A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know

224 Pages·2014·5.32 MB·english

by  David A. Moss

ECONOMICS MOSS US$35.00 / CAN$40.50
Praise for Second Edition UNDERSTANDING
A CONCISE GUIDE TO MACROECONOMICS THE GROUND RULES FOR
VA Second THE GLOBAL ECONOMY
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E Edition
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E A CONCISE GUIDE TO
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ENI “An incredibly clear and sophisticated introduction to macroeconomics.” In this revised and updated edition of A
EVG —RICHARD VIETOR, M Concise Guide to Macroeconomics, David A. Moss
M A C R O
DAVID A. MOSS is the John G. McLean Senator John Heinz Professor of the Environment at Harvard Business School; draws on his years of teaching at Harvard
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Professor of Business Administration at author of How Countries Compete Business School to explain important macro
Harvard Business School. He is the author concepts using clear and engaging language.
C
of Socializing Security: Progressive-Era Economists This guidebook covers the essentials of
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and the Origins of American Social Policy and R E C O N O M I C S macroeconomics and examines, in a simple

When All Else Fails: Government as the Ultimate Risk “Any critical observer of current debates about the state of the macro economy needs C and intuitive way, the core ideas of output,
Manager, and is the founder of the Tobin a clear understanding of a half-dozen basic concepts, how they are measured, and how OO money, and expectations. Early chapters leave
Project, a nonprofit research organization. they are connected. David Moss’s short, jargon-free book provides just that. It does not N you with an understanding of everything
tell you what should be done, but how to begin thinking about what should be done.” EC from fiscal policy and central banking to
I business cycles and international trade. Later
—ROBERT SOLOW, CS
Institute Professor Emeritus at the Massachusetts Institute of Technology; E chapters provide a brief monetary history
Nobel Laureate in Economics O G What Managers, Executives, and Students Need to Know of the United States as well as the basics of
macroeconomic accounting. You’ll learn why
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N countries trade, why exchange rates move,
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D and what makes an economy grow.
OE Moss’s detailed examples will arm you with
“An extraordinary pedagogical achievement. The tight focus on the macroeconomics

that are essential for understanding the business environment and the lucidity of the T a clear picture of how the economy works and
MO how key variables impact business and will
writing make this an ideal text for business students and executives.”
D AV I D A . M O S S equip you to anticipate and respond to major
—JULIO ROTEMBERG, I
macroeconomic events, such as a sudden
William Ziegler Professor of Business Administration, Harvard Business School C
depreciation of the real exchange rate or a
steep hike in the federal funds rate.
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Read this book from start to finish for a
complete overview of macroeconomics, or
use it as a reference when you’re confronted
with specific challenges, like the need to
make sense of monetary policy or to read a
balance of payments statement. Either way,
you’ll come away with a broad understanding
of the subject and its key pieces, and you’ll
be empowered to make smarter business
ISBN-13: 978-1-62527-196-9
90000 decisions.
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A CONCISE GUIDE TO
Macroeconomics
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A CO N C I S E G U I D E TO
Macroeconomics
What Managers, Executives, and
Students Need to Know
Second Edition
David A. Moss
Harvard Business Review Press
Boston, Massachusetts
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Copyright 2014 David A. Moss
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All rights reserved
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Cataloging-in-Publication data forthcoming.
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eISBN: 9781625271976
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The paper used in this publication meets the minimum requirements of the
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For my students
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CONTENTS
Acknowledgements ix
Introduction 1
Part I Understanding the Macro Economy
1 Output 7
Measuring National Output 8
Exchange of Output across Countries 11
What Makes Output Go Up and Down? 18
Isn’t Wealth More Important Than Output? 27
2 Money 33
Money and Its Effect on Interest Rates, Exchange Rates,
and Inflation 34
Nominal versus Real 39
Money and Banking 55
The Art and Science of Central Banking 58
3 Expectations 67
Expectations and Inflation 68
Expectations and Output 73
Expectations and Other Macro Variables 83
Part II Selected Topics—Background and Mechanics
4 A Short History of Money and Monetary
Policy in the United States 89
Contents
1 Defining the Unit of Account and the Price of Money 90
2 The Gold Standard: A Self-Regulating Mechanism? 91
The Creation of the Federal Reserve 93
3
Finding the Right Monetary Rule under a Floating
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Exchange Rate 95
5 The Transformation of American Monetary Policy 98
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5 The Fundamentals of GDP Accounting 101
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Three Measurement Approaches 102
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The Nuts and Bolts of the Expenditure Method 103
9 Depreciation 106
10 GDP versus GNP 107
Historical and Cross-Country Comparisons 108
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Investment, Savings, and Foreign Borrowing 111
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6 Reading a Balance of Payments Statement 117
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A Typical Balance of Payments Statement 118
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Understanding Credits and Debits 120
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The Power and Pitfalls of BOP Accounting 124
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7 Understanding Exchange Rates 131
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The Current Account Balance 131
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Inflation and Purchasing Power Parity 133
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Interest Rates 134
20 Making Sense of Exchange Rates 135
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Conclusion 139
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Output 139
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Money 140
24 Expectations 143
25 Uses and Misuses of Macroeconomics 146
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27 Epilogue 149
28 Glossary 159
29 Notes 183
30 Index 191
31 About the Author 211
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ACKNOWLEDGMENTS
This volume began as a note on macroeconomics for my
students, and I am deeply indebted to them and to my colleagues
in the Business, Government, and the International Economy
(BGIE) unit at Harvard Business School for encouraging me to
turn the note into a book. I am particularly grateful to Julio
Rotemberg, Dick Vietor, and Lou Wells for reading and com-
menting on the entire manuscript, and to Alex Dyck, Walter
Friedman, Lakshmi Iyer, Andrew Novo, Huw Pill, Mitch Weiss,
and Jim Wooten for providing vital feedback along the way, and
to all my BGIE colleagues over the years, from whom I have
learned so much about macroeconomics and how to teach it.
Jeff Kehoe, my editor at Harvard Business Review Press, was
extraordinarily supportive at every stage, and offered superb
advice on how to recast the original note for a broader audience.
Chapter 5, on GDP accounting, draws heavily on a Harvard
Business School case entitled “National Economic Accounting:
Past, Present, and Future,” which I coauthored with Sarah
Brennan. Most of what I know about the intricacies of GDP
accounting I learned working with Sarah, and I remain exceed-
ingly grateful to her for her commitment to that project and for
being such a terrific researcher, coauthor, and friend.
In preparing this second edition, Jonathan Schlefer played a
tremendous role, particularly in helping to update data through-
out the volume and in clarifying the IMF’s new approach to bal-
ance of payments accounting. He did a masterful job, and I am
ix