Principles Of Macroeconomics
Principles of MacroeconomicsSENIOR CONTRIBUTING AUTHORSSTEVEN A. GREENLAW, UNIVERSITY OF MARY WASHINGTONTIMOTHY TAYLOR, MACALESTER COLLEGE
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Table of ContentsPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 1: Welcome to Economics! . . . . . . . . . . . . . . . . . . . . . . . . . .1.1 What Economics Is and Why It's Important . . . . . . . . . . . . . . . . . .1.2 Microeconomics and Macroeconomics . . . . . . . . . . . . . . . . . . . .1.3 How Economists Use Theories and Models to Understand Economic Issues .1.4 How Economies Can Be Organized: An Overview of Economic Systems . . .Chapter 2: Choice in a World of Scarcity . . . . . . . . . . . . . . . . . . . . . . .2.1 How Individuals Make Choices Based on Their Budget Constraint . . . . . .2.2 The Production Possibilities Frontier and Social Choices . . . . . . . . . . .2.3 Confronting Objections to the Economic Approach . . . . . . . . . . . . . .Chapter 3: Demand and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services . . . .3.2 Shifts in Demand and Supply for Goods and Services . . . . . . . . . . . .3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process . . . . .3.4 Price Ceilings and Price Floors . . . . . . . . . . . . . . . . . . . . . . . .3.5 Demand, Supply, and Efficiency . . . . . . . . . . . . . . . . . . . . . . . .Chapter 4: Labor and Financial Markets . . . . . . . . . . . . . . . . . . . . . . .4.1 Demand and Supply at Work in Labor Markets . . . . . . . . . . . . . . . .4.2 Demand and Supply in Financial Markets . . . . . . . . . . . . . . . . . . .4.3 The Market System as an Efficient Mechanism for Information . . . . . . . .Chapter 5: Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.1 Price Elasticity of Demand and Price Elasticity of Supply . . . . . . . . . . .5.2 Polar Cases of Elasticity and Constant Elasticity . . . . . . . . . . . . . . .5.3 Elasticity and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.4 Elasticity in Areas Other Than Price . . . . . . . . . . . . . . . . . . . . . .Chapter 6: The Macroeconomic Perspective . . . . . . . . . . . . . . . . . . . . .6.1 Measuring the Size of the Economy: Gross Domestic Product . . . . . . . .6.2 Adjusting Nominal Values to Real Values . . . . . . . . . . . . . . . . . . .6.3 Tracking Real GDP over Time . . . . . . . . . . . . . . . . . . . . . . . . .6.4 Comparing GDP among Countries . . . . . . . . . . . . . . . . . . . . . . .6.5 How Well GDP Measures the Well-Being of Society . . . . . . . . . . . . . .Chapter 7: Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.1 The Relatively Recent Arrival of Economic Growth . . . . . . . . . . . . . .7.2 Labor Productivity and Economic Growth . . . . . . . . . . . . . . . . . . .7.3 Components of Economic Growth . . . . . . . . . . . . . . . . . . . . . . .7.4 Economic Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 8: Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.1 How the Unemployment Rate is Defined and Computed . . . . . . . . . . .8.2 Patterns of Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . .8.3 What Causes Changes in Unemployment over the Short Run . . . . . . . .8.4 What Causes Changes in Unemployment over the Long Run . . . . . . . . .Chapter 9: Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.1 Tracking Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.2 How Changes in the Cost of Living are Measured . . . . . . . . . . . . . . .9.3 How the U.S. and Other Countries Experience Inflation . . . . . . . . . . . .9.4 The Confusion Over Inflation . . . . . . . . . . . . . . . . . . . . . . . . . .9.5 Indexing and Its Limitations . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 10: The International Trade and Capital Flows . . . . . . . . . . . . . . .10.1 Measuring Trade Balances . . . . . . . . . . . . . . . . . . . . . . . . . .10.2 Trade Balances in Historical and International Context . . . . . . . . . . . .10.3 Trade Balances and Flows of Financial Capital . . . . . . . . . . . . . . .10.4 The National Saving and Investment Identity . . . . . . . . . . . . . . . . .10.5 The Pros and Cons of Trade Deficits and Surpluses . . . . . . . . . . . . .10.6 The Difference between Level of Trade and the Trade Balance . . . . . . .Chapter 11: The Aggregate Demand/Aggregate Supply Model . . . . . . . . . . .11.1 Macroeconomic Perspectives on Demand and Supply . . . . . . . . . . . .11.2 Building a Model of Aggregate Demand and Aggregate Supply . . . . . . . 1. 7. 8. 12. 13. 15. 25. 26. 31. 36. 43. 44. 49. 59. 65. 68. 79. 80. 89. 7249257259260
11.3 Shifts in Aggregate Supply . . . . . . . . . . . . . . . . . . . . . . . . . .11.4 Shifts in Aggregate Demand . . . . . . . . . . . . . . . . . . . . . . . . .11.5 How the AD/AS Model Incorporates Growth, Unemployment, and Inflation .11.6 Keynes’ Law and Say’s Law in the AD/AS Model . . . . . . . . . . . . . .Chapter 12: The Keynesian Perspective . . . . . . . . . . . . . . . . . . . . . . .12.1 Aggregate Demand in Keynesian Analysis . . . . . . . . . . . . . . . . . .12.2 The Building Blocks of Keynesian Analysis . . . . . . . . . . . . . . . . . .12.3 The Phillips Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12.4 The Keynesian Perspective on Market Forces . . . . . . . . . . . . . . . .Chapter 13: The Neoclassical Perspective . . . . . . . . . . . . . . . . . . . . . .13.1 The Building Blocks of Neoclassical Analysis . . . . . . . . . . . . . . . .13.2 The Policy Implications of the Neoclassical Perspective . . . . . . . . . . .13.3 Balancing Keynesian and Neoclassical Models . . . . . . . . . . . . . . .Chapter 14: Money and Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.1 Defining Money by Its Functions . . . . . . . . . . . . . . . . . . . . . . .14.2 Measuring Money: Currency, M1, and M2 . . . . . . . . . . . . . . . . . .14.3 The Role of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14.4 How Banks Create Money . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 15: Monetary Policy and Bank Regulation . . . . . . . . . . . . . . . . .15.1 The Federal Reserve Banking System and Central Banks . . . . . . . . . .15.2 Bank Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.3 How a Central Bank Executes Monetary Policy . . . . . . . . . . . . . . .15.4 Monetary Policy and Economic Outcomes . . . . . . . . . . . . . . . . . .15.5 Pitfalls for Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 16: Exchange Rates and International Capital Flows . . . . . . . . . . . .16.1 How the Foreign Exchange Market Works . . . . . . . . . . . . . . . . . .16.2 Demand and Supply Shifts in Foreign Exchange Markets . . . . . . . . . .16.3 Macroeconomic Effects of Exchange Rates . . . . . . . . . . . . . . . . .16.4 Exchange Rate Policies . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 17: Government Budgets and Fiscal Policy . . . . . . . . . . . . . . . . .17.1 Government Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.2 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.3 Federal Deficits and the National Debt . . . . . . . . . . . . . . . . . . . .17.4 Using Fiscal Policy to Fight Recession, Unemployment, and Inflation . . . .17.5 Automatic Stabilizers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17.6 Practical Problems with Discretionary Fiscal Policy . . . . . . . . . . . . .17.7 The Question of a Balanced Budget . . . . . . . . . . . . . . . . . . . . .Chapter 18: The Impacts of Government Borrowing . . . . . . . . . . . . . . . . .18.1 How Government Borrowing Affects Investment and the Trade Balance . .18.2 Fiscal Policy, Investment, and Economic Growth . . . . . . . . . . . . . . .18.3 How Government Borrowing Affects Private Saving . . . . . . . . . . . . .18.4 Fiscal Policy and the Trade Balance . . . . . . . . . . . . . . . . . . . . .Chapter 19: Macroeconomic Policy Around the World . . . . . . . . . . . . . . .19.1 The Diversity of Countries and Economies across the World . . . . . . . .19.2 Improving Countries’ Standards of Living . . . . . . . . . . . . . . . . . . .19.3 Causes of Unemployment around the World . . . . . . . . . . . . . . . . .19.4 Causes of Inflation in Various Countries and Regions . . . . . . . . . . . .19.5 Balance of Trade Concerns . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 20: International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . .20.1 Absolute and Comparative Advantage . . . . . . . . . . . . . . . . . . . .20.2 What Happens When a Country Has an Absolute Advantage in All Goods .20.3 Intra-industry Trade between Similar Economies . . . . . . . . . . . . . . .20.4 The Benefits of Reducing Barriers to International Trade . . . . . . . . . .Chapter 21: Globalization and Protectionism . . . . . . . . . . . . . . . . . . . . .21.1 Protectionism: An Indirect Subsidy from Consumers to Producers . . . . . .21.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions21.3 Arguments in Support of Restricting Imports . . . . . . . . . . . . . . . . .21.4 How Trade Policy Is Enacted: Globally, Regionally, and Nationally . . . . .21.5 The Tradeoffs of Trade Policy . . . . . . . . . . . . . . . . . . . . . . . .This OpenStax book is available for free at 86493496503506
Appendix A: The Use of Mathematics in Principles of Economics . . . . . . . . . . . . . . . . . 515Appendix B: The Expenditure-Output Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595
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principles of macroeconomics senior contributing authors steven a. greenlaw, university of mary washington timothy taylor, macalester college
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