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Macroeconomics [Global Edition] PDF

732 Pages·2017·4.98 MB·english
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Macroeconomics Sixth Edition Global Edition STEPHEN D. WILLIAMSON A01_WILL2119_06_GE_FM.indd 1 13/09/2017 14:13 Vice President, Business Publishing: Donna Battista Managing Producer, Business: Alison Kalil Director of Portfolio Management: Adrienne D’Ambrosio Content Producer, Global Edition: Nikhil Rakshit Director, Courseware Portfolio Management: Operations Specialist: Carol Melville Ashley Dodge Creative Director: Blair Brown Senior Sponsoring Editor: Neeraj Bhalla Manager, Learning Tools: Brian Surette Editorial Assistant: Michelle Zeng Managing Producer, Digital Studio, Arts and Business: Associate Acquisitions Editor, Global Edition: Diane Lombardo Ananya Srivastava Digital Studio Producer: Melissa Honig Project Editor, Global Edition: Punita Kaur Mann Digital Studio Producer: Alana Coles Vice President, Product Marketing: Roxanne McCarley Digital Content Team Lead: Noel Lotz Director of Strategic Marketing: Brad Parkins Digital Content Project Lead: Courtney Kamauf Strategic Marketing Manager: Deborah Strickland Manager, Media Production: M. Vikram Kumar Product Marketer: Tricia Murphy Senior Manufacturing Controller, Global Edition: Field Marketing Manager: Ramona Elmer Trudy Kimber Field Marketing Assistant: Kristen Compton Full-Service Project Management and Composition: Product Marketing Assistant: Jessica Quazza SPi Global Vice President, Production and Digital Studio, Arts and Interior Design: SPi Global Business: Etain O’Dea Cover Design: Lumina Datamatics, Inc. Director of Production, Business: Jeff Holcomb Cover Art: Cristal Tran./Shutterstock Pearson Education Limited KAO Two KAO Park Harlow CM17 9NA United Kingdom and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2018 The rights of Stephen D. Williamson to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Macroeconomics, 6th edition, ISBN 978-0-13-447211-9, by Stephen D. Williamson, published by Pearson Education © 2018. 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, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-21576-3 ISBN 13: 978-1-29-221576-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Typeset in ITC Berkeley Oldstyle Pro by SPi Global Printed and bound by Vivar in Malaysia A01_WILL2119_06_GE_FM.indd 2 13/09/2017 14:13 The Pearson Series in Economics Abel/Bernanke/Croushore Daniels/VanHoose Heilbroner/Milberg Macroeconomics*† International Monetary & The Making of the Economic Financial Economics Society Acemoglu/Laibson/List Economics*† Downs Heyne/Boettke/Prychitko An Economic Theory of The Economic Way of Thinking Bade/Parkin Democracy Foundations of Economics*† Holt Ehrenberg/Smith Markets, Games, and Strategic Berck/Helfand Modern Labor Economics Behavior The Economics of the Environment Hubbard/O’Brien Farnham Bierman/Fernandez Economics*† Economics for Managers Game Theory with Economic Applications Money, Banking, and the Financial Folland/Goodman/Stano System* Blanchard The Economics of Health and Macroeconomics*† Health Care Hubbard/O’Brien/Rafferty Macroeconomics* Blau/Ferber/Winkler Fort The Economics of Women, Men, Sports Economics Hughes/Cain and Work American Economic History Ehrenberg/Smith Boardman/Greenberg/Vining/ Modern Labor Economics Husted/Melvin Weimer International Economics Cost-Benefit Analysis Froyen Macroeconomics: Theories and Jehle/Reny Boyer Policies Advanced Microeconomic Theory Principles of Transportation Economics Fusfeld Johnson-Lans The Age of the Economist A Health Economics Primer Brander/Perloff Keat/Young/Erfle Managerial Economics and Gerber Strategy*† International Economics*† Managerial Economics Klein Branson González-Rivera Mathematical Methods for Macroeconomic Theory and Forecasting for Economics Economics Policy and Business Krugman/Obstfeld/Melitz Bruce Gordon International Economics: Theory Public Finance and the American Macroeconomics* & Policy*† Economy Greene Laidler Carlton/Perloff Econometric Analysis† The Demand for Money Modern Industrial Organization* Gregory Leeds/von Allmen Case/Fair/Oster Essentials of Economics Principles of Economics*† The Economics of Sports Gregory/Stuart Chapman Russian and Soviet Economic Leeds/von Allmen/Schiming Environmental Economics: Theory, Performance and Structure Economics* Application, and Policy Lynn Hartwick/Olewiler Cooter/Ulen The Economics of Natural Economic Development: Theory Law and Economics Resource Use and Practice for a Divided World A01_WILL2119_06_GE_FM.indd 3 13/09/2017 14:13 Miller Perloff Sherman Economics Today* Microeconomics*† Market Regulation Understanding Modern Economics Microeconomics: Theory and Stock/Watson Applications with Calculus*† Miller/Benjamin Introduction to Econometrics† The Economics of Macro Issues Phelps Studenmund Health Economics Miller/Benjamin/North Using Econometrics: The Economics of Public Issues Pindyck/Rubinfeld A Practical Guide† Microeconomics*† Tietenberg/Lewis Mills/Hamilton Urban Economics Riddell/Shackelford/Stamos/ Environmental and Natural Schneider Resource Economics Mishkin Economics: A Tool for Critically Environmental Economics The Economics of Money, Banking, Understanding Society and Policy and Financial Markets*† Roberts Todaro/Smith The Economics of Money, Banking, The Choice: A Fable of Free Trade Economic Development and Financial Markets, Business and Protection School Edition* Waldman/Jensen Macroeconomics: Policy and Rohlf Industrial Organization: Theory Practice* Introduction to Economic Reasoning and Practice Murray Roland Walters/Walters/Appel/Callahan/ Econometrics: A Modern Development Economics Centanni/Maex/O’Neill Introduction Econversations: Today’s Students Scherer Discuss Today’s Issues O’Sullivan/Sheffrin/Perez Industry Structure, Strategy, and Economics: Principles, Public Policy Weil Applications and Tools*† Economic Growth Schiller Parkin The Economics of Poverty and Williamson Economics*† Discrimination Macroeconomics† *denotes Pearson MyLab Economics titles. Visit www.myeconlab.com to learn more. †denotes availability of Global Edition. A01_WILL2119_06_GE_FM.indd 4 13/09/2017 14:13 CONTENTS PART I Introduction and Measurement Issues 21 Chapter 1 Introduction 22 What Is Macroeconomics? 23 Gross Domestic Product, Economic Growth, and Business Cycles 23 Macroeconomic Models 29 Microeconomic Principles 31 Disagreement in Macroeconomics 32 What Do We Learn from Macroeconomic Analysis? 33 Understanding Recent and Current Macroeconomic Events 36 Chapter Summary 53 Problems 56 Key Terms 54 Working with the Data 57 Questions for Review 55 Chapter 2 Measurement 58 Measuring GDP: The National Income and Product Accounts 59 The Components of Aggregate Expenditure 66 Nominal and Real GDP and Price Indices 68 Problems with Measuring Real GDP and the Price Level 75 Macroeconomics in Action: Comparing Real GDP Across Countries and the Penn Effect 76 Macroeconomics in Action: House Prices and GDP Measurement 77 Savings, Wealth, and Capital 79 Labor Market Measurement 81 Macroeconomics in Action: Alternative Measures of the Unemployment Rate 82 Chapter Summary 84 Problems 86 Key Terms 84 Working with the Data 89 Questions for Review 86 Chapter 3 Business Cycle Measurement 90 Regularities in GDP Fluctuations 91 5 A01_WILL2119_06_GE_FM.indd 5 13/09/2017 14:13 6 Contents Comovement 93 Macroeconomics in Action: Economic Forecasting and the Financial Crisis 94 The Components of GDP 101 The Price Level and Inflation 104 Labor Market Variables 105 Macroeconomics in Action: Jobless Recoveries 108 Seasonal Adjustment 109 Macroeconomics in Action: The Great Moderation and the 2008–2009 Recession 112 Comovement Summary 112 Chapter Summary 113 Problems 115 Key Terms 114 Working with the Data 116 Questions for Review 115 PART II Basic Macroeconomic Models: A One-Period Model and Models of Search and Unemployment 117 Chapter 4 Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization 118 The Representative Consumer 119 Macroeconomics in Action: How Elastic Is Labor Supply? 140 The Representative Firm 142 Macroeconomics in Action: Henry Ford and Total Factor Productivity 151 Theory Confronts the Data: Total Factor Productivity and the U.S. Aggregate Production Function 152 Chapter Summary 156 Problems 158 Key Terms 156 Working with the Data 160 Questions for Review 157 Chapter 5 A Closed-Economy One-Period Macroeconomic Model 162 Government 163 Competitive Equilibrium 164 Optimality 170 Working with the Model: The Effects of a Change in Government Purchases 177 Working with the Model: A Change in Total Factor Productivity 179 Theory Confronts the Data: Government Spending in World War II 180 A01_WILL2119_06_GE_FM.indd 6 13/09/2017 14:13 Contents 7 Theory Confronts the Data: Total Factor Productivity and Real GDP 186 Macroeconomics in Action: Government Expenditures and the American Recovery and Reinvestment Act of 2009 187 A Distorting Tax on Wage Income, Tax Rate Changes, and the Laffer Curve 191 A Model of Public Goods: How Large Should the Government Be? 197 Chapter Summary 202 Problems 204 Key Terms 202 Working with the Data 206 Questions for Review 203 Chapter 6 Search and Unemployment 207 Labor Market Facts 208 Macroeconomics in Action: Unemployment and Employment in the United States and Europe 214 A One-Sided Search Model of Unemployment 216 A Two-Sided Model of Search and Unemployment 225 Working with the Two-Sided Search Model 233 Macroeconomics in Action: Unemployment Insurance and Incentives 236 Theory Confronts the Data: Productivity, Unemployment, and Real GDP in the United States and Canada: The 2008–2009 Recession 242 Macroeconomics in Action: The Natural Rate of Unemployment and the 2008–2009 Recession 244 Chapter Summary 246 Problems 248 Key Terms 247 Working with the Data 249 Questions for Review 247 PART III Economic Growth 251 Chapter 7 Economic Growth: Malthus and Solow 252 Economic Growth Facts 254 The Malthusian Model of Economic Growth 259 The Solow Model: Exogenous Growth 269 Theory Confronts the Data: The Solow Growth Model, Investment Rates, and Population Growth 283 Macroeconomics in Action: Resource Misallocation and Total Factor Productivity 285 Macroeconomics in Action: Recent Trends in Economic Growth in the United States 286 A01_WILL2119_06_GE_FM.indd 7 13/09/2017 14:13 8 Contents Growth Accounting 289 Macroeconomics in Action: Development Accounting 294 Chapter Summary 296 Problems 298 Key Terms 297 Working with the Data 300 Questions for Review 297 Chapter 8 Income Disparity Among Countries and Endogenous Growth 301 Convergence 302 Theory Confronts the Data: Is Income Per Worker Converging in the World? 307 Macroeconomics in Action: Measuring Economic Welfare: Per Capita Income, Income Distribution, Leisure, and Longevity 308 Endogenous Growth: A Model of Human Capital Accumulation 310 Macroeconomics in Action: Education and Growth 319 Chapter Summary 320 Problems 321 Key Terms 321 Working with the Data 323 Questions for Review 321 PART IV Savings, Investment, and Government Deficits 325 Chapter 9 A Two-Period Model: The Consumption–Savings Decision and Credit Markets 326 A Two-Period Model of the Economy 328 Theory Confronts the Data: Consumption Smoothing and the Stock Market 345 The Ricardian Equivalence Theorem 357 Macroeconomics in Action: Default on Government Debt 363 Chapter Summary 365 Problems 368 Key Terms 366 Working with the Data 370 Questions for Review 367 Chapter 10 Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security 371 Credit Market Imperfections and Consumption 373 Credit Market Imperfections, Asymmetric Information, and the Financial Crisis 377 Theory Confronts the Data: Asymmetric Information and Interest Rate Spreads 379 Credit Market Imperfections, Limited Commitment, and the Financial Crisis 380 A01_WILL2119_06_GE_FM.indd 8 13/09/2017 14:13 Contents 9 Social Security Programs 383 Theory Confronts the Data: The Housing Market, Collateral, and Consumption 384 Macroeconomics in Action: Social Security and Incentives 392 Chapter Summary 395 Problems 396 Key Terms 395 Working with the Data 398 Questions for Review 396 Chapter 11 A Real Intertemporal Model with Investment 399 The Representative Consumer 401 The Representative Firm 409 Theory Confronts the Data: Investment and the Interest Rate Spread 419 Government 421 Competitive Equilibrium 422 The Equilibrium Effects of a Temporary Increase in G: Stimulus, the Multiplier, and Crowding Out 434 The Equilibrium Effects of a Decrease in the Current Capital Stock K 437 Theory Confronts the Data: Government Expenditure Multipliers in the Recovery from the 2008–2009 Recession 438 The Equilibrium Effects of an Increase in Current Total Factor Productivity z 441 The Equilibrium Effects of an Increase in Future Total Factor Productivity, z′: News About the Future and Aggregate Economic Activity 443 Theory Confronts the Data: News, the Stock Market, and Investment Expenditures 445 Credit Market Frictions and the Financial Crisis 447 Sectoral Shocks and Labor Market Mismatch 449 Theory Confronts the Data: The Behavior of Real GDP, Employment, and Labor Productivity in the 1981–1982 and 2008–2009 Recessions 452 Chapter Summary 455 Problems 458 Key Terms 457 Working with the Data 460 Questions for Review 457 PART V Money and Business Cycles 461 Chapter 12 Money, Banking, Prices, and Monetary Policy 462 What Is Money? 463 A Monetary Intertemporal Model 465 A01_WILL2119_06_GE_FM.indd 9 13/09/2017 14:13

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