Macroeconomics For Dummies - UK Edition

374 Pages·2015·6.07 MB·English

by  Manzur Rashid

Macroeconomics For Dummies®, UK Edition
Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate,
Chichester, www.wiley.com
This edition first published 2015
© 2016 John Wiley & Sons, Ltd, Chichester, West Sussex.
Registered office
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West
Sussex, PO19 8SQ, United Kingdom
For details of our global editorial offices, for customer services and for
information about how to apply for permission to reuse the copyright material
in this book please see our website at www.wiley.com.
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, except as permitted by the
UK Copyright, Designs and Patents Act 1988, without the prior permission of
the publisher.
Wiley publishes in a variety of print and electronic formats and by print-on-
demand. Some material included with standard print versions of this book
may not be included in e-books or in print-on-demand. If this book refers to
media such as a CD or DVD that is not included in the version you
purchased, you may download this material at
http://booksupport.wiley.com. For more information about Wiley
products, visit www.wiley.com.
Designations used by companies to distinguish their products are often
claimed as trademarks. All brand names and product names used in this book
are trade names, service marks, trademarks or registered trademarks of their
respective owners. The publisher is not associated with any product or vendor
mentioned in this book.
LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: WHILE
THE PUBLISHER AND AUTHOR HAVE USED THEIR BEST
EFFORTS IN PREPARING THIS BOOK, THEY MAKE NO
REPRESENTATIONS OR WARRANTIES WITH THE RESPECT TO
THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF
THIS BOOK AND SPECIFICALLY DISCLAIM ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IT IS SOLD ON THE UNDERSTANDING
THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING
PROFESSIONAL SERVICES AND NEITHER THE PUBLISHER
NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING
HEREFROM. IF PROFESSIONAL ADVICE OR OTHER EXPERT
ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT
PROFESSIONAL SHOULD BE SOUGHT.
For general information on our other products and services, please contact
our Customer Care Department within the U.S. at 877-762-2974, outside the
U.S. at [phone]-3993, or fax [phone]. For technical support,
please visit www.wiley.com/techsupport.
Library of Congress Control Number: 2015950120
ISBN 978-1-119-02662-4 (paperback); ISBN 978-1-119-02667-9 (ebk);
ISBN 978-1-119-02668-6 (ebk)
Macroeconomics For Dummies®
Visit
www.dummies.com/cheatsheet/macroeconomicsuk to
view this book's cheat sheet.
Table of Contents
Cover
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part I: Getting Started with Macroeconomics
Chapter 1: Discovering Why Macroeconomics Is a
Big Deal
The Big Picture: Checking Out the Economy as a Whole
Looking at the Key Macroeconomic Variables
Modelling the Economy
Plotting Economic Policy
Financial Crises! Going Wrong on a Global Scale
Chapter 2: Looking at Key Questions and
Concepts
Seeing the Questions that Intrigue Macroeconomists
Thinking Like an Economist: Learning to Love Modelling
Clarifying Important Macroeconomic Concepts
Chapter 3: Curing a Sick Economy of Four
Afflictions
Reading about Recessions
Getting Hyper about High Inflation
Finding Out about Financial Crises
Uncovering Unemployment: Causes and Responses
Part II: Measuring the Things that Matter
Chapter 4: Totting up a Country’s Economic
Activity: Gross Domestic Product
Grasping the Idea of GDP
Getting Out What You (Marginally) Put In
Calculating GDP: Assessing an Economy’s Health
Measuring Living Standards with GDP and Other Methods
Chapter 5: Facing the Fact of Increasing Prices:
Inflation
Working Out Inflation: Looking into the Average Shopping
Basket
Examining the Cause of Inflation: The Quantity Theory of Money
Appraising Inflation: Good or Bad?
Rising to Extremes: Hyperinflation
Going Downwards: Deflation
Chapter 6: Unemployment: Wasting Talent and
Productivity
Understanding the Importance of Unemployment: Opportunity
Cost
Comparing Two Different Measures of Unemployment
Distinguishing Two Different Types of Unemployment
Reducing the ‘Natural’ Rate of Unemployment
Part III: Building a Model of the Economy
Chapter 7: Working Out a Country’s Economic
Demand
Looking into What Everyone Wants: Aggregate Demand
Meeting the Components of Aggregate Demand
Following the Aggregate Demand Curve
Chapter 8: Determining How Much Stuff an
Economy Can Produce
Producing What People Demand: Aggregate Supply
Looking at Long-Run Aggregate Supply
Getting to Grips with Short-Run Aggregate Supply
Chapter 9: Using the AD–AS Model to Analyse
Shocks to the System
Discovering What the AD–AS Model Does and Doesn’t Explain
Delving into Demand-Side Shocks
Bumping into Supply-Side Shocks
Part IV: Examining Macroeconomic Policy
Chapter 10: Using Monetary Policy to Influence the
Economy
Seeing Monetary Policy in Action
Exerting Control over Inflation
Spotting the Liquidity Trap and Quantitative Easing
Reeling in the Fisher Effect
Chapter 11: Fiscal Policy: Balancing the Books –
Perhaps
Delving into Fiscal Policy
Taking in Two Views of Fiscal Policy
Chapter 12: Seeking Low Unemployment and Low
Inflation: The Phillips Curve
Boosting the Economy: A Good Strategy for Low
Unemployment?
Zeroing in on the Short-and Long-Run Phillips Curve
Taking Action with Disinflation Policy
Chapter 13: Following Rules or Using Discretion:
Two Approaches to Economic Policy
Introducing the Rules versus Discretion Debate
Discerning the Problems with Discretion
Solving the Problem: Tying Your Hands Voluntarily
Part V: Understanding the Financial Crisis
Chapter 14: Considering Fundamental
Weaknesses of the Financial System
Understanding Weaknesses in the Financial System
Finding Out about Fractional Reserve Banking
Catching a Cold! Systemic Risk
Chapter 15: Getting Away with Excessive Risk-
Taking: Moral Hazard
Banks Behaving Badly: Watching Out for Moral Hazard
Avoiding Financial Armageddon: Bailouts
Providing Incentives for Excessive Risk-Taking
Committing to No Bailouts (Dream On!)
Chapter 16: Considering the Lessons of the 2008
Financial Crisis
Delving into the Global Financial Crisis
Asking Why Economists Didn’t Predict the Crisis
Trying to Stop the Next Crisis
Part VI: The Part of Tens
Chapter 17: Getting to Know Ten Great
Macroeconomists
Adam Smith (1723–1790)
John Maynard Keynes (1883–1946)
Milton Friedman (1912–2006)
Paul Samuelson (1915–2009)
Robert Solow (born 1924)
Robert Lucas (born 1937)
Edward Prescott (born 1940)
Robert Barro (born 1944)
Robert Hall (born 1943)
Janet Yellen (born 1946)
Chapter 18: Ten Top Tips to Take Away
Factoring in Factors of Production
Paying Factors of Production Their Marginal Products
Understanding that Excessive Growth in the Money Supply
Causes High Inflation
Minimising Unemployment (Though Some Is Inevitable)
Stimulating Aggregate Demand Can Increase Output Only in the
Short Run
Accepting that Financial Crises Are Certain and Impossible to
Predict
Seeing that No Trade-Off Exists between Inflation and
Unemployment in the Long Run
Discovering Why Policy Makers Should Constrain Themselves
Fixing the Financial System without Solving Moral Hazard Is
Impossible
Recognising that, Ultimately, Real Things Are What Count
About the Authors
Cheat Sheet
Advertisement Page
Connect with Dummies
End User License Agreement
Introduction
Macroeconomics is the study of the economy as a whole. So if you want to
understand key concepts that you come across every day in the news, such as
inflation, unemployment and economic growth, this is the book for you!
This book helps you to tackle some of the biggest questions people ask about
macroeconomics, such as
Why are some countries rich and others poor? And what can poor
countries do to become richer?
What causes the prices of things to rise and fall?
Why are some people unable to find work? And what can be done to
reduce unemployment?
Why is there so much inequality in the world and what can we do about
it?
We don’t pretend to have answers to all the questions, but we do think that
macroeconomics provides some good answers to many questions about how
the economy works.
Fortunately, some of the world’s greatest minds have worked on
macroeconomics and created a substantial body of work. Sadly, economists
(and we’re just as guilty) haven’t done a great job at communicating the key
ideas of macroeconomics to the public. As a result, all too often politicians
and commentators are able to bamboozle people with nice-sounding but
ultimately bad economics.
The point of this book is to introduce you to the fascinating world of
macroeconomics so you can see how the economy works in reality, how you
fit into it and, perhaps, ultimately how the world can be made a better place.
About This Book
Macroeconomics affects almost every part of your life. Whether you have a
job or are unemployed, whether you earn millions or the minimum wage,
whether you want to borrow money or earn income from your savings,
macroeconomics matters to you.