Macroeconomics - GBV
MacroeconomicsA Modern ApproachFirst Canadian EditionRobert J. BarroHarvard UniversityandApostolos SerletisUniversity of CalgaryNELSONE D U C A T I O N
AUTHORSPREFACEivxviPART 1INTRODUCTION1CHAPTER 1Thinking About Macroeconomics 2Output, Unemployment, and Prices in Canadian History 3By The Numbers: History of U.S. real GDP, unemployment, and inflation 8Economic Models 10A Simple Example—The Coffee Market 12Extending The Model: Demand and supply curves are functions 13Flexible Versus Sticky Prices 17Key Terms and Concepts 18CHAPTER 2National-Income Accounting: Gross Domestic Product andthe Price Level 19Nominal and Real GDP 19Calculating Real GDP 21Real GDP as a Measure of Welfare 23Alternative Views of GDP—Expenditure, Income, and Production 23Measuring GDP by Expenditure 24Measuring GDP by Income 26Differences between GDP and national income 28Personal income and personal disposable income 30Measuring GDP by Production 30Seasonal Adjustment 30By The Numbers: Gross provincial and territorial product by Canadianprovinces and territories 32Prices 32Back To Reality: Problems with the consumer price index 33Key Terms and Concepts 34Questions and Problems 35PART 2ECONOMIC GROWTH37CHAPTER 3Introduction to Economic G r o w t h 38Facts About Economic Growth 40Economic Growth Around the World, 1960 to 2000 40World Poverty and Income Inequality 44Long-Term Growth in Canada and Other Rich Countries 46Patterns of World Economic Growth 48Theory of Economic Growth 49The Production Function 49Growth Accounting 52The Solow Growth Model SSBack To Reality: Intellectual origin of the Solow growth model 56The growth rate of the capital stock 57NELVII
VIIIContentsThe growth rate of labour 58The growth rate of capital and real GDP per worker 59The transition and the steady state 60Do The Math 63Summing Up 65Key Terms and Concepts" 65Questions and Problems 65Appendix 67Part A: The Growth-Accounting Equation 67Part B: The Solow Residual 69Part C: The Cobb-Douglas Production Function 69CHAPTER 4Working with the Solow Growth Model 71A Change in the Saving Rate 72Do The Math 73A Change in the Technology Level 73Extending The Model: Consumption in the Solow model 74Do The Math 76Changes in Labour Input and the Population Growth Rate 76A Change in Labour Input 76Do The Math 78A Change in the Population Growth Rate 79Do The Math 80Convergence 81Convergence in the Solow Model 81Extending The Model: Endogenous population growth 82Facts About Convergence 85Conditional Convergence in the Solow Model 86Where Do We Stand with the Solow Model? 92Key Terms and Concepts 92Questions and Problems 93Appendix 94The Rate of Convergence 94CHAPTER 5Conditional Convergence and Long-Run Economic Growth 98Conditional Convergence in Practice 98Recent Research on the Determinants of Economic Growth 99Examples of Conditional Convergence 101Back To Reality: A rock star's perspective on debt reliefand foreign aid 102Long-Run Economic Growth 103Models with Constant Average Product of Capital 104Exogenous Technological Progress 106- The steady-state growth rate 107Steady-state saving 109The transition path and convergence 110Endogenous Growth Theory 111Back To Reality: The story of Napster and Viagra 115The Diffusion of Technology 117Back To Reality: Hybrid corn: A case of technological diffusion 118What Do We Know About Economic Growth? 119Key Terms and Concepts 119Questions and Problems 120NEL
ContentsAppendix 120The Steady-State Path in the Solow Model with ExogenousTechnological Progress 120PART 3jECONOMIC FLUCTUATIONS 123CHAPTER 6Markets, Prices, Supply, and Demand 124Markets in the Macroeconomy 126The Goods Market 126The Labour Market 126The Rental Market 127The Bond Market 128Money as a Medium of Exchange 128Back To Reality: Common currency 129Markets and Prices 129The Goods Market 129The Labour Market 130The Rental Market 131The Bond Market 131Extending The Model: On bonds, interest rates, and theyield curve 132Constructing the Budget Constraint 133Income 134Profit 134Wage income 134Rental income 134Interest income 135Total income 135Consumption 135Assets 136Household Budget Constraint 137Extending The Model: Allowing for a risk premium on ownershipof capital 138Clearing of the Markets for Labour and Capital Services 140Profit Maximization 140The Labour Market 140Demand for labour 140Supply of labour 142Clearing of the labour market 142The Market for Capital Services 144Demand for capital services 144Supply of capital services 145Clearing of the market for capital services 145The interest rate 146Profit in Equilibrium 147Back To Reality: Economic profit versus accounting profit 148Summing Up 148Key Terms and Concepts 149Questions and Problems 149Appendix 151Output Equals Real Factor Incomes and Profit Equals Zero 151NELIX
ContentsCHAPTER 7Consumption, Saving, and Investment 153Consumption and Saving 153Consumption Over Two Years 155Present value 160Choosing consumption: income effects 160Choosing consumption: the intertemporal-substitution effect 161By The Numbers: Empirical evidence on intertemporal substitutionof consumption 163The income effect from a change in the interest rate 163Combining income and substitution effects 164Consumption Over Many Years 164By The Numbers: Empirical evidence on the propensity to consume 168Consumption, Saving, and Investment in Equilibrium 168By The Numbers: The response of consumption to anticipatedincome changes 169Summing Up 170Key Terms and Concepts 171Questions and Problems 171Appendix 172The Multiyear Budget Constraint and the Planning Horizon 172CHAPTER 8An Equilibrium Business-Cycle Model 175Cyclical Behaviour of Real GDP—Recessions and Booms 175By The Numbers: Recessions in long-term Canadian history 179An Equilibrium Business-Cycle Model 180Conceptual Issues 180The Model 181The marginal product of labour and the real wage rate 182Marginal product of capital, real rental price, and the interest rate 183Consumption, saving, and investment 186Matching the Theory with the Facts 187Consumption and Investment 187The Real Wage Rate 190The Real Rental Price 191The Interest Rate 191By The Numbers: The real rental price of capital in the United States 192Temporary Changes in the Technology Level 193Variations in Labour Input 194Labour Supply 194IThe substitution effect for leisure and consumption 194Income effects on labour supply 195Intertemporal-substitution effects on labour supply 196By The Numbers: Empirical evidence on intertemporal substitution oflabour supply 197Fluctuations in Labour Input 197The cyclical behaviour of labour input: empirical 197The cyclical behaviour of labour input: theory 198The cyclical behaviour of labour productivity 200Summing Up 201Key Terms and Concepts 202Questions and Problems 202NEL
ContentsCHAPTER 9Capital Utilization and Unemployment 204Capital Input 204The Demand for Capital Services 205The Supply of Capital Services 206Back To Reality: Multiple shifts and overtime hours 209Market Clearing and Capital Utilization 210The Cyclical Behaviour of Capacity Utilization 212The Labour Force, Employment, and Unemployment 212Basic Concepts and Empirical Patterns 213A Model of Job Finding 217Search by Firms 220Job Separations 221Job Separations, Job Finding, and the Natural Unemployment Rate 222Economic Fluctuations, Employment, and Unemployment 225Vacancies 226By The Numbers: Labour market fluctuations in the United States 227Back To Reality: Seasonal fluctuations 229Summing Up 230'Key Terms and Concepts 230Questions and Problems 231PART 4MONEY AND PRICES233CHAPTER 10The Demand for Money and the Price Level 234Concepts of Money 234Back To Reality: Money in a prisoner-of-war camp 235Back To Reality: Where is all the currency? 236The Demand for Money 238The Interest Rate and the Demand for Money 240The Price Level and the Demand for Money 240Real GDP and the Demand for Money 240Other Influences on the Demand for Money 241The Money-Demand Function 241Back To Reality: The payments period and the demand for money 242Empirical Evidence on the Demand for Money 242Determination of the Price Level 243The Nominal Quantity of Money Supplied Equalsthe Nominal Quantity Demanded 243A Change in the Nominal Quantity of Money 245The Neutrality of Money 247A Change in the Demand for Money 248The Cyclical Behaviour of the Price Level 249Back To Reality: The quantity theory of money 250Price-Level Targeting and Endogenous Money 251Trend growth of money 253Cyclical behaviour of money 253Seasonal variations in money 255Summing Up 255Key Terms and Concepts 256Questions and Problems 256References 259XI
xiiContentsCHAPTER 11Inflation, Money Growth, and Interest Rates 260Cross-Country Data on Inflation and Money Growth 261Inflation and Interest Rates 266Actual and Expected Inflation 266Real and Nominal Interest Rates 267The Real Interest Rate and Intertemporal Substitution 269Actual and Expected.Real Interest Rates 270Measuring expected inflation 270Canadian expected inflation and interest rates since World War II 271Indexed bonds, real interest rates, and expected inflation rates 272Interest Rates on Money 274By The Numbers: Indexed bonds, real interest rates, and expected inflationrates in the United States 275Inflation in the Equilibrium Business-Cycle Model 276Intertemporal-Substitution Effects 277Bonds and Capital 277Interest Rates and the Demand for Money 278Inflation and the Real Economy 278Money Growth, Inflation, and the Nominal Interest Rate 280Back To Reality: International evidence on the neutrality of moneyand the Fisherian link 281A Trend in the Real Demand for Money 283A Shift in the Money Growth Rate 284Government Revenue from Printing Money 288The Welfare Cost of Inflation 289By The Numbers: Money and prices during the German hyperinflation 290Summing Up 291Key Terms and Concepts 292Questions and Problems 292PART 5THE GOVERNMENT SECTOR297CHAPTER 12Government Expenditure 298Data on Government Expenditure 298The Government's Budget Constraint 300By The Numbers: Just how much bigger is government in Canada? 303Public Production 304Public Services 305The Household's Budget Constraint 305Permanent Changes in Government Purchases 307A Permanent Change in Government Purchases: Theory 307Extending The Model: Useful public services 310The Cyclical Behaviour of Government Purchases 312Temporary Changes in Government Purchases 312A Temporary Change in Government Purchases: Theory 312Government Purchases and Real GDP During Wartime: Empirical 314Extending The Model: Effects on the term structure of interest rates 3.17Wartime Effects on the Economy 318Employment during wartime 318Effects of war on labour supply 318Effects of war on the real wage rate 320Effects of war on the rental market 320Summing Up 322
ContentsKey Terms and Concepts 322Questions and Problems 322CHAPTER 13Taxes 325Taxes in Canada 325Types of Taxes 327By The Numbers: Average marginal income tax rates 330Taxes in the Model 331A Tax on Labour Income 332A Tax on Asset Income 336Extending The Model: A consumption tax 337An Increase in Government Purchases Financed by a Labour Income Tax 339Back To Reality: The Laffer curve 340Transfer Payments 343Summing Up 343Key Terms and Concepts 343Questions and Problems 344CHAPTER 14Public Debt 346The History of Canadian Public Debt 346Public Debt in the U.S. and U.K. 348Characteristics of Government Bonds 351Budget Constraints and Budget Deficits 352The Government's Budget Constraint 352The Budget Deficit 353Public Saving, Private Saving,'and National Saving 355Public Debt and Households' Budget Constraints 356A Simple Case of Ricardian Equivalence 356Another Case of Ricardian Equivalence 359Ricardian Equivalence More Generally 360Economic Effects of a Budget Deficit 361Lump-Sum Taxes 361Labour Income Taxes 362Asset Income Taxes 363The Timing of Taxes and Tax-Rate Smoothing 364Strategic Budget Deficits 365Back To Reality: "Unpleasant monetarist arithmetic" 366The Standard View of a Budget Deficit 366Finite lifetimes 368Imperfect credit markets 369Social Security 370By The Numbers: Empirical evidence on the macroeconomic effectsof budget deficits 371Open-Market Operations 372Summing Up 374Key Terms and Concepts 374Questions and Problems 375PART 6MONEY A N D BUSINESS CYCLESCHAPTER 15Money and Business Cycles I: The Price-Misperceptions Model 378377Effects of Money in the Equilibrium Business-Cycle Model 378The Price-Misperceptions Model 379A Model with Non-Neutral Effects of Money 379NELXIII
xivContentsMoney Is Neutral in the Long Run 383Only Unperceived Inflation Affects Real Variables 383Predictions for Economic Fluctuations 385Empirical Evidence on the Real Effects of Monetary Shocks 386Friedman and ScKwartz's Monetary History 386Unanticipated money growth 387Romer and Romer on U.S. Federal Reserve policy 387A brief overview 388Real Shocks 388Back To Reality: Incomplete information about prices: Is it significant? 389Rules Versus Discretion 391Summing Up 395Key Terms and Concepts 396Questions and Problems 396CHAPTER 16Money and Business Cycles II: Sticky Prices and Nominal Wage Rates 398The New Keynesian Model 398Price Setting Under Imperfect Competition 399Short-Run Responses to a Monetary Shock 401New Keynesian Predictions 403Price Adjustment in the Long Run 404By The Numbers: Evidence on the stickiness of prices 406Comparing Predictions for Economic Fluctuations 407Shocks to Aggregate Demand 407Money and Nominal Interest Rates 409 The Operating Band for the Overnight Rate 409The Market for Reserves 410The Tools of Monetary Policy 411Open-market buy back operations 412Receiver General auctions 412Settlement balances 413Monetary Policy at Times of Financial Crisis 413Extending The Model: Monetary policy tools of the Federal Reserve 414The Role of Monetary Aggregates 415Inflation Targeting 416The Keynesian Model—Sticky Nominal Wage Rates 418Back To Reality: Keynes, Friedman, and the Great Depression 419Back To Reality: The real wage rate during the New Deal 422Long-Term Contracts and Sticky Nominal Wage Rates 423By The Numbers: Empirical evidence on the contracting approach 424Summing Up 426Key Terms and Concepts 426Questions and Problems 427PART 7INTERNATIONAL MACROECONOMICS429CHAPTER 17World Markets in Goods and Credit 430The Balance of International Payments 431History of the Canadian Current-Account Balance 434Determinants of the Current-Account Balance 437Economic Fluctuations 441Harvest Failures, Government Purchases, Developing Countries 442Examples of International Borrowing and Lending 444The Current-Account Deficit and the Budget Deficit 446,NEL
ContentsThe Terms of Trade 447Back To Reality: Why was the U.S. current-account deficit so large in 2000-06? 448The Terms of Trade and the Current-Account Balance 450The Terms of Trade and Investment 452Empirical Evidence from Oil Producers 452The Volume of International Trade 454SummingvUp 455Key Terms and Concepts 456Questions and Problems 456CHAPTER 18Exchange Rates 457Different Currencies and Exchange Rates 457By The Numbers: Exchange rates around the world 458Purchasing-Power Parity 461The PPP Condition and the Real Exchange Rate 461The Relative PPP Condition 465By The Numbers: The purchasing-power parity puzzle 466Interest-Rate Parity 468Extending The Model: Covered interest-rate parity 471Fixed Exchange Rates 472Purchasing Power Parity Under Fixed Exchange Rates 474The Nominal Quantity of Money Under Fixed Exchange Rates 474Devaluation and Revaluation 477Back To Reality: The Asian financial crisis 478Flexible Exchange Rates 479Fixed and Flexible Exchange Rates: A Comparison 480Summing Up 481 ' - Key Terms and Concepts 482Questions and Problems 482BIBLIOGRAPHYGLOSSARYINDEX503493485XV
Macroeconomics A Modern Approach First Canadian Edition Robert J. Barro Harvard University and Apostolos Serletis University of Calgary NELSON EDUCATION. AUTHORS iv PREFACE xvi PART 1 INTRODUCTION 1 CHAPTER 1 Thinking About Macroeconomics 2 Output, Unemployment, and Prices in Canadian History 3 By The Numbers: History of U.S. real GDP .
MassBay EC 201 Principles of Macroeconomics 3 -- Bridgewater ECON 102 Principles of Macroeconomics 3 MassBay EC 201 Principles of Macroeconomics 3 -- Fitchburg ECON 1100 Principles of Economics: Macroeconomics 3 MassBay EC 201 Principles of Macroeconomics 3 -- Framingham ECON 101 Principles of Macroeconomics 3
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36) Macroeconomics differs from microeconomics in that A) macroeconomics studies the decisions of individuals. B) microeconomics looks at the economy as a whole. C) macroeconomics studies the behavior of government while microeconomics looks at private corporations. D) macroeconomics focuses on the national economy and the global economy. Answer: D
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Intermediate Macroeconomics Julio Gar n Claremont McKenna College Robert Lester Colby College Eric Sims University of Notre Dame August 2, 2018 This Version: 3.0.0. This is a book designed for use in an intermediate macroeconomics course or a masters level course in macroeconomics. It could also be used by graduate students seeking a refresher
The Macroeconomics of the Great Depression: A Comparative Approach BEN S. BERNANKE To UNDERSTAND THE GREAT DEPRESSION is the Holy Grail of macroeconomics. Not only did the Depression give birth to macroeconomics as a distinct field of study, but also—to an extent that is not always fully appreciated— the experience of the 1930s continues to influence macroeconomists' beliefs, policy .
Macroeconomics 3 Pre 1940. A period of exploration, where macroeconomics was not macroeconomics yet, but monetary theory on one side, business cycle theory on the other. A period during which all the right ingredients, and quite a few more, were developed. But also a period where con-fusion reigned, because of the lack of an integrated framework.
