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Principles of Economics.Seventh Edition, N. Gregory Mankiw

  Judul Buku : Principles of Economics – Seventh Edition

Judul Buku:Principles of Economics – Seventh Edition
Pengarang:N. Gregory Mankiw
Penerbit:Cengage Learning
Cetakan:Seventh Edition
Tahun Terbit:2015
Jumlah Halaman:847
Kertas Isi:HVS
Ukuran:22 x 28
Harga: Rp  588,000


Principles of Economics – Seventh Edition
Pengarang : N. Gregory Mankiw
Penerbit : Cengage Learning


Part I Introduction
Ten Principles of Economics 3
1-1 How People Make Decisions 4
1 A  Principle 1: People Face Trade-offs 4
1-lb Principle 2: The Cost of Something Is WhatYou Give Up to Get It 5
I-1c Principle 3: Rational People Think at the Margin 6 I-Id Principle 4: People Respond to Incentives 7
Case Study: The Incentive Effects of Gasoline Prices 8
1-2 How People Interact 9
1-2a Principle 5: Trade Can Make Everyone Better Off 9
1 2b Principle 6: Markets Are Usually a Good Way to Organize Economic Activity 10
I -1c Principle 7: Governments Can Sometimes Improve Market Outcomes 11
FYI: Adam Smith and the Invisible Hand 11
1-3 How the Economy as a Whole Works 13
1-3a Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services 13
1-3b Principle 9: Prices Rise When the Government Prints Too Much Money 13
In The News: WhyYou Should Study Economics 14
1-3c Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment 15
1-4 Conclusion 16
Summary 16
Key Concepts 17
Questions for Review 17
Quick Check Multiple Choice 17 Problems and Applications 18

Thinking Like an Economist 19
2-1 The Economist as Scientist 20
2-1a The Scientific Method: Observation, Theory, and More Observation 20
2-1b The Role of Assumptions 21
2-1c Economic Models 22
2-1d Our First Model: The Circular-Flow Diagram 22
2-1e Our Second Model: The Production Possibilities Frontier 24
2-1f Microeconomics and Macroeconomics 27
2-2 The Economist as Policy Adviser 27
2-2a Positive versus Normative Analysis 28
2-2b Economists in Washington 28
2-2c Why Economists'Advice Is Not Always Followed 29
2-3 Why Economists Disagree 30
2-3a Differences in Scientific Judgments 30
2-3b Differences in Values 31
2-3c Perception versus Reality 31
In The News: Actual Economists and Virtual Realities 33
2-4 Let's Get Going 34
Summary 34
Key Concepts 34
Questions for Review 35
Quick Check Multiple Choice 35
Problems and Applications 35
APPENDIX Graphing: A Brief Review 37
Graphs of a Single Variable 37
Graphs of Two Variables: The Coordinate System 38
Curves in the Coordinate System 39
Slope 41
Cause and Effect 43

Interdependence and the Gains from Trade 47
3-1 A Parable for the Modern Economy 48
3-1a Production Possibilities 48
3-1b Specialization and Trade 50
3-2 Comparative Advantage: The Driving Force of Specialization 52
3-2a Absolute Advantage 52
3-2b Opportunity Cost and Comparative Advantage 52
3-2c Comparative Advantage and Trade 53
3-2d The Price of the Trade 54
FYI: The Legacy of Adam Smith and David Ricardo 55
3-3 Applications of Comparative Advantage 55
3-3a Should Tom Brady Mow His Own Lawn? 55
In The News: Economics within a Marriage 56
3-3b Should the United States Trade with Other Countries? 57
3-4 Conclusion 58
Summary 59
Key Concepts 59
Questions for Review 59
Quick Check Multiple Choice 59 Problems and Applications 60

Part II How Markets Work
The Market Forces of Supply and Demand 65
4-1 Markets and Competition 66
4-1a What Is a Market? 66
4-1b What Is Competition? 66
4-2 Demand 67
4-2a The Demand Curve: The Relationship between Price and Quantity Demanded 67
4-2b Market Demand versus Individual Demand 68
4-2c Shifts in the Demand Curve 69
Case Study: Two Ways to Reduce the Quantity of Smoking Demanded 71
4-3 Supply 73
4-3a The Supply Curve: The Relationship between Price and Quantity Supplied 73
4-3b Market Supply versus Individual Supply 74
4-3c Shifts in the Supply Curve 75
4-4 Supply and Demand Together 77
4-4a Equilibrium 77
4-4b Three Steps to Analyzing Changes in Equilibrium 79
4-5 Conclusion: How Prices Allocate Resources 83 In The News: Price Increases after Disasters 84
Summary 84
Key Concepts 86
Questions for Review 86
Quick Check Multiple Choice 86
Problems and Applications 87

Elasticity and Its Application 89
5-1 The Elasticity of Demand 90
5-1a The Price Elasticity of Demand and Its
Determinants 90
5-1b Computing the Price Elasticity of Demand 91
5-1c The Midpoint Method: A Better Way to Calculate Percentage Changes and Elasticities 91
5-1d The Variety of Demand Curves 92
5-1e Total Revenue and the Price Elasticity of Demand 94 FYI: A Few Elasticities from the Real World 94
5-1f Elasticity and Total Revenue along a Linear Demand Curve 96
5-1g Other Demand Elasticities 97
5-2 The Elasticity of Supply 98
5-2a The Price Elasticity of Supply and Its Determinants 98
5-2b Computing the Price Elasticity of Supply 99
5 -2c The Variety of Supply Curves 99
5-3 Three Applications of Supply, Demand, and Elasticity 101
5-3a Can Good News for Farming Be Bad News for Farmers? 102
5-3b Why Did OPEC Fail to Keep the Price of Oil High? 104
5-3c Does Drug Interdiction Increase or Decrease Drug-Related Crime? 105
5-4 Conclusion 107
Summary 107
Key Concepts 108
Questions for Review 108
Quick Check Multiple Choice 108
Problems and Applications 109

Supply, Demand, and Government Policies 111
6-1 Controls on Prices 112
6-la How Price Ceilings Affect Market Outcomes 112
Case Study: Lines at the Gas Pump 114
Case Study: Rent Control in the Short Run and the Long Run 115
6-1b How Price Floors Affect Market Outcomes 116
Case Study: The Minimum Wage 117
6-1c Evaluating Price Controls 119
In The News: Venezuela versus the Market 120
6-2 Taxes 121
6-2a How Taxes on Sellers Affect Market Outcomes 122
6-2b How Taxes on Buyers Affect Market Outcomes 123
Case Study: Can Congress Distribute the Burden of a Payroll Tax? 125
6-2c Elasticity and Tax Incidence 126
Case Study: Who Pays the Luxury Tax? 128
6-3 Conclusion 128
Summary 129
Key Concepts 129
Questions for Review 129
Quick Check Multiple Choice 129 Problems and Applications 130

Part III Markets and Welfare
Consumers, Producers, and the Efficiency of Markets 135
7-1 Consumer Surplus 136
7-1a Willingness to Pay 136
7-1b Using the Demand Curve to Measure Consumer Surplus 137
7-1c How a Lower Price Raises Consumer Surplus 138
7-1d What Does Consumer Surplus Measure? 139
7-2 Producer Surplus 141
7-2a Cost and the Willingness to Sell 141
7-2b Using the Supply Curve to Measure Producer Surplus 142
7-2c How a Higher Price Raises Producer Surplus 143
7-3 Market Efficiency 144
7-3a The Benevolent Social Planner 145
7-3b Evaluating the Market Equilibrium 146
In The News: The Invisible Hand Can ParkYour Car 148
Case Study: Should There Bea Market in Organs? 148
7-4 Conclusion: Market Efficiency and Market Failure 150
Summary 151
Key Concepts 151
Questions for Review 151
Quick Check Multiple Choice 151
Problems and Applications 152

Application: The Costs of Taxation 155
Application The Deadweight Loss of Taxation 156
8-1a How a Tax Affects Market Participants 157
8-1b Deadweight Losses and the Gains from Trade 159
8-2 The Determinants of the Deadweight Loss 160
Case Study: The Deadweight Loss Debate 162
8-3 Deadweight Loss and Tax Revenue as Taxes Vary 163
Case Study: The Laffer Curve and Supply-Side Economics 164
In The News: The Tax Debate 166
8-4 Conclusion 168
Summary 168
Key Concept 168
Questions for Review 168
Quick Check Multiple Choice 169
Problems and Applications 169

Application: International Trade 171
9-1 The Determinants of Trade 172
9-1a The Equilibrium without Trade 172
9-1b The World Price and Comparative Advantage 173
9-2 The Winners and Losers from Trade 174
9-2a The Gains and Losses of an Exporting Country 174
9-2b The Gains and Losses of an Importing Country 175
9-2c The Effects of a Tariff 177
FYI: Import Quotas: Another Way to Restrict Trade 179
9-2d The Lessons for Trade Policy 179
9-2e Other Benefits of International Trade 180
In The News: Threats to Free Trade 181
9-3 The Arguments for Restricting Trade 182
In The News: Should the Winners from Free Trade Compensate the Losers? 183
9-3a The Jobs Argument 183
9-3b The National-Security Argument 184
In The News: Second Thoughts about Free Trade 184
9-3c The Infant-Industry Argument 185
9-3d The Unfair-Competition Argument 186
9-3e The Protection -as - a- Bargaining- Chip Argument 186
Case Study: Trade Agreements and the World Trade Organization 187
9-4 Conclusion 188
Summary 189
Key Concepts 189
Questions for Review 189
Quick Check Multiple Choice 189 Problems and Applications 190

Part IV The Economics of the Public Sector
Externalities 195
10-1 Externalities and Market Inefficiency 197
10-1a Welfare Economics: A Recap 197
10-1b Negative Externalities 198
10-1c Positive Externalities 199
In The News: The Externalities of Country Living 200
Case Study: Technology Spillovers, Industrial Policy, and Patent Protection 201
10-2 Public Policies toward Externalities 202
10-2a Command-and-Control Policies: Regulation 202
10-2b Market-Based Policy 1: Corrective Taxes and Subsidies 203
Case Study: Why Is Gasoline Taxed So Heavily? 204
10-2c Market-Based Policy 2: Tradable Pollution Permits 205
10-2d Objections to the Economic Analysis of Pollution 207
In The News: What Should We Do about Climate Change? 208
10-3 Private Solutions to Externalities 208
10-3a The Types of Private Solutions 208
10-3b The Cease Theorem 209
10-3c Why Private Solutions Do Not Always Work 211
10-4 Conclusion 211
Summary 212
Key Concepts 212
Questions for Review 212
Quick Check Multiple Choice 213
Problems and Applications 213

Public Goods and Common Resources 215
11-1 The Different Kinds of Goods 216
11-2 Public Goods 218
11-2a The Free-Rider Problem 218
11-2b Some Important Public Goods 218
Case Study: Are Lighthouses Public Goods? 221
11-2c The Difficult Job of Cost-Benefit Analysis 221
Case Study: How Much Is a Life Worth? 222
11-3 Common Resources 223
11-3a The Tragedy of the Commons 223
In The News: The Case for Toll Roads 224
11-3b Some Important Common Resources 225
Case Study: Why the Cow Is Not Extinct 227
11-4 Conclusion: The Importance of Property Rights 228
Summary 228
Key Concepts 229
Questions for Review 229
Quick Check Multiple Choice 229
Problems and Applications 229

The Design of the Tax System 233
12-1 A Financial Overview of the U.S. Government 234
12-1a The Federal Government 235
Case Study: The Fiscal Challenge Ahead 238
12-1b State and Local Governments 240
12-2 Taxes and Efficiency 242
12-2a Deadweight Losses 243
Case Study: Should Income or Consumption Be Taxed? 243
12-2b Administrative Burden 244
12-2c Marginal Tax Rates versus Average Tax Rates 245
12-2d Lump-Sum Taxes 245
12-3 Taxes and Equity 246
12-3a The Benefits Principle 246
12 -3b The Ability-to-Pay Principle 247
Case Study: How the Tax Burden Is Distributed 248
12-3c Tax Incidence and Tax Equity 249
In The News: Tax Expenditures 250
Case Study: Who Pays the Corporate Income Tax? 250
11-4 Conclusion: The Trade-off between Equity and Efficiency 252
Summary 253
Key Concepts 253
Questions for Review 253
Quick Check Multiple Choice 254
Problems and Applications 254

Part V Firm Behavior and the Organization of Industry
The Costs of Production 259
13-1 What Are Costs? 260
13-1a Total Revenue, Total Cost, and Profit 260
13-1b Costs as Opportunity Costs 260
13-1c The Cost of Capital as an Opportunity Cost 261
13-1d Economic Profit versus Accounting Profit 262
13-2 Production and Costs 263
13-2a The Production Function 263
13-2b From the Production Function to the Total-Cost Curve 265
13-3 The Various Measures of Cost 265
13-3a Fixed and Variable Costs 266
13-3b Average and Marginal Cost 267
13-3c Cost Curves and Their Shapes 268
13-3d Typical Cost Curves 270
13-4 Costs in the Short Run and in the Long Run 271
13-4a The Relationship between Short-Run and Long-Run Average Total Cost 271
13-4b Economies and Diseconomies of Scale 272
FYI: Lessons from a Pin Factory 273
13-5 Conclusion 274 Summary 274
Key Concepts 275
Questions for Review 275
Quick Check Multiple Choice 275 Problems and Applications 276

Firms in Competitive Markets 279
14-1 What Is a Competitive Market? 280
14-1a The Meaning of Competition 280
14-1b The Revenue of a Competitive Firm 280
14-2 Profit Maximization and the Competitive Firm's Supply Curve 282
14-2a A Simple Example of Profit Maximization 282
14-2b The Marginal-Cost Curve and the Firm's Supply Decision 283
14-2c The Firm's Short-Run Decision to Shut Down 285
14-2d Spilt Milk and Other Sunk Costs 286
Case Study: Near-Empty Restaurants and Off-Season Miniature Golf 287
14-2e The Firm's Long-Run Decision to Exit or Enter a Market 288
14-2f Measuring Profit in Our Graph for the Competitive Firm 288
14-3 The Supply Curve in a Competitive Market 289
14-3a The Short Run: Market Supply with a Fixed Number of Firms 290
14-3b The Long Run: Market Supply with Entry and Exit 290
14-3c Why Do Competitive Firms Stay in Business If They Make Zero Profit? 292
14-3d A Shift in Demand in the Short Run and Long Run 293
14-3e Why the Long-Run Supply Curve Might Slope Upward 293
14-4 Conclusion: Behind the Supply Curve 295
Summary 296
Key Concepts 296
Questions for Review 296
Quick Check Multiple Choice 296
Problems and Applications 297

Monopoly 299
15-1 Why Monopolies Arise 300
15-1a Monopoly Resources 301
15-1b Government-Created Monopolies 301
15-1c Natural Monopolies 302
15-2 How Monopolies Make Production and Pricing Decisions 303
15-2a Monopoly versus Competition 303
15-2b A Monopoly's Revenue 304
15-2c Profit Maximization 306
15-2d A Monopoly's Profit 308
FYI: Why a Monopoly Does Not Have a Supply Curve 308
Case Study: Monopoly Drugs versus Generic Drugs 309
15-3 The Welfare Cost of Monopolies 310
15-3a The Deadweight Loss 311
15-3b The Monopoly's Profit: A Social Cost? 313
15-4 Price Discrimination 314
15-4a A Parable about Pricing 314
15-4b The Moral of the Story 315
15-4c The Analytics of Price Discrimination 315
15-4d Examples of Price Discrimination 317
In The News: Price Discrimination in Higher Education 318
15-5 Public Policy toward Monopolies 319
15-5a Increasing Competition with Antitrust Laws 319
15-5b Regulation 319
15-5c Public Ownership 321
15-5d Doing Nothing 321
15-6 Conclusion: The Prevalence of Monopolies 322
Summary 323
Key Concepts 323
Questions for Review 323
Quick Check Multiple Choice 324
Problems and Applications 324

Monopolistic Competition 329
16-1 Between Monopoly and Perfect Competition 330
16-2 Competition with Differentiated Products 332
16-2a The Monopolistically Competitive Firm in the Short Run 332
16-2b The Long-Run Equilibrium 332
16-2c Monopolistic versus Perfect Competition 335
16-2d Monopolistic Competition and the Welfare of Society 336
In The News: Insufficient Variety as a Market Failure 338
16-3 Advertising 338
16-3a The Debate over Advertising 339
Case Study: Advertising and the Price of Eyeglasses 340
16-3b Advertising as a Signal of Quality 341
16-3c Brand Names 342
16-4 Conclusion 343
Summary 344
Key Concepts 344
Questions for Review 345
Quick Check Multiple Choice 345
Problems and Applications 345

Oligopoly 347
17-1 Markets with Only a Few Sellers 348
17-1a A Duopoly Example 348
17-1b Competition, Monopolies, and Cartels 349
In The News: Public Price Fixing 350
17-1c The Equilibrium for an Oligopoly 351
17-1d How the Size of an Oligopoly Affects the Market Outcome 352
17-2 The Economics of Cooperation 353
17-2a The Prisoners' Dilemma 353
17-2b Oligopolies as a Prisoners'Dilemma 355
Case Study: OPEC and the World Oil Market 356
17-2c Other Examples of the Prisoners'Dilemma 356
17-2d The Prisoners'Dilemma and the Welfare of Society 358
17-2e Why People Sometimes Cooperate 358
Case Study: The Prisoners' Dilemma Tournament 359
17-3 Public Policy toward Oligopolies 360
17-3a Restraint of Trade and the Antitrust Laws 360
Case Study: An Illegal Phone Call 361
17-3b Controversies over Antitrust Policy 361
Case Study: The Microsoft Case 363
17-4 Conclusion 364
In The News: Should the N.C.A.A. Be Taken to Court? 365
Summary 366
Key Concepts 366
Questions for Review 366
Quick Check Multiple Choice 366
Problems and Applications 367

Part VI The Economics of Labor Markets
The Markets for the Factors of Production 373
18-1 The Demand for Labor 374
18-1a The Competitive Profit-Maximizing Firm 375
18-1b The Production Function and the Marginal Product of Labor 375
18-1c TheValue of the Marginal Product and the Demand for Labor 377
18-1d What Causes the Labor-Demand Curve to Shift? 378
FYI: Input Demand and Output Supply: Two Sides of the Same Coin 379
18-2 The Supply of Labor 380
18-2a The Trade-off between Work and Leisure 380
18-2b What Causes the Labor-Supply Curve to Shift? 380
18-3 Equilibrium in the Labor Market 381
18-3a Shifts in Labor Supply 381
18-3b Shifts in Labor Demand 383
In The News: The Economics of Immigration 384
Case Study: Productivity and Wages 384
FYI: Monopsony 386
18-4  The Other Factors of Production: Land and Capital 386
18-4a Equilibrium in the Markets for Land and Capital 387
FYI: What Is Capital Income? 388
18-4b Linkages among the Factors of Production 388
Case Study: The Economics of the Black Death 389
18-5 Conclusion 390
Summary 390
Key Concepts 390
Questions for Review 391
Quick Check Multiple Choice 391
Problems and Applications 391

Earnings and Discrimination 395
19-1 Some Determinants of Equilibrium Wages 396
19-1a Compensating Differentials 396
19-1b Human Capital 396
Case Study: The Increasing Value of Skills 397
In The News: Higher Education as an Investment 398
19-1c Ability, Effort, and Chance 399
Case Study: The Benefits of Beauty 400
19-Id An Alternative View of Education: Signaling 401
19-le The Superstar Phenomenon 402
19-1f Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages 402
19-2 The Economics of Discrimination 403
19-2a Measuring Labor-Market Discrimination 403
Case Study: Is Emily More Employable than Lakisha? 405
19-2b Discrimination by Employers 405
Case Study: Segregated Streetcars and the Profit Motive 406
19-2c Discrimination by Customers and Governments 406
Case Study: Discrimination in Sports 407
In The News: Gender Differences 408
19-3 Conclusion 408
Summary 409
Key Concepts 410
Questions for Review 410
Quick Check Multiple Choice 410
Problems and Applications 411

Income Inequality and Poverty 413
20-1 The Measurement of Inequality 414
20-1a U.S. Income Inequality 414
20-1b Inequality around the World 416
20-1c The Poverty Rate 417
20-1d Problems in Measuring Inequality 418
Case Study: Alternative Measures of Inequality 420
20-1e Economic Mobility 420
20-2 The Political Philosophy of Redistributing Income 421
20-2a Utilitarianism 421
20-2b Liberalism 422
20-2c Libertarianism 423
20-3 Policies to Reduce Poverty 424
20-3a Minimum-Wage Laws 424
20-3b Welfare 425
20-3c Negative Income Tax 425
20-3d In-Kind Transfers 426
20-3e Antipoverty Programs and Work Incentives 427
In The News: International Differences in Income Redistribution 428
20-4 Conclusion 428
Summary 430
Key Concepts 430
Questions for Review 430
Quick Check Multiple Choice 430
Problems and Applications 431

Part VII Topics for Further Study
The Theory of Consumer Choice 435
21-1 The Budget Constraint: What the Consumer Can Afford 436
21-2 Preferences: What the Consumer Wants 437
21-2a Representing Preferences with Indifference Curves 438
21-2b Four Properties of Indifference Curves 439
21-2c Two Extreme Examples of Indifference Curves 440
21-3 Optimization: What the Consumer Chooses 442
21-3a The Consumer's Optimal Choices 442
FYI: Utility: An Alternative Way to Describe Preferences and Optimization 443
21-3b How Changes in Income Affect the Consumer's Choices 444
21-3c How Changes in Prices Affect the Consumer's Choices 445
21-3d Income and Substitution Effects 446
21-3e Deriving the Demand Curve 448
21-4 Three Applications 449
21-4a Do All Demand Curves Slope Downward? 449
Case Study: The Search for Giffen Goods 450
21-4b How Do Wages Affect Labor Supply? 450
Case Study: Income Effects on Labor Supply: Historical Trends, Lottery Winners, and the Carnegie Conjecture 453
21-4c How Do Interest Rates Affect Household Saving? 454
21-5 Conclusion: Do People Really Think This Way? 456
Summary 457
Key Concepts 457
Questions for Review 457
Quick Check Multiple Choice 458
Problems and Applications 458

Frontiers of Microeconomics 461
22-1 Asymmetric Information 462
22-1a Hidden Actions: Principals, Agents, and Moral Hazard 462
FYI: Corporate Management 463
22-1b Hidden Characteristics: Adverse Selection and the Lemons Problem 464
22-1c Signaling to Convey Private Information 465
Case Study: Gifts as Signals 465
22-1d Screening to Uncover Private Information 466
22-1e Asymmetric Information and Public Policy 466
22-2 Political Economy 467
22 -2a The Condorcet Voting Paradox 467
22-2b Arrows Impossibility Theorem 468
22 -2c The Median Voter Is King 469
22-2d Politicians Are People Too 471
22-3 Behavioral Economics 471
22-3a People Aren't Always Rational 471
Case Study: Left-Digit Bias 473
22-3b People Care about Fairness 474
22-3c People Are Inconsistent over Time 475
In The News: Can Brain Science Improve Economics? 476
22-4 Conclusion 476
Summary 478
Key Concepts 478
Questions for Review 478
Quick Check Multiple Choice 478
Problems and Applications 479

Part VIII The Data of Macroeconomics
Measuring a Nation's Income 483
23-1 The Economy's Income and Expenditure 484
23-2 The Measurement of GDP 486
23-2a"GDP Is the MarketValue..." 486
23-2b"...of All ..." 486
23-2c"... Final_" 487
23-2d". ..Goods and Services ..." 487
23-2e". ..Produced..." 487
23-2f"... Within a Country..." 487
23-2g"... Ina Given Period of Time." 487
23-3 The Components of GDP 488
FYI: Other Measures of Income 489
23-3a Consumption 489
23-3b Investment 489
23-3c Government Purchases 490
23-3d Net Exports 490
Case Study: The Components of U.S. GDP 491
23-4 Real versus Nominal GDP 491
In The News: The BEA Changes the Definitions of Investment and GDP 492
23-4a A Numerical Example 492
23-4b The GDP Deflator 494
Case Study: Real GDP over Recent History 495
23-5 Is GDP a Good Measure of Economic Well-Being? 496
Case Study: International Differences in GDP and the Quality of Life 497
In The News: The Underground Economy 498
In The News: Measuring Macroeconomic Well-Being 500
23-6 Conclusion 500
Summary 502
Key Concepts 502
Questions for Review 502
Quick Check Multiple Choice 502
Problems and Applications 503

Measuring the Cost of Living 505
24-1 The Consumer Price Index 506
'4-1a How the CPI Is Calculated 506
FYI: What Is in the CPI's Basket? 508
'4-1b Problems in Measuring the Cost of Living 509
In The News: Monitoring Inflation in the Internet Age 510
24-1c The GDP Deflator versus the Consumer Price Index 512
24-2 Correcting Economic Variables for the Effects of Inflation 513
24-2a Dollar Figures from Different Times 514 24-2b Indexation 514
FYI: Mr. Index Goes to Hollywood 515
24-2c Real and Nominal Interest Rates 515
Case Study: Interest Rates in the U.S. Economy 517
24-3 Conclusion 518
Summary 518
Key Concepts 519
Questions for Review 519
Quick Check Multiple Choice 519
Problems and Applications 519

Part IX The Real Economy in the Long Run 521
Production and Growth 523
25-1 Economic Growth around the World 524
25-2 Productivity: Its Role and Determinants 526
FYI: Are You Richer Than the Richest American? 526
25-2a Why Productivity Is So Important 527
25-2b How Productivity Is Determined 527
FYI: A Picture Is Worth a Thousand Statistics 528
FYI: The Production Function 531
Case Study: Are Natural Resources a Limit to Growth? 532
25-3 Economic Growth and Public Policy 532
25-3a Saving and Investment 533
25 -3b Diminishing Returns and the Catch -Up Effect 533
25-3c Investment from Abroad 535
25-3d Education 536
25-3e Health and Nutrition 536
25-3f Property Rights and Political Stability 537
In The News: Does Food Aid Help or Hurt? 538
25-3g Free Trade 539
25-3h Research and Development 540
25-3i Population Growth 540
In The News: One Economist's Answer 542
25-4 Conclusion: The Importance of Long-Run Growth 544
Summary 545
Key Concepts 545
Questions for Review 545
Quick Check Multiple Choice 545
Problems and Applications 546

Saving, Investment, and the Financial System 547
26-1 Financial Institutions in the U.S. Economy 548
26-1a Financial Markets 548
26-1b Financial Intermediaries 550
FYI: Key Numbers for Stock Watchers 551
26-1c Summing Up 552
In The News: Should Students Sell Equity in Themselves? 553
26-2 Saving and Investment in the National Income Accounts 554
26-2a Some Important Identities 554
26-2b The Meaning of Saving and Investment 556
26-3 The Market for Loanable Funds 556
26-3a Supply and Demand for Loanable Funds 557
26-3b Policy 1: Saving Incentives 558
26-3c Policy 2: Investment Incentives 560
26-3d Policy 3: Government Budget Deficits and Surpluses 561
Case Study: The History of U.S. Government Debt 563
FYI: Financial Crises 565
26-4 Conclusion 565
Summary 566
Key Concepts 566
Questions for Review 566
Quick Check Multiple Choice 567
Problems and Applications 567

The Basic Tools of Finance 569
27-1 Present Value: Measuring the Time Value of Money 570
FYI: The Magic of Compounding and the Rule of 70 572
27-2 Managing Risk 572
27-2a Risk Aversion 572
27-2b The Markets for Insurance 573
27-2c Diversification of Firm-Specific Risk 574
27-2d The Trade-off between Risk and Return 575
27-3 Asset Valuation 576
27-3a Fundamental Analysis 577
27-3b The Efficient Markets Hypothesis 577
Case Study: Random Walks and Index Funds 578
27-3c Market Irrationality 579
In The News: Is the Efficient Markets Hypothesis Kaput? 580
27-4 Conclusion 581
Summary 581
Key Concepts 581
Questions for Review 581
Quick Check Multiple Choice 582
Problems and Applications 582

Unemployment 585
28-1 Identifying Unemployment 586
28-1a How Is Unemployment Measured? 586
Case Study: Labor-Force Participation of Men and Women in the U.S. Economy 589
28-1b Does the Unemployment Rate Measure What We Want It To? 590
28-1c How Long Are the Unemployed without Work? 592
28-1d Why Are There Always Some People Unemployed? 592
FYI: The Jobs Number 593
28-2 Job Search 593
28-2a Why Some Frictional Unemployment Is Inevitable 594
28-2b Public Policy and Job Search 594
28-2c Unemployment Insurance 595
In The News: Why Has Employment Declined? 596
28-3 Minimum-Wage Laws 596
28-4 Unions and Collective Bargaining 598
FYI: Who Earns the Minimum Wage? 599
28-4a The Economics of Unions 599
28-4b Are Unions Good or Bad for the Economy? 600
28-5 The Theory of Efficiency Wages 601
28-5a Worker Health 601
28-5b Worker Turnover 602
28-5c Worker Quality 602
28-5d Worker Effort 603
Case Study: Henry Ford and theVery Generous $5-a-Day Wage 603
28-6 Conclusion 604
Summary 604
Key Concepts 604
Questions for Review 605
Quick Check Multiple Choice 605
Problems and Applications 605

Part X Money and Prices in the Long Run
The Monetary System 609
29-1 The Meaning of Money 610
29-1a The Functions of Money 611
29-1b The Kinds of Money 611
In The News: Why Gold? 612
29-1c Money in the U.S. Economy 613
FYI: Why Credit Cards Aren't Money 614
Case Study: Where Is All the Currency? 615
29-2 The Federal Reserve System 615
29-2a The Fed's Organization 615
29-2b The Federal Open Market Committee 616
29-3 Banks and the Money Supply 617
29-3a The Simple Case of 100-Percent-Reserve Banking 617
29-3b Money Creation with Fractional-Reserve Banking 618
29-3c The Money Multiplier 619
29-3d Bank Capital, Leverage, and the Financial Crisis of 2008-2009 620
29-4 The Fed's Tools of Monetary Control 622
29-4a How the Fed Influences the Quantity of Reserves 622
29-4b How the Fed Influences the Reserve Ratio 623
29-4c Problems in Controlling the Money Supply 624
Case Study: Bank Runs and the Money Supply 625
In The News: Bernanke on the Fed's Toolbox 626
29-4d The Federal Funds Rate 628
29-5 Conclusion 629
Summary 629
Key Concepts 629
Questions for Review 630
Quick Check Multiple Choice 630
Problems and Applications 630

Money Growth and Inflation 633
30-1 The Classical Theory of Inflation 634
30-1a The Level of Prices and the Value of Money 635
30-1b Money Supply, Money Demand, and Monetary Equilibrium 635
30-1c The Effects of a Monetary Injection 637
30-1d A Brief Look at the Adjustment Process 638
30-1e The Classical Dichotomy and Monetary Neutrality 639
30-1f Velocity and the Quantity Equation 640
Case Study: Money and Prices during Four Hyperinflations 642
30-1g The Inflation Tax 642
30-1h The Fisher Effect 644
FYI: Hyperinflation in Zimbabwe 644
30-2 The Costs of Inflation 646
30-2a A Fall in Purchasing Power? The Inflation Fallacy 647
30-2b Shoeleather Costs 647
30-2c Menu Costs 648
30-2d Relative -Price Variability and the Misallocation of Resources 648
30 -2e Inflation-Induced Tax Distortions 649
30-2f Confusion and Inconvenience 650
30-2g A Special Cost of Unexpected Inflation: Arbitrary Redistributions of Wealth 651
30-2h Inflation Is Bad, But Deflation May Be Worse 652
Case Study: The Wizard of Oz and the Free-Silver
Debate 652
30-3 Conclusion 654
Summary 654
Key Concepts 654
Questions for Review 655
Quick Check Multiple Choice 655
Problems and Applications 655

Part XI The Macroeconomics of Open Economies
Open-Economy Macroeconomics: Basic Concepts 659
31-1 The International Flows of Goods and Capital 660
31-1a The Flow of Goods: Exports, Imports, and Net Exports 660
Case Study: The Increasing Openness of the U.S. Economy 661
In The News: The Changing Nature of U.S. Exports 662
31 -1b The Flow of Financial Resources: Net Capital Outflow 664
31-1c The Equality of Net Exports and Net Capital Outflow 665
31-1d Saving, Investment, and Their Relationship to the International Flows 666
31-1e Summing Up 667
Case Study: Is the U.S. Trade Deficit a National Problem? 668
31-2 The Prices for International Transactions: Real and Nominal Exchange Rates 670
31-2a Nominal Exchange Rates 670
FYI: The Euro 671
31-2b Real Exchange Rates 672
31-3 A First Theory of Exchange-Rate Determination: Purchasing-Power Parity 673
31-3a The Basic Logic of Purchasing-Power Parity 674
31-3b Implications of Purchasing-Power Parity 674
Case Study: The Nominal Exchange Rate during a
Hyperinflation 676
31-3c Limitations of Purchasing-Power Parity 677
Case Study: The Hamburger Standard 677
31-4 Conclusion 678
Summary 679
Key Concepts 679
Questions for Review 679
Quick Check Multiple Choice 679
Problems and Applications 680

A Macroeconomic Theory of the Open Economy 683
32-1 Supply and Demand for Loanable Funds and for Foreign-Currency Exchange 684
32-1a The Market for Loanable Funds 684
32-1b The Market for Foreign-Currency Exchange 686
FYI: Purchasing-Power Parity as a Special Case 688
32-2 Equilibrium in the Open Economy 689
32-2a Net Capital Outflow: The Link between the Two Markets 689
32-2b Simultaneous Equilibrium in Two Markets 690
FYI: Disentangling Supply and Demand 692
32-3 How Policies and Events Affect an Open Economy 692
32-3a Government Budget Deficits 692
32-3b Trade Policy 694
32-3c Political Instability and Capital Flight 697
Case Study: Capital Flows from China 699
In The News: Is a Strong Currency Always in a Nation's Interest? 700
32-4 Conclusion 700
Summary 702
Key Concepts 702
Questions for Review 702
Quick Check Multiple Choice 702
Problems and Applications 703

Part XII Short-Run Economic Fluctuations
Aggregate Demand and Aggregate Supply 707
33-1 Three Key Facts about Economic Fluctuations 708
33-1a Fact 1: Economic Fluctuations Are Irregular and Unpredictable 708
33-1b Fact 2: Most Macroeconomic Quantities Fluctuate Together 710
33-1c Fact 3: As Output Falls, Unemployment Rises 710
33-2 Explaining Short-Run Economic Fluctuations 710
33-2a The Assumptions of Classical Economics 710
33-2b The Reality of Short -Run Fluctuations 711
In The News: The Social Influences of Economic Downturns 712
33 -2c The Model of Aggregate Demand and Aggregate Supply 712
33-3 The Aggregate-Demand Curve 714
33-3a Why the Aggregate-Demand Curve Slopes Downward 714
33-3b Why the Aggregate-Demand Curve Might Shift 717
33-4 The Aggregate-Supply Curve 719
33-4a Why the Aggregate- Supply Curve IsVertical in the Long Run 720
33-4b Why the Long-Run Aggregate- Supply Curve Might Shift 721
33-4c Using Aggregate Demand and Aggregate Supply to Depict Long-Run Growth and Inflation 722
33-4d Why the Aggregate- Supply Curve Slopes Upward in the Short Run 723
33-4e Why the Short-Run Aggregate- Supply Curve Might Shift 727
33-5 Two Causes of Economic Fluctuations 728
33-5a The Effects of a Shift in Aggregate Demand 729
FYI: Monetary Neutrality Revisited 731
Case Study: Two Big Shifts in Aggregate Demand: The Great
Depression and World War II 732
Case Study: The Recession of 2008-2009 733,
In The News: What Have We Learned? 734
33-5b The Effects of a Shift in Aggregate Supply 736
Case Study: Oil and the Economy 738
FYI: The Origins of the Model of Aggregate Demand and Aggregate Supply 739
33-6 Conclusion 740
Summary 740
Key Concepts 741
Questions for Review 741
Quick Check Multiple Choice 742
Problems and Applications 742

The Influence of Monetary and Fiscal Policy on Aggregate Demand 745
34-1 How Monetary Policy Influences Aggregate Demand 746
34-la The Theory of Liquidity Preference 747
34-lb The Downward Slope of the Aggregate-Demand Curve 749
FYI: Interest Rates in the Long Run and the Short Run 750
34-1c Changes in the Money Supply 751
34-1d The Role of Interest-Rate Targets in Fed Policy 753
FYI: The Zero Lower Bound 753
Case Study: Why the Fed Watches the Stock Market (and Vice Versa) 754
34-2 How Fiscal Policy Influences Aggregate Demand 755
34-2a Changes in Government Purchases 755
34-2b The Multiplier Effect 756
34-2c A Formula for the Spending Multiplier 757
34-2d Other Applications of the Multiplier Effect 758
34-2e The Crowding-Out Effect 758
34-2f Changes inTaxes 759
FYI: How Fiscal Policy Might Affect Aggregate Supply 760
34-3 Using Policy to Stabilize the Economy 760
34-3a The Case for Active Stabilization Policy 761
Case Study: Keynesians in the White House 762
In The News: How Large Is the Fiscal Policy Multiplier? 762
34-3b The Case against Active Stabilization Policy 764
34-3c Automatic Stabilizers 764
34-4 Conclusion 765
Summary 766
Key Concepts 766
Questions for Review 766
Quick Check Multiple Choice 767
Problems and Applications 767

The Short-Run Trade-off between Inflation and Unemployment 769
35-1 The Phillips Curve 770
35-1a Origins of the Phillips Curve 770
35-1b Aggregate Demand, Aggregate Supply, and the Phillips Curve 771
35-2 Shifts in the Phillips Curve: The Role of Expectations 773
35-2a The Long-Run Phillips Curve 773
35-2b The Meaning of "Natural" 775
35-2c Reconciling Theory and Evidence 776
35-2d The Short-Run Phillips Curve 777
35-2e The Natural Experiment for the Natural-Rate Hypothesis 778
35-3 Shifts in the Phillips Curve: The Role of Supply Shocks 780
35-4 The Cost of Reducing Inflation 782
35-4a The Sacrifice Ratio 783
35-4b Rational Expectations and the Possibility of Costless Disinflation 784
35- 4c The Volcker Disinflation 785
35-4d The Greenspan Era 787
35-4e A Financial Crisis Takes Us for a Ride along the Phillips Curve 788
35-5 Conclusion 789
Summary 790
Key Concepts 790
Questions for Review 790
Quick Check Multiple Choice 790
Problems and Applications 791

Part XIII Final Thoughts
Six Debates over Macroeconomic Policy 795
36-1 Should Monetary and Fiscal Policymakers Try to Stabilize the Economy? 796
36-1a Pro: Policymakers Should Try to Stabilize the Economy 796
36-1b Con: Policymakers Should Not Try to Stabilize the Economy 796
In The News: How Long Will the Fed Keep Interest Rates at Zero? 798
36-2 Should the Government Fight Recessions with Spending Hikes Rather Than Tax Cuts? 798
36-2a Pro: The Government Should Fight Recessions with Spending Hikes 798
36-2b Con: The Government Should Fight Recessions with Tax Cuts 800
36-3 Should Monetary Policy Be Made by Rule Rather Than by Discretion? 802
36-3a Pro: Monetary Policy Should Be Made by Rule 802
36-3b Con: Monetary Policy Should Not Be Made by Rule 803
FYI: Inflation Targeting 804
36-4 Should the Central Bank Aim for Zero Inflation? 804
36-4a Pro: The Central Bank Should Aim for Zero Inflation 805
36-4b Con: The Central Bank Should Not Aim for Zero Inflation 806
In The News: What Is the Optimal Inflation Rate? 807
36-5 Should the Government Balance Its Budget? 808
36-5a Pro: The Government Should Balance Its Budget 808
36-5b Con: The Government Should Not Balance Its Budget 809
In The News: What Would an American Fiscal Crisis Look Like? 810
36-6 Should the Tax Laws Be Reformed to Encourage Saving? 812
36-6a Pro: The Tax Laws Should Be Reformed to Encourage Saving 812
36-6b Con: The Tax Laws Should Not Be Reformed to Encourage Saving 813
36-7 Conclusion 814
Summary 815
Questions for Review 815
Quick Check Multiple Choice 815
Problems and Applications 816

Glossary 817
Index 825

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