduction

195

(2)

6.1 Definitions of Key Interest Rates and Yield Spreads

197

(5)

6.2 The Role of Monetary Policy

202

(2)

6.3 The Federal Reserve System

204

(2)

6.4 Determination of the Federal Funds Rate

206

(6)

6.5 Effect of Federal Reserve Policy on the Availability of Credit

212

(1)

6.6 Determinants of Long-Term Interest Rates

213

(3)

6.7 The Difference Between Changes in Monetary Conditions and Monetary Policy

216

(1)

6.8 Factors Causing the Yield Spread to Fluctuate

217

(4)

6.9 Transmission of Monetary Policy

221

(3)

6.10 The Importance of the Yield Spread as a Predictive Tool

224

(3)

6.11 Why Targeting Interest Rates Doesn't Always Work: The Conundrum

227

(1)

Key Terms and Concepts

228

(1)

Summary

229

(1)

Questions and Problems

230

(2)

Notes

232

(2)

Chapter 7: Joint Determination of Income and Interest Rates: The IS/LM Diagram

234

(27)

Introduction

234

(1)

7.1 Review of the Effect of Changes in Interest Rates and Income on Saving and Investment

235

(2)

7.2 Equilibrium in the Goods Market

237

(1)

7.3 Derivation of the IS Curve

238

(4)

7.4 Slope of the IS Curve under Varying Economic Conditions

242

(1)

7.5 Factors that Shift the IS Curve

242

(2)

7.6 The Demand for Money: Liquidity Preference and Loanable Funds

244

(2)

7.7 Equilibrium in the Assets Market: Derivation of the LM Curve

246

(1)

7.8 Slope of the LM Curve under Varying Economic Conditions

247

(3)

7.9 The IS/LM Diagram and Introduction to Monetary and Fiscal Policy

250

(2)

7.10 The IS/ LM Diagram in Booms and Recessions

252

(1)

7.11 Factors that Shift the IS and LM Curves

253

(1)

7.12 A Numerical Example: Solving for Income and Interest Rates using the IS/LM Model

254

(8)

Key Terms and Concepts

262

(1)

Summary

262

(1)

Questions and Problems

263

(3)

Notes

266

Part III: Aggregate Supply: Inflation, Unemployment, and Productivity

261

(138)

Chapter 8: Causes of and Cures for Inflation

269

(47)

Introduction

269

(2)

8.1 In the Long Run, Inflation is a Monetary Phenomenon

271

(1)

8.2 In the Short Run, Inflation is Determined by Unit Labor Costs: The Price Markup Equation

272

(8)

8.3 Monetary Policy and the Role of Expectations

280

(4)

8.4 Determinants of Changes in Unit Labor Costs

284

(7)

8.5 Malign and Benign Supply Shocks

291

(4)

8.6 Lags in Determining Wages and Prices

295

(2)

8.7 The Beginnings and Ends of Hyperinflation

297

(3)

8.8 Summary of Why Inflation Remained Low in the 1990's - and What Might Occur in the Future

300

(4)

Key Terms and Concepts

304

(1)

Summary

304

(1)

Questions and Problems

305

(2)

Appendix: Historical Explanations of Inflation: The Rise and Fall of the Phillips Curve

307

(7)

Notes

314

(2)

Chapter 9: Why High Unemployment Persists

316

(47)

Introduction

316

(1)

9.1 The Basic Labor Market Model

317

(5)

9.2 Real Growth and Unemployment: Okun's Law

322

(2)

9.3 Why Stimulatory Monetary and Fiscal Policy Might Not Reduce Unemployment

324

(2)

9.4 Theories Based on Labor Market Imperfections: Summary

326

(3)

9.5 Sticky Prices and Nominal Wage Rates

329

(3)

9.6 Sticky Real Wage Rates: Efficiency Wages

332

(2)

9.7 Sticky Real Wage Rates: Insider/Outsider Relationships

334

(3)

9.8 Barriers to Market-Clearing Wages: The Minimum Wage

337

(11)

9.9 The Wedge Between Private and Social Costs of Labor

348

(3)

9.10 High Unemployment Rates and Hysteresis

351

(1)

9.11 The Structuralist School

352

(5)

Key Terms and Concepts

357

(1)

Summary

357

(1)

Questions and Problems

358

(3)

Notes

361

(2)

Chapter 10: Aggregate Supply, the Production Function, and the Neoclassical Growth Model

363

(36)

Introduction

363

(1)

10.1 Productivity Growth and the Standard of Living

364

(4)

10.2 The Long-Term Historical Growth Record

368

(4)

10.3 The Aggregate Production Function and Returns to Scale

372

(1)

10.4 The Cobb-Douglas Production Function

373

(1)

10.5 Why Growth Differs among Nations: The Importance of Saving and Investment

374

(2)

10.6 Other Factors Affecting Growth: The Framework of Growth Accounting

376

(2)

10.7 Causes of Growth in the US Economy

378

(3)

10.8 The Worldwide Slowdown in Productivity after 1973

381

(6)

10.9 The Neoclassical Growth Model and the Slowdown of Mature Economies

387

(1)

10.10 Endogenous Growth Theory and Convergence Models

388

(4)

10.11 Additional Importance of Saving and Investment

392

(2)

Key Terms and Concepts

394

(1)

Summary

394

(1)

Questions and Problems

395

(2)

Notes

397

(2)

Part IV: The International Economy

399

(160)

Chapter 11: Basic Determinants of Exports and Imports

403

(42)

11.1 The Balance Between Current and Capital Accounts

403

(5)

11.2 Fixed and Flexible Exchange Rates

408

(3)

11.3 US Exports and Imports: Empirical Review

411

(2)

11.4 Income and Price Elasticities of US Exports and Imports

413

(6)

11.5 The Repercussion Effect

419

(2)

11.6 How Serious is the Burgeoning Trade Deficit?

421

(7)

11.7 Recent Progress Toward Free Trade

428

(6)

11.8 Arguments For and Against a Trade Deficit

434

(3)

11.9 Foreign Purchases of US Assets: A Non-Event

437

(2)

Key Terms and Concepts

439

(1)

Summary

439

(2)

Questions and Problems

441

(1)

Appendix: The Theory of Comparative Advantage and the Modern Theory of International Trade

442

(2)

Note

444

(1)

Chapter 12: International Financial Markets and Foreign Exchange Policy

445

(42)

Introduction

445

(1)

12.1 The World Dollar Standard and Major Trends in Other Key Currencies

446

(6)

12.2 Nominal and Real Exchange Rates

452

(1)

12.3 Measuring International Labor Costs

453

(2)

12.4 The Concept of Purchasing Power Parity

455

(5)

12.5 Factors that Determine Foreign Exchange Rates

460

(10)

12.6 Why Foreign Exchange Markets Overshoot Equilibrium: The J-Curve Effect

470

(5)

12.7 Other Factors Causing Currency Rates to Diverge from Equilibrium

475

(2)

12.8 Managed Exchange Rates: Bands and Crawling Pegs

477

(4)

12.9 Optimal Trade and Foreign Exchange Rate Policy

481

(2)

Key Terms and Concepts

483

(1)

Summary

483

(1)

Questions and Problems

484

(2)

Notes

486

(1)

Chapter 13: The Mundell-Fleming Model: Joint Determination of Outlot, Interest Rates, Net Exports, and the Value of the Currency

487

(30)

13.1 Links Between Domestic and International Saving and Investment

487

(2)

13.2 The Basic Model: Joint Determination of Real Interest Rates, Output, Currency Value, and the Current Account Balance

489

(3)

13.3 The Mundell-Fleming Model for a Small Open Economy

492

(2)

13.4 The Repercussion Effect in the Mundell-Fleming Model

494

(2)

13.5 The Depreciation Effect in the Mundell-Fleming Model

496

(3)

13.6 Shifts in the NX and NFI Curves Caused by Changes in Inflation and Productivity

499

(1)

13.7 Effects of the Reagan and Clinton Fiscal and Monetary Policies

500

(4)

13.8 Economic Impact of an Exogenous Change in Net Exports

504

(3)

13.9 Short- and Long-Run Effects of an Exogenous Change in the Value of the Currency

507

(4)

Key Terms and Concepts

511

(1)

Summary

511

(2)

Questions and Problems

513

(3)

Notes

516

(1)

Chapter 14: Case Studies in International Trade

517

(42)

Introduction

517

(1)

14.1 International Trade in the European Economy

517

(10)

14.2 International Trade in the Asian Economy

527

(12)

14.3 International Trade in Latin America

539

(6)

14.4 Pros and Cons of Free Trade in an Imperfect World

545

(6)

14.5 What Factors Will Determine World Leaders of the Twenty-First Century?

551

(3)

Summary

554

(1)

Questions and Problems

555

(2)

Note

557

(2)

Part V: Cyclical Fluctuations

559

(122)

Chapter 15: Business Cycles

561

(44)

Introduction

561

(1)

15.1 The Long-Term Historical Record

562

(2)

15.2 Measuring the Business Cycle: The Indexes of Leading, Coincident, and Lagging Indicators

564

(3)

15.3 Cyclical Behavior: Recurring but Not Regular

567

(5)

15.4 The Phases of the Business Cycle

572

(5)

15.5 The Role of Exogenous Shocks in the Business Cycle

577

(5)

15.6 The Role of Technology in the Business Cycle

582

(4)

15.7 The Role of Fiscal Policy in the Business Cycle

586

(4)

15.8 The Role of Monetary Policy in the Business Cycle

590

(3)

15.9 Global Transmission of Business Cycles

593

(1)

15.10 Could the Great Depression Happen Again?

594

(4)

15.11 Recap: Are Business Cycles Endogenous or Exogenous?

598

(2)

Key Terms and Concepts

600

(1)

Summary

600

(1)

Questions and Problems

601

(1)

Notes

602

(3)

Chapter 16: Cyclical Fluctuations in Components of Aggregate Demand

605

(38)

Introduction

605

(1)

16.1 The Stock Adjustment Principle

606

(2)

16.2 Empirical Review: The Components of Capital Spending

608

(1)

16.3 The Role of Business Sentiment in Capital Spending

608

(4)

16.4 Investment in Residential Construction

612

(10)

16.5 The Role of Inventory Investment in the Business Cycle

622

(5)

16.6 Inventory Production and Control Mechanisms

627

(2)

16.7 Cyclical Patterns in Purchases of Motor Vehicles

629

(5)

16.8 Cyclical Patterns in Other Components of Consumption

634

(1)

16.9 Recap: What Determines Cyclical Fluctuations in Aggregate Demand

635

(2)

Key Terms and Concepts

637

(1)

Summary

637

(1)

Questions and Problems

638

(3)

Notes

641

(2)

Chapter 17: Financial Business Cycles

643

(38)

Introduction

643

(1)

17.1 Cyclical Patterns of Monetary and Credit Aggregates

644

(3)

17.2 Cyclical Patterns in the Yield Spread

647

(2)

17.3 Cyclical Patterns of Stock Market Prices

649

(4)

17.4 The Present Discounted Value of Stock Prices and the Equilibrium Price/Earnings Ratio

653

(2)

17.5 Determinants of the Risk Factor

655

(10)

17.6 Impact of the Budget Ratio on Bond and Stock Returns

665

(4)

17.7 Impact of Changes in the Expected Rate of Inflation on Bond and Stock Returns

669

(1)

17.8 Impact of Changes in Capital Gains Taxes on Stock Prices

670

(2)

17.9 Long-Term Performance of Stocks, Bonds, and Liquid Assets

672

(2)

17.10 Cyclical Fluctuations in Returns on Stocks, Bonds, and Liquid Assets

674

(1)

17.11 Recap: The Importance of Financial Markets and Asset Allocation

675

(1)

Key Terms and Concepts

676

(1)

Summary

676

(1)

Questions and Problems

677

(2)

Notes

679

(2)

Part VI: Policy Analysis and Forecasting

681

(107)

Chapter 18: Fiscal Policy and Its Impact on Productivity Growth

683

(36)

Introduction

683

(1)

18.1 Automatic and Discretionary Stabilizers

684

(5)

18.2 Components of the Federal Government Budget

689

(5)

18.3 Advantages and Disadvantages of Federal Budget Surpluses and Deficits

694

(5)

18.4 The Concept of the Fiscal Dividend

699

(3)

18.5 The Role of Fiscal Policy in Determining Productivity Growth

702

(3)

18.6 Simplifying the Tax Code

705

(2)

18.7 "Saving" Social Security and Medicare

707

(6)

18.8 Recap: Fiscal Policy and Productivity Growth

713

(2)

Key Terms and Concepts

715

(1)

Summary

715

(1)

Questions and Problems

716

(2)

Notes

718

(1)

Chapter 19: Monetary Policy and Its Impact on Inflation and Growth

719

(32)

Introduction

719

(1)

19.1 The Overall Goals of Monetary Policy: Insure Adequate Liquidity, Reduce Business Cycle Fluctuations, and Keep Inflation Low and Stable

720

(4)

19.2 The Negative Effects of Higher Inflation

724

(2)

19.3 The Optimal Rate of Inflation is Not Zero

726

(4)

19.4 The Role of Monetary Policy in Financial Crises

730

(3)

19.5 Demand-Side Policies: Punchbowls and Preemptive Strikes

733

(3)

19.6 Supply-Side Shocks and Sticky Prices and Wages: How the Fed Should React

736

(1)

19.7 Why Targeting Interest Rates Doesn't Always Work: The Conundrum Revisited

737

(1)

19.8 Budget Deficits and Monetary Policy

738

(2)

19.9 Monetary Policy in an Open Economy

740

(1)

19.10 Why Higher Inflation Leads to Lower Productivity

741

(2)

19.11 Recap: The Case for Active Monetary Policy and Optimal Policy Rules

743

(3)

Key Terms and Concepts

746

(1)

Summary

747

(1)

Questions and Problems

748

(2)

Notes

750

(1)

Chapter 20: Macroeconomic Forecasting: Methods and Pitfalls

751

(37)

Introduction

751

(1)

20.1 Sources of Forecasting Error in Econometric Models: Summary

751

(1)

20.2 Inadequate and Incorrect Data and the Tendency to Cluster

752

(4)

20.3 Examining Exogenous Shocks: Impulse and Propagation Revisited

756

(3)

20.4 Market Reaction to Economic Data

759

(2)

20.5 Unknown Lag Structures and the Conservatism Principle

761

(4)

20.6 Summary of Noneconometric Forecasting Methods

765

(1)

20.7 Naive Models and Consensus Surveys of Macro Forecasts

766

(5)

20.8 Using the Index of Leading Economic Indicators to Predict the Economy

771

(3)

20.9 Survey Methods for Individual Sectors

774

(7)

20.10 Recap: How Managers Should Use Forecasting Tools

781

(3)

Key Terms and Concepts

784

(1)

Summary

784

(1)

Questions and Problems

785

(2)

Notes

787

(1)

Bibliography and Further Reading

788

(2)

Index

790

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Macroeconomics for Managers

Summary

Author Biography

Table of Contents

Supplemental Materials

FREE SHIPPING

Rent More, Save More! Use code: BBRENTAL

5% off 1 book, 7% off 2 books, 10% off 3+ books

Macroeconomics for Managers

Summary

Author Biography

Table of Contents

Supplemental Materials

Digital License