Macroeconomics for Today

577 Pages·2007·13.815 MB·English

by  Irvin B. Tucker

Macroeconomics
Today
for
F I F T H E D I T I O N
Ir v in B . Tucke r
University of North Carolina
Charlotte
Macroeconomics for Today,Fifth Edition
Irvin B. Tucker
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Brief Contents
PART 1 INTRODUCTION TO ECONOMICS 1
1 Introducing the Economic Way of Thinking 2
Appendix: Applying Graphs to Economics 20
2 Production Possibilities, Opportunity Cost, and Economic Growth 32
PART 2 MICROECONOMIC FUNDAMENTALS 51
3 Market Demand and Supply 52
Appendix: Consumer Surplus, Producer Surplus, and Market Efficiency 80
4 Markets in Action 87
Appendix: Applying Supply and Demand Analysis to Health Care 109
PART 3 MACROECONOMIC FUNDAMENTALS 113
5 Gross Domestic Product 114
Appendix: A Four-Sector Circular Flow Model 139
6 Business Cycles and Unemployment 141
7 Inflation 165
PART 4 MACROECONOMIC THEORY AND POLICY 185
8 The Keynesian Model 186
9 The Keynesian Model in Action 211
10 Aggregate Demand and Supply 232
Appendix: The Self-Correcting Aggregate Demand and Supply Model 257
11 Fiscal Policy 271
12 The Public Sector 294
13 Federal Deficits, Surpluses, and the National Debt 317
PART 5 MONEY, BANKING, AND MONETARY POLICY 339
14 Money and the Federal Reserve System 340
15 Money Creation 360
iii
iv Brief Contents
16 Monetary Policy 381
Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand
and Supply Model 405
17 The Phillips Curve and Expectations Theory 410
PART 6 THE INTERNATIONAL ECONOMY 433
18 International Trade and Finance 434
19 Economies in Transition 467
20 Growth and the Less-Developed Countries 489
Appendix A Answers to Odd-Numbered Study Questions and
Problems 513
Appendix B Answers to Practice Quizzes 525
Glossary 527
Index 533
Contents
Preface xviii
PART 1 INTRODUCTION TO ECONOMICS 1
Chapter 1 Introducing the Economic Way
of Thinking 2
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The Problem of Scarcity 3 ma
Scarce Resources and Production 3 Getty I
disc/
Economics: The Study of Scarcity and Choice 5 oto
h
P
The Methodology of Economics 6 ©
Hazards of the Economic Way of Thinking 8
CHECKPOINT Can You Prove There Is No Trillion-Dollar Person? 8
Why Do Economists Disagree? 10
CHECKPOINT Should Nebraska State Join a Big-Time Athletic Conference? 10
YOU’RE THE ECONOMIST Mops and Brooms, the Boston Snow Index, the Super Bowl,
and Other Economic Indicators 11
YOU’RE THE ECONOMIST Does Raising the Minimum Wage Help the Working Poor? 13
Careers in Economics 14
Applying Graphs to Economics 20
APPENDIX TO
CHAPTER 1
A Direct Relationship 20
An Inverse Relationship 22
The Slope of a Straight Line 23
The Slope of a Curve 25
A Three-Variable Relationship in One Graph 26
A Helpful Study Hint for Using Graphs 27
v
vi Contents
Chapter 2 Production Possibilities, Opportunity Cost,
and Economic Growth 32
Three Fundamental Economic Questions 32
Opportunity Cost 33
Marginal Analysis 35
The Production Possibilities Curve 35
The Law of Increasing Opportunity Costs 38
Sources of Economic Growth 38
CHECKPOINT What Does a War on Terrorism Really Mean? 41
YOU’RE THE ECONOMIST FedEx Wasn’t an Overnight Success 42
INTERNATIONAL ECONOMICS When Japan Tumbles, Where Is It on the Curve? 43
Present Investment and the Future Production Possibilities Curve 44
PART 2 MICROECONOMIC FUNDAMENTALS 51
Chapter 3 Market Demand and Supply 52
The Law of Demand 52
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g
a
The Distinction between Changes in Quantity Demanded m
and Changes in Demand 54 etty I
G
Nonprice Determinants of Demand 56 odisc/
ot
h
P
The Law of Supply 59 ©
CHECKPOINT Can Gasoline Become an Exception
to the Law of Demand? 59
CHECKPOINT Can the Law of Supply Be Repealed? 63
The Distinction between Changes in Quantity Supplied and Changes in Supply 64
Nonprice Determinants of Supply 65
YOU’RE THE ECONOMIST PC Prices: How Low Can They Go? 67
A Market Supply and Demand Analysis 68
INTERNATIONAL ECONOMICS The Market Approach to Organ Shortages 72
CHECKPOINT Can the Price System Eliminate Scarcity? 73
Consumer Surplus, Producer Surplus, and Market Efficiency 80
APPENDIX TO
CHAPTER 3
Consumer Surplus 80
Producer Surplus 81
Market Efficiency 83
Contents vii
Chapter 4 Markets in Action 87
Changes in Market Equilibrium 87
CHECKPOINT Why the Higher Price for Lower Cholesterol? 89
Can the Laws of Supply and Demand Be Repealed? 92
CHECKPOINT Is There Price Fixing at the Ticket Window? 96
Market Failure 96
YOU’RE THE ECONOMIST Rigging the Market for Milk 97
CHECKPOINT Should There Be a War on Drugs? 102
YOU’RE THE ECONOMIST Can Vouchers Fix Our Schools? 103
Applying Supply and Demand Analysis to Health Care 109
APPENDIX TO
CHAPTER 4
The Impact of Health Insurance 109
Shifts in the Demand for Health Care 111
Shifts in the Supply of Health Care 112
PART 3 MACROECONOMIC
FUNDAMENTALS 113
Chapter 5 Gross Domestic Product 114
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g
a
Gross Domestic Product 114 m
etty I
The Expenditure Approach 118 disc/G
The Income Approach 121 oto
h
P
©
CHECKPOINT How Much Does Mario Add to GDP? 123
GDP in Other Countries 124
GDP Shortcomings 124
YOU’RE THE ECONOMIST Is GDP a False Beacon Steering Us into the Rocks? 127
Other National Accounts 128
Changing Nominal GDP to Real GDP 130
CHECKPOINT Is the Economy Up or Down? 132
A Four-Sector Circular Flow Model 139
APPENDIX TO
CHAPTER 5
viii Contents
Chapter 6 Business Cycles and Unemployment 141
The Business-Cycle Roller Coaster 141
CHECKPOINT Where Are We on the Business-Cycle Roller Coaster? 144
Total Spending and the Business Cycle 148
Unemployment 148
Types of Unemployment 152
CHECKPOINT What Kind of Unemployment Did the Invention of the Wheel Cause? 153
YOU’RE THE ECONOMIST Is It a Robot’s World? 154
The Goal of Full Employment 156
The GDP Gap 157
YOU’RE THE ECONOMIST Brother Can You Spare a Dime? 160
Chapter 7 Inflation 165
Meaning and Measurement of Inflation 165
YOU’RE THE ECONOMIST How Much More Does It Cost to Laugh? 168
CHECKPOINT The College Education Price Index 171
Consequences of Inflation 173
Demand-Pull and Cost-Push Inflation 176
Inflation in Other Countries 177
INTERNATIONAL ECONOMICS When the Inflation Rate Is 116,000 Percent, Prices Change
by the Hour 179
PART 4 MACROECONOMIC THEORY
AND POLICY 185
Chapter 8 The Keynesian Model 186
es
g
a
Introducing Classical Theory and the Keynesian m
Revolution 187 Getty I
Reasons the Consumption Function Shifts 194 odisc/
ot
h
P
CHECKPOINT What’s Your MPC? 195 ©
Investment Expenditures 197
YOU’RE THE ECONOMIST Does a Stock Market Crash Cause Recession? 200
Why Investment Demand Is Unstable 200
The Aggregate Expenditures Function 203
Contents ix
Chapter 9 The Keynesian Model in Action 211
Adding Government and International Trade to the Keynesian Model 212
The Aggregate Expenditures-Output Model 213
The Spending Multiplier Effect 216
Recessionary and Inflationary Gaps 220
CHECKPOINT Full-Employment Output, Where Are You? 223
CHECKPOINT How Much Spending Must Uncle Sam Cut? 223
INTERNATIONAL ECONOMICS The Great Ice Cream War 225
Chapter 10 Aggregate Demand and Supply 232
The Aggregate Demand Curve 232
Nonprice-Level Determinants of Aggregate Demand 235
The Aggregate Supply Curve 237
Three Ranges of the Aggregate Supply Curve 240
Changes in the AD-ASMacroeconomic Equilibrium 242
Nonprice-Level Determinants of Aggregate Supply 245
Cost-Push and Demand-Pull Inflation Revisited 247
YOU’RE THE ECONOMIST Was John Maynard Keynes Right? 250
Increase in Both Aggregate Demand and Aggregate Supply Curves 251
CHECKPOINT Would the Greenhouse Effect Cause Inflation, Unemployment,
or Both? 252
The Self-Correcting Aggregate Demand and Supply Model 257
APPENDIX TO
CHAPTER 10
Why the Short-Run Aggregate Supply Curve Is Upward Sloping 257
Why the Long-Run Aggregate Supply Curve Is Vertical 259
Equilibrium in the Self-Correcting AD-ASModel 260
The Impact of an Increase in Aggregate Demand 260
The Impact of a Decrease in Aggregate Demand 262
Changes in Potential Real GDP 264
Increase in the Aggregate Demand and Long-Run Aggregate Supply Curves 265
Chapter 11 Fiscal Policy 271
Discretionary Fiscal Policy 272
CHECKPOINT Walking the Balanced-Budget Tightrope 281