영문목차

PART I. INTRODUCTION : THINKING LIKE AN ECONOMIST

1. Economics and Economic Reasoning=4

What Economics Is=4

Scarcity=5

Microeconomics and Macroeconomics=5

A Guide to Economic Reasoning=6

Marginal Costs and Marginal Benefits=7

The Economic Decision Rule=8

Economics and Passion=8

Opportunity Cost=9

Economic Forces, Social Forces, and Political Forces=10

Using Economic Insights=12

The Invisible Hand Theorem=13

Economic Theory and Stories=14

Economic Institutions=15

Economic Policy Options=15

Objective Policy Analysis=16

Policy and Social and Political Forces=19

Conclusion=19

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=19

2. The Production Possibility Model, Trade, and Globalization=24

The Production Possibilities Model=24

A Production Possibility Curve for an Individual=24

Increasing Opportunity Costs of the Trade-off=25

Comparative Advantage=27

Efficiency=28

Distribution and Productive Efficiency=28

Examples of Shifts in the PPC=30

Trade and Comparative Advantage=30

Markets, Specialization, and Growth=32

The Benefits of Trade=32

Globalization and the Law of One Price=34

Globalization=34

Exchange Rates and Comparative Advantage=36

The Law of One Price=37

Globalization and the Timing of Benefits of Trade=37

Conclusion=37

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=38

Appendix A. Graphish : The Language of Graphs=42

3. Economic Institutions=51

Economic Systems=52

How Markets Work=52

What's Good about the Market?=53

Capitalism and Socialism=53

Economic Institutions in a Market Economy=55

Business=56

Households=59

The Roles of Government=61

Government as an Actor=61

Government as a Referee=62

Specific Roles for Government=63

Market Failures and Government Failures=65

Global Institutions=66

Global Corporations=66

Coordinating Global Issues=66

Conclusion=67

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=68

Appendix A. The History of Economic Systems=71

4. Supply and Demand=77

Demand=77

The Law of Demand=78

The Demand Curve=78

Shifts in Demand versus Movements along a Demand Curve=79

Some Shift Factors of Demand=80

The Demand Table=81

From a Demand Table to a Demand Curve=81

Individual and Market Demand Curves=82

Supply=84

The Law of Supply=84

The Supply Curve=85

Shifts in Supply versus Movements along a Supply Curve=85

Shift Factors of Supply=86

The Supply Table=87

From a Supply Table to a Supply Curve=87

Individual and Market Supply Curves=87

The Interaction of Supply and Demand=88

Equilibrium=89

The Graphical Interaction of Supply and Demand=90

What Equilibrium Isn't=90

Political and Social Forces and Equilibrium=91

Shifts in Supply and Demand=92

A Limitation of Supply/Demand Analysis=94

Conclusion=94

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=95

5. Using Supply and Demand=100

Real-World Supply and Demand Applications=100

Government Intervention : Price Ceilings and Price Floors=103

Price Ceilings=104

Price Floors=106

Government Intervention : Excise Taxes and Tariffs=107

Government Intervention : Quantity Restrictions=108

Third-Party-Payer Markets=109

Conclusion=111

Summary, Key Terms, Questions and Exercises,Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=111

Appendix A. Algebraic Representation of Supply, Demand, and Equilibrium=116

PART II. MICROECONOMICS

SECTION I. THE POWER OF TRADITIONAL ECONOMIC MODELS

6. Describing Supply and Demand : Elasticities=122

Price Elasticity=122

What Information Price Elasticity Provides=123

Classifying Demand and Supply as Elastic or Inelastic=123

Elasticity Is Independent of Units=123

Calculating Elasticities=124

Other Examples=126

Elasticity Is Not the Same as Slope=126

Elasticity Changes along Straight-Line Curves=126

Substitution and Elasticity=129

Substitution and Demand=130

How Substitution Factors Affect Specific Decisions=130

Elasticity, Total Revenue, and Demand=131

Total Revenue along a Demand Curve=132

Elasticity of Individual and Market Demand=133

Income and Cross-Price Elasticity=134

Income Elasticity of Demand=134

Cross-Price Elasticity of Demand=135

Some Examples=136

The Power of Supply/Demand Analysis=137

When Should a Supplier Not Raise Price?=137

Elasticity and Shifting Supply and Demand=138

Conclusion=138

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=139

7. Taxation and Government Intervention=144

Producer and Consumer Surplus=144

Burden of Taxation=146

Who Bears the Burden of a Tax?=148

Tax Incidence and Current Policy Debates=150

Government Intervention as Implicit Taxation=152

Price Ceilings and Floors=152

The Difference between Taxes and Price Controls=153

Rent Seeking, Politics, and Elasticities=153

Inelastic Demand and Incentives to Restrict Supply=155

Inelastic Supplies and Incentives to Restrict Prices=156

The Long-Run/Short-Run Problem of Price Controls=157

Conclusion=158

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=159

8. Market Failure versus Government Failure=164

Externalities=164

A Negative Externality Example=166

A Positive Externality Example=167

Alternative Methods of Dealing with Externalities=167

Direct Regulation=167

Incentive Policies=168

Voluntary Reductions=170

The Optimal Policy=170

Public Goods=171

The Market Value of a Public Good=171

Excludability and the Costs of Pricing=173

Informational and Moral Hazard Problems=174

Signaling and Screening=175

Policies to Deal with Informational Problems=175

Government Failure and Market Failures=178

Conclusion=180

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=180

8W. Politics and Economics : The Case of Agricultural Markets=185, 8W-1

The Good/Bad Paradox in Agriculture=8W-2

The Long-Run Decline of Farming=8W-2

The Short-Run Cyclical Problem Facing Farmers=8W-3

The Difficulty of Coordinating Farm Production=8W-4

Ways around the Good/Bad Paradox=8W-4

The General Rule of Political Economy=8W-4

Four Price Support Options=8W-5

Supporting the Price by Regulatory Measures=8W-6

Providing Economic Incentives to Reduce Supply=8W-8

Subsidizing the Sale of the Good=8W-8

Buying Up and Storing, Giving Away, or Destroying the Good=8W-9

Which Group Prefers Which Option?=8W-9

Economics, Politics, and Real-World Policies=8W-10

Interest Groups=8W-10

International Issues=8W-11

Conclusion=8W-12

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=8W-13

SECTION II. INTERNATIONAL ECONOMIC POLICY ISSUES

9. Comparative Advantage, Exchange Rates, and Globalization=186

The Principle of Comparative Advantage=186

The Gains from Trade=186

Dividing Up the Gains from Trade=188

Why Economists and Laypeople Differ in Their Views of Trade=190

Gains Are Often Stealth=190

Opportunity Cost Is Relative=190

Trade Is Broader Than Manufactured Goods=190

Trade Has Distributional Effects=191

Sources of U.S. Comparative Advantage=192

Some Concerns about the Future=194

Inherent and Transferable Sources of Comparative Advantages=194

The Law of One Price=194

How the United States Gained and Is Now Losing Sources of Comparative Advantage=195

Methods of Equalizing Trade Balances=195

Determination of Exchange Rates and Trade=196

Exchange Rates and Trade=198

Some Complications in Exchange Rates=199

Conclusion=200

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=200

10. International Trade Policy=205

The Nature and Patterns of Trade=205

Increasing but Fluctuating World Trade=205

Differences in the Importance of Trade=206

What and with Whom the United States Trade=206

Debtor and Creditor Nations=209

Varieties of Trade Restrictions=210

Tariffs and Quotas=210

Voluntary Restraint Agreements=212

Embargoes=212

Regulatory Trade Restrictions=213

Nationalistic Appeals and "Buy Domestic" Requirements=213

Reasons for Trade Restrictions=213

Unequal Internal Distribution of the Gains from Trade=214

Haggling by Companies over the Gains from Trade=215

Haggling by Countries over Trade Restrictions=216

Specialized Production=216

Macroeconomic Costs of Trade=218

National Security=218

International Politics=218

Increased Revenue Brought in by Tariffs=219

Why Economists Generally Oppose Trade Restrictions=219

Institutions Supporting Free Trade=220

Conclusion=222

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=222

SECTION III. PRODUCTION AND COST ANALYSIS

11. Production and Cost Analysis I=226

The Role of the Firm=227

Firms Maximize Profit=227

Economic Profit=228

The Production Process=229

The Long Run and the Short Run=229

Production Tables and Production Functions=230

The Law of Diminishing Marginal Productivity=231

The Costs of Production=232

Fixed Costs, Variable Costs, and Total Costs=232

Average Costs=233

Marginal Cost=234

Graphing Cost Curves=235

Total Cost Curves=235

Average and Marginal Cost Curves=236

Downward-Sloping Shape of the Average Fixed Cost Curve=236

The U Shape of the Average Cost Curves=236

The Relationship between the Marginal Productivity and Marginal Cost Curves=237

The Relationship between the Marginal Cost and Average Cost Curves=238

Intermission=239

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=240

12. Production and Cost Analysis II=245

Technical Efficiency and Economic Efficiency=246

The Shape of the Long-Run Cost Curve=246

Economies of Scale=246

Diseconomies of Scale=248

Constant Returns to Scale=250

The Importance of Economies and Diseconomies of Scale=250

Envelope Relationship=250

Entrepreneurial Activity and the Supply Decision=252

Using Cost Analysis in the Real World=253

Economies of Scope=253

Learning by Doing and Technological Change=254

Many Dimensions=256

Unmeasured Costs=257

The Standard Model as a Framework=258

Conclusion=258

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=259

Appendix A. Isocost/Isoquant Analysis=262

SECTION IV. MARKET STRUCTURE

13. Perfect Competition=267

Perfect Competition as a Reference Point=267

Conditions for Perfect Competition=267

Demand Curves for the Firm and the Industry=268

The Profit-Maximizing Level of Output=268

Marginal Revenue=269

Marginal Cost=269

Profit Maximization : MC ＝ MR=270

The Marginal Cost Curve Is the Supply Curve=271

Firms Maximize Total Profit=272

Total Profit at the Profit-Maximizing Level of Output=273

Determining Profit from a Table of Costs and Revenue=273

Determining Profit from a Graph=274

The Shutdown Point=276

Short-Run Market Supply and Demand=276

Long-Run Competitive Equilibrium : Zero Profit=277

Adjustment from the Short Run to the Long Run=279

An Increase in Demand=279

Long-Run Market Supply=280

An Example in the Real World=281

Conclusion=282

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=282

14. Monopoly and Monopolistic Competition=288

The Key Difference between a Monopolist and a Perfect Competitor=288

A Model of Monopoly=289

Determining the Monopolist's Price and Output Numerically=289

Determining Price and Output Graphically=290

Comparing Monopoly and Perfect Competition=292

An Example of Finding Output and Price=292

Profits and Monopoly=293

Welfare Loss from Monopoly=295

The Normal Monopolist=295

The Price-Discriminating Monopolist=296

Barriers to Entry and Monopoly=297

Natural Ability=299

Natural Monopolies=299

Government-Created Monopolies=301

Government Policy and Monopoly : AIDS Drugs=301

Monopolistic Competition=302

Characteristics of Monopolistic Competition=302

Output, Price, and Profit of a Monopolistic Competitor=304

Comparing Monopolistic Competition with Perfect Competition=305

Comparing Monopolistic Competition with Monopoly=306

Advertising and Monopolistic Competition=306

Conclusion=307

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=308

Appendix A. The Algebra of Competitive and Monopolistic Firms=313

15. Oligopoly and Antitrust Policy=315

The Distinguishing Characteristics of Oligopoly=315

Models of Oligopoly Behavior=316

The Cartel Model=316

The Contestable Market Model=318

Comparison of the Contestable Market Model and the Cartel Model=319

Classifying Industries and Markets in Practice=320

The North American Industry Classification System=320

Empirical Measures of Industry Structure=322

Conglomerate Firms and Bigness=323

Oligopoly Models and Empirical Estimates of Market Structure=323

Antitrust Policy=324

Judgment by Performance or Structure?=324

Standard Oil : Judging Market Competitiveness by Performance=325

The ALCOA Case : Judging Market Competitiveness by Structure=325

Judging Markets by Structure and Performance : The Reality=325

Recent Antitrust Enforcement=327

Assessment of U.S. Antitrust Policy=329

Conclusion=330

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=330

16. Real-World Competition and Technology=334

The Goals of Real-World Firms and the Monitoring Problem=335

Short-Run versus Long-Run Profit=335

The Problem with Profit Maximization=335

What Do Real-World Firms Maximize?=337

The Lazy Monopolist and X-Inefficiency=338

The Fight between Competitive and Monopolistic Forces=340

How Monopolistic Forces Affect Perfect Competition=340

Economic Insights and Real-World Competition=341

How Competitive Forces Affect Monopoly=341

Competition and Natural Monopoly=342

How Firms Protect Their Monopolies=344

Cost/Benefit Analysis of Creating and Maintaining Monopolies=344

Establishing Market Position=345

Technology, Efficiency, and Market Structure=346

Perfect Competition and Technology=346

Monopolistic Competition and Technology=347

Monopoly and Technology=347

Oligopoly and Technology=347

Network Externalities, Standards, and Technological Lock-In=348

Conclusion=349

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=350

SECTION V. FACTOR MARKETS

17. Work and the Labor Market=354

The Supply of Labor=355

Real Wages and the Opportunity Cost of Work=356

The Supply of Labor and Nonmarket Activities=356

Income Taxation, Work, and Leisure=357

The Elasticity of the Supply of Labor=358

Immigration and the International Supply of Labor=359

The Derived Demand for Labor=359

Factors Influencing the Elasticity of Demand for Labor=360

Labor as a Factor of Production=360

Shift Factors of Demand=361

Determination of Wages=363

Imperfect Competition and the Labor Market=364

Political and Social Forces and the Labor Market=365

Fairness and the Labor Market=365

Discrimination and the Labor Market=367

Three Types of Direct Demand-Side Discrimination=367

Institutional Discrimination=369

The Evolution of Labor Markets=370

Evolving Labor Laws=370

Unions and Collective Bargaining=371

The Labor Market and You=372

Conclusion=374

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=374

Appendix A. Derived Demand=378

17W. Nonwage and Asset Income : Rents, Profits, and Interest=385,I7W-1

Rent=17W-2

The Effect of a Tax on Land=17W-3

Quasi Rents=17W-4

Rent Seeking and Institutional Constraints=17W-5

Profit=17W-6

Profit, Entrepreneurship, and Disequilibrium Adjustment=17W-6

Market Niches, Profit, and Rent=17W-6

Interest=17W-7

The Present Value Formula=17W-8

Some Rules of Thumb for Determining Present Value=17W-8

The Importance of Present Value=17W-10

The Marginal Productivity Theory of Income Distribution=17W-11

Conclusion=17W-12

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=17W-12

18. Who Gets What? The Distribution of Income=386

Measuring the Distribution of Income, Wealth, and Poverty=387

The Lorenz Curve=387

U.S. Income Distribution over Time=388

Defining Poverty=390

International Dimensions of Income Inequality=392

The Distribution of Wealth=394

Socioeconomic Dimensions of Income and Wealth Inequality=396

Income Distribution According to Socioeconomic Characteristics=396

Income Distribution According to Class=396

Income Distribution and Fairness=399

Philosophical Debates about Equality and Fairness=400

Fairness and Equality=400

Fairness as Equality of Opportunity=401

The Problems of Redistributing Income=402

Three Important Side Effects of Redistributive Programs=402

Politics, Income Redistribution, and Fairness=402

Income Redistribution Policies=403

How Successful Have Income Redistribution Programs Been?=406

Conclusion=407

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=407

SECTION VI. CHOICE AND DECISION MAKING

19. The Logic of Individual Choice : The Foundation of Supply and Demand=411

Rational Choice Theory=411

Total Utility and Marginal Utility=412

Diminishing Marginal Utility=414

Rational Choice and Marginal Utility=414

Maximizing Utility and Equilibrium=416

An Example of Maximizing Utility=417

Extending the Principle of Rational Choice=418

Rational Choice and the Laws of Demand and Supply=419

The Law of Demand=419

Income and Substitution Effects=420

The Law of Supply=421

Opportunity Cost=422

Applying Economists' Theory of Choice to the Real World=422

The Cost of Decision Making=422

Given Tastes=423

Utility Maximization=425

Conclusion=426

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=427

Appendix A. Indifference Curve Analysis=431

20. Game Theory, Strategic Decision Making, and Behavioral Economics=436

Game Theory and the Economic Way of Thinking=436

Game Theory and Economic Modeling=437

The Game Theory Framework=437

The Prisoner's Dilemma=438

Dominant Strategies and Nash Equilibrium=440

An Overview of Game Theory as a Tool in Studying Strategic Interaction=441

Some Specific Games=442

Strategies of Players=442

Informal Game Theory and Modern Behavioral Economics=445

Informal Game Theory=446

Real-World Applications of Informal Game Theory=447

An Application of Game Theory : Auction Markets=449

Game Theory and the Challenge to Standard Economic Assumptions=449

Fairness=450

Endowment Effects=450

Framing Effects=450

Behavioral Economics and the Traditional Model=451

The Importance of the Traditional Model : Money Is Not Left on the Table=451

Conclusion=452

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=452

Appendix A. Game Theory and Oligopoly=456

SECTION VII. MODERN ECONOMIC THINKING

21. Thinking Like a Modern Economist=461

The Nature of Economists' Models=462

Scientific and Engineering Models=463

Behavioral and Traditional Building Blocks=463

Behavioral Economic Models=463

The Advantages and Disadvantages of Modern Traditional and Behavioral Models=466

Behavioral and Traditional Informal(Heuristic) Models=468

The Armchair Economist : Heuristic Models Using Traditional Building Blocks=468

The Economic Naturalist : Heuristic Models Using Behavioral Building Blocks=471

The Limits of Heuristic Models=472

Empirical and Formal Models=473

The Importance of Empirical Work in Modern Economics=473

The Role of Formal Models=476

What Difference Does All This Make to Policy?=482

Conclusion=483

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=483

22. Behavioral Economics and Modern Economic Policy=487

Behavioral Economic Policy in Perspective=487

Behavioral Economics and Economic Engineering=487

Economists as Mechanism Design Engineers=488

Behavioral Economics and Mechanism Design=490

Policy Implications of Traditional Economics=491

Choice Architecture and Behavioral Economic Policy=492

Nudge Policy and Libertarian Paternalism=493

When Are Nudges Needed?=494

Two Types of Nudges=495

The Problems of Implementing Nudges=496

Distinguishing a Nudge from a Push=497

Behavioral and Traditional Economic Policy Frames=498

Concerns about Behavioral Economic Policies=499

Few Policies Meet Libertarian Paternalism Criterion=499

Designing Helpful Policies Is Complicated=499

It Isn't Clear Government Knows Better=500

Government Policy May Make the Situation Worse=500

A Changing View of Economists : From Pro-market Advocates to Economic Engineers=501

Conclusion=501

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=502

23. Microeconomic Policy, Economic Reasoning, and Beyond=505

Economists' Differing Views about Social Policy=506

How Economists' Value Judgments Creep into Policy Proposals=506

The Need for a Worldview=507

Agreement among Economists about Social Policy=508

Economists' Cost/Benefit Approach to Government Regulation=508

The Value of Life=509

Comparing Costs and Benefits of Different Dimensions=511

Putting Cost/Benefit Analysis in Perspective=511

The Problem of Other Things Changing=512

The Cost/Benefit Approach in Context=512

Failure of Market Outcomes=513

Distribution=513

Consumer Sovereignty and Rationality Problems=515

Inalienable Rights=516

Government Failure=518

Conclusion=519

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=520

PART III. MACROECONOMICS

SECTION I. MACROECONOMIC BASICS

24. Economic Growth, Business Cycles, and Structural Stagnation=526

The Historical Development of Macro=527

From Classical to Keynesian Economics=527

Classical Economics=527

Keynesian Economics=528

The Merging of Classical and Keynesian Economics=529

The Unraveling of the Keynesian/Classical Synthesis=529

Two Frameworks : The Long Run and the Short Run=531

Growth=532

Global Experiences with Growth=533

The Prospect for Future U.S. Growth=534

Business Cycles and Structural Stagnation=534

The Phases of the Business Cycle=535

Structural Stagnation=537

Unemployment and Jobs=538

Unemployment as a Social Problem=538

Unemployment as Government's Problem=539

Conclusion=540

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=541

25. Measuring the Aggregate Economy=544

Aggregate Accounting=545

Calculating GDP=545

The Components of GDP=546

Two Things to Remember about GDP=547

Calculating GDP : Some Examples=550

Some Complications=551

Calculating Aggregate Income=553

Equality of Aggregate Income and Aggregate Production=554

Adjusting for Global Dimensions of Production=554

Distinguishing the Real from the Nominal=555

Real GDP, Nominal GDP, and Price Indexes=555

Other Real and Nominal Distinctions=557

Some Limitations of Aggregate Accounting=558

Comparing GDP among Countries=559

GDP Measures Market Activity, Not Welfare=559

Measurement Errors=560

Misinterpretation of Subcategories=560

Genuine Progress Indicator=560

Conclusion=561

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=562

SECTION II. POLICY MODELS

26. The Short-Run Keynesian Policy Model : Demand-Side Policies=566

The Key Insight of the Keynesian AS/AD Model=566

Fixed Price Level=567

The Paradox of Thrift=568

The Components of the AS/AD Model=569

The Aggregate Demand Curve=570

The Slope of the AD Curve=570

Dynamic Price Level Adjustment Feedback Effects=573

Shifts in the AD Curve=573

The Aggregate Supply Curves=576

The Short-Run Aggregate Supply Curve=576

The Long-Run Aggregate Supply Curve=578

Equilibrium in the Aggregate Economy=580

Integrating the Short-Run and Long-Run Frameworks=580

The Recessionary Gap=581

The Inflationary Gap=582

The Economy beyond Potential=582

Aggregate Demand Policy=583

Some Additional Policy Examples=584

Limitations of the AS/AD Model=586

How Feedback Effects Complicate the AS/AD Model=586

Additional Complications that the AS/AD Model Misses=587

Reality and Models=588

Conclusion=588

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=589

26W. The Multiplier Model=593, 26W-1

The Multiplier Model=26W-2

Aggregate Production=26W-2

Aggregate Expenditures=26W-3

Determining the Equilibrium Level of Aggregate Income=26W-8

The Multiplier Equation=26W-8

The Multiplier Process=26W-10

The Circular Flow Model and the Intuition behind the Multiplier Process=26W-11

The Multiplier Model in Action=26W-12

Fiscal Policy in the Multiplier Model=26W-15

Fighting Recession : Expansionary Fiscal Policy=26W-15

Fighting Inflation : Contractionary Fiscal Policy=26W-I7

Using Taxes Rather Than Expenditures as the Tool of Fiscal Policy=26W-18

Limitations of the Multiplier Model=26W-18

The Multiplier Model Is Not a Complete Model of the Economy=26W-19

Shifts Are Sometimes Not as Great as the Model Suggests=26W-19

Fluctuations Can Sometimes Be Greater Than the Model Suggests=26W-19

The Price Level Will Often Change in Response to Shifts in Demand=26W-20

People's Forward-Looking Expectations Make the Adjustment Process Much More Complicated=26W-20

Shifts in Expenditures Might Reflect Desired Shifts in Supply and Demand=26W-21

Expenditures Depend on Much More Than Current Income=26W-21

Conclusion=26W-21

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=26W-22

Appendix A. An Algebraic Presentation of the Expanded Multiplier Model=26W-25

Appendix B. The Multiplier Model and the AS/AD ModeI=26W-29

27. The Classical Long-Run Policy Model : Growth, and Supply-Side Policies=594

General Observations about Growth=595

Growth and the Economy's Potential Output=595

The Benefits and Costs of Growth=596

The Importance of Growth for Living Standards=597

Markets, Specialization, and Growth=598

Economic Growth, Distribution, and Markets=599

Per Capita Growth=600

The Sources of Growth=601

Growth-Compatible Institutions=602

Investment and Accumulated Capital=602

Available Resources=604

Technological Development=605

Entrepreneurship=606

Turning the Sources of Growth into Growth=606

Capital and Investment=607

Technology=608

Growth Policies=610

Conclusion=611

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=612

27W. Advances in Modern Macroeconomic Theory=615, 27W-1

The Standard Macro Model and Modern Macro Theory=27W-1

Engineering Models and Scientific Models=27W-2

Engineering and Scientific Models Are Different Models=27W-3

From the Keynesian Revolution to Modern Macro Models=27W-4

The Emergence of the Keynesian Model=27W-4

A Model without Microfoundations=27W-5

Microfoundations and New Classical Macroeconomics=27W-7

A Beginner's Guide to the DSGE Model=27W-7

Policy Implications of the DSGE Model=27W-9

How Relevant Are the Problems?=27W-11

Modern Macroeconomic Policy and the Collapse of the Tacoma Narrows Bridge=27W-12

The Complexity Approach to Macro : The Future of Modern Macro=27W-13

The Underlying Dynamic Assumptions of the Standard, DSGE, and Complex Systems Models=27W-14

The Standard Macro Model : Backward-Looking Expectations=27W-14

The DSGE Model : Rational Expectations=27W-16

Complex Systems Models : Smart People with Less-Than-Perfect Foresight=27W-16

Macroeconomics, Learning, and Behavioral Economics=27W-18

Agent-Based Computational Economic Models of the Macroeconomy=27W-19

Choosing the Right Model=27W-20

Conclusion=27W-21

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=27W-21

28. The Structural Stagnation Policy Dilemma=616

The Structural Stagnation Hypothesis=617

Differentiating a Structural Stagnation from a Standard Recession=617

Why the Assumed Underlying Growth Trend Is Important for Policy=618

Structural Stagnation as a Cause for the Slow Recovery=620

Structural Stagnation's Implications for Macro Policy=620

Structural, not Secular, Stagnation=621

The AS/AD Model with Globalization=622

Globalization Can Limit Potential Output=624

International Adjustment Forces=625

Why the Adjustments Did Not Occur=625

Aggregate Demand Increases no Longer Cause Accelerating Inflation=626

Shorter-Run Structural Problems Resulting from the Financial Crisis=627

Summary : Globalization and Structural Imbalances=628

Structural Problems of Globalization=628

Structural Change in the Nontradable Sector=628

Globalization and Income Distribution=630

Remembering the Benefits of Globalization=631

The Future of Globalization=631

Policies to Deal with Structural Stagnation=632

Policies to Deal with Short-Run Structural Problems=632

Policies to Deal with Long-Run Structural Problems=633

The Problems with the Standard Political Solution=638

Conclusion=638

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=639

Appendix A. Creating a Targeted Safety Net to Help the Least Well Off=641

SECTION III. FINANCE, MONEY, AND THE ECONOMY

29. The Financial Sector and the Economy=643

The Definition and Functions of Money=644

The U.S. Central Bank : The Fed=644

Functions of Money=645

Alternative Measures of Money=647

Distinguishing between Money and Credit=648

Banks and the Creation of Money=650

How Banks Create Money=650

The Process of Money Creation=652

The Relationship between Reserves and Total Money=654

Faith as the Backing of Our Money Supply=656

Why Is the Financial Sector Important to Macro?=656

The Role of Interest Rates in the Financial Sector=657

The Demand for Money and the Role of the Interest Rate=658

Why People Hold Money=659

The Many Interest Rates in the Economy=660

Conclusion=661

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=661

Appendix A. A Closer Look at Financial Assets and Liabilities=664

30. Monetary Policy=670

How Monetary Policy Works in the Models=670

How Monetary Policy Works in Practice=672

Monetary Policy and the Fed=672

Structure of the Fed=672

Duties of the Fed=675

The Tools of Conventional Monetary Policy=676

Open Market Operations=676

The Reserve Requirement and the Money Supply=678

Borrowing from the Fed and the Discount Rate=680

The Fed Funds Market=680

The Complex Nature of Monetary Policy=681

The Taylor Rule=683

Maintaining Policy Credibility=686

Conclusion=688

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=688

31. Financial Crises, Panics and Unconventional Monetary Policy=692

The Central Bank's Role in a Crisis=692

Anatomy of a Financial Crisis=693

The Financial Crisis : The Bubble Bursts=695

The Fed as Lender of Last Resort=696

The Role of Leverage and Herding in a Crisis=696

Leverage=696

Herding=697

The Problem of Regulating the Financial Sector=698

Regulation, Bubbles, and the Financial Sector=699

The Law of Diminishing Control=701

General Principles of Regulation=702

Monetary Policy in the Post-Financial Crisis Era=703

Unconventional Monetary Policy in the Wake of a Financial Crisis=704

Criticisms of Unconventional Monetary Policy=706

Conclusion=708

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=708

SECTION IV. TAXES, BUDGETS, AND FISCAL POLICY

32. Deficits and Debt=711

Defining Deficits and Surpluses=712

Financing the Deficit=713

Arbitrariness of Defining Deficits and Surpluses=713

Many Right Definitions=713

Deficits and Surpluses as Summary Measures=714

Structural and Cyclical Deficits and Surpluses=714

Projections for the Deficit : The Unpleasant Future=715

Nominal and Real Deficits and Surpluses=716

Defining Debt and Assets=718

Debt Management=718

Difference between Individual and Government Debt=720

U.S. Government Deficits and Debt : The Historical Record=721

The Debt Burden=722

U.S. Debt Relative to Other Countries=722

Interest Rates and Debt Burden=723

Conclusion=724

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=725

33. The Fiscal Policy Dilemma=728

Classical Economics and Sound Finance=728

Ricardian Equivalence Theorem : Deficits Don't Matter=729

The Sound-Finance Precept=729

Keynesian Economics and Functional Finance=730

Assumptions of the AS/AD Model=732

Financing the Deficit Has No Offsetting Effects=732

The Government Knows the Situation=734

The Government Knows the Economy's Potential Income Level=734

The Government Has Flexibility in Changing Spending and Taxes=735

The Size of Government Debt Doesn't Matter=736

Fiscal Policy Doesn't Negatively Affect Other Government Goals=738

Summary of the Problems=738

Building Fiscal Policies into Institutions=739

How Automatic Stabilizers Work=739

State Government Finance and Procyclical Fiscal Policy=739

The Negative Side of Automatic Stabilizers=741

Modern Macro Policy Precepts=741

Conclusion=742

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=744

SECTION V. MACROECONOMIC PROBLEMS

34. Jobs and Unemployment=747

How Is Unemployment Measured?=749

Calculating the Unemployment Rate=750

How Accurate Is the Official Unemployment Rate?=751

Microeconomic Categories of Unemployment=751

Unemployment and Potential Output=753

Okun's Rule of Thumb, Unemployment, and Changes in Output=753

Is Unemployment Structural or Cyclical?=754

Why Has the Target Rate of Unemployment Changed over Time?=756

Explaining the Jobless Recovery : Short-Run Causes of Structural Unemployment=757

Globalization and Jobs=757

Framing the Debate about Voluntary and Involuntary Unemployment=758

Individual Responsibility and Unemployment=758

Social Responsibility and Unemployment=759

The Tough Policy Choices=760

Summary=760

A Guaranteed-Job Proposal : Government as Employer of Last Resort=761

The Design and Characteristics of the Program=761

Why Don't the Guaranteed Jobs Do Something Useful?=762

Paying for the Program=763

Would Such a Plan Ever Be Implemented?=764

Conclusion=765

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=765

35. Inflation, Deflation, and Macro Policy=769

Defining and Measuring Inflation=770

Asset Price Inflation and Deflation=770

Measuring Goods Market Inflations=773

Creating a Price Index=773

The Distributional Effects and Costs of Inflation=775

Distributional Effects=775

Distributional Effects of an Asset Price Inflation=777

Informational Effects of an Inflation=777

Expectations of Inflation and Hyperinflation=777

The Inflation Process and the Quantity Theory of Money=778

Productivity, Inflation, and Wages=779

The Quantity Theory of Money and Inflation=780

The Declining Influence of the Quantity Theory=781

Inflation and the Phillips Curve Trade-Off=783

The Long-Run and Short-Run Phillips Curves=783

Global Competition and the Phillips Curve=786

Conclusion=787

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=787

SECTION VI. INTERNATIONAL MACROECONOMIC POLICY ISSUES

36. International Financial Policy=792

The Balance of Payments=792

The Current Account=794

The Financial and Capital Account=795

Exchange Rates=796

Exchange Rate Dynamics=797

Influencing Exchange Rates with Monetary and Fiscal Policy=799

The Problems of Determining the Appropriate Exchange Rate=803

Purchasing Power Parity and Real Exchange Rates=803

Criticisms of the Purchasing Power Parity Method=804

Real Exchange Rates=805

Advantages and Disadvantages of Alternative Exchange Rate Systems=806

Fixed Exchange Rates=806

Flexible Exchange Rates=807

Partially Flexible Exchange Rates=808

Which View Is Right?=808

Advantages and Disadvantages of a Common Currency : The Future of the Euro=809

Conclusion=812

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=812

Appendix A. History of Exchange Rate Systems=816

37. Macro Policy in a Global Setting=819

The Ambiguous International Goals of Macroeconomic Policy=819

The Exchange Rate Goal=819

The Trade Balance Goal=820

International versus Domestic Goals=821

Balancing the Exchange Rate Goal with Domestic Goals=822

Monetary and Fiscal Policy and the Trade Deficit=823

Monetary Policy's Effect on the Trade Balance=823

Fiscal Policy's Effect on the Trade Balance=824

International Phenomena and Domestic Goals=824

International Goals and Policy Alternatives=825

International Monetary and Fiscal Coordination=825

Coordination Is a Two-Way Street=826

Crowding Out and International Considerations=827

Globalization, Macro Policy, and the U.S. Economy=827

International Issues and Macro Policy=827

Restoring International Trade Balance to the U.S. Economy=829

Conclusion=830

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=830

38. Macro Policy in Developing Countries=834

Developing Countries in Perspective=834

Don't Judge Society by Its Income Alone=835

Some Comparative Statistics on Rich and Poor Nations=836

Growth versus Development=837

Differing Goals=838

Differing Institutions=838

Monetary Policy in Developing Countries=841

Central Banks Are Less Independent=841

Focus on the International Sector and the Exchange Rate Constraint=843

The Need for Creativity=845

Obstacles to Economic Development=845

Political Instability=846

Corruption=847

Lack of Appropriate Institutions=848

Lack of Investment=848

Inappropriate Education=851

Overpopulation=853

Health and Disease=854

Conclusion=855

Summary, Key Terms, Questions and Exercises, Questions from Alternative Perspectives, Issues to Ponder, Answers to Margin Questions=855

Glossary=G

Colloquial Glossary=CG

Photo Credits=P

Index=IND-1

List of Boxes

REAL-WORLD APPLICATION

Winston Churchill and Lady Astor=14

Economists and Market Solutions=16

Economics and Global Warming=18

Made in China?=35

Who Are the 1%?=60

Empirically Measuring Elasticities=135

College Newspaper Editors Should Take More Economics=151

The Excess Burden of a Draft=154

Global Warming and Economic Policy=179

Hormones and Economics=214

The Antiglobalization Forces=217

Transaction Costs and the Internet=228

Changing Technology in Automobile Production=247

Travels of a T-Shirt and Economies of Scale=249

Why Are Textbooks So Long?=252

The Internet and the Perfectly Competitive Model=270

The Shutdown Decision and the Relevant Costs=280

Monopolizing Monopoly=300

Walmart, State Laws, and Competition=326

Nefarious Business Practices=328

Why Are CEOs Paid So Much?=337

Branding=345

From Welfare to Work=406

What Game Is Being Played?=445

Can You Explain Landsburg's Provocative Insights?=470

Can You Explain Frank's Observations?=472

Markets as Information-Gathering Mechanisms=490

Economists in the Courtroom=510

Where to Locate Polluting Industries=517

The Author's Biases=530

NBER Dating of the Business Cycle=535

The Underground Economy and Illegal Immigration=561

Growth and Terrorism=606

Short-Run Supply-Side Macro Policy=611

Why Are the Structural Problems of Globalization So Much Greater Now?=629

Should Mortgage Balances Be Reduced for Underwater Homeowners?=633

Characteristics of a Good Money=648

The Press and Present Value=667

Central Banks in Other Countries=673

Inside an FOMC Meeting=677

Will the Reserve Requirement Be Eliminated?=682

Moral Hazard and Bailouts in the Backcountry=700

Social Security and the U.S. Deficit=718

Fighting the Vietnam War Inflation=736

The Bipartisan National Committee on Fiscal Responsibility and Reform=737

Will the U.S. Fate Follow Greece's Demise?=740

Incentive and Supply-Side Effects of Public Finance=743

Categories of Unemployment=748

Previous Government Jobs Programs=764

Inflation, Nominal Income, and Asset Inflation Targeting=784

Iceland's Monetary Woes=800

Determining the Causes of Fluctuations in the Dollar's Value=804

The U.S. Trade Deficit and the Value of the Dollar=821

A Real, Real-World Application : The Traditional Economy Meets the Internet=841

The Doha Round and Development Aid=849

Millennium Development Goals=852

ADDED DIMENSION

Economic Knowledge in One Sentence : TANSTAAFL=7

Economics in Perspective=10

Choices in Context : Decision Trees=29

The Developing Country's Perspective on Globalization=36

Tradition and Today's Economy=54

Our International Competitors=65

The Supply and Demand for Children=93

Geometric Tricks for Estimating Price Elasticity=129

The Ambiguity of Total Surplus=146

Pareto Optimality and the Perfectly Competitive Benchmark=165

Common Resources and the Tragedy of the Commons=168

Licensure and Surgery=177

International Issues in Perspective=209

Dumping=221

Value Added and the Calculation of Total Production==229

A Trick in Graphing the Marginal Revenue Curve=291

Can Price Controls Increase Output and Lower Market Price?=298

Normative Views of Monopoly=301

Who Controls Corporations?=336

Other Factors of Production=355

Income and Substitution Effects=357

Nonwage Income and Property Rights=366

Democracy in the Workplace=368

The Gini Coefficient=393

What Should Be the Goal of Economic Policy?=401

Making Stupid Decisions=425

Game Theory and Experimental Economics=443

The Segregation Game and Agent-Based Modeling=447

Neuroeconomics and Microeconomics=467

Karl Marx and Shove Policy=499

Economic Efficiency and the Goals of Society=514

Elasticity and Taxation to Change Behavior=516

The Conventional Policy Wisdom among Economists=519

The Power of Compounding=532

From Full Employment to the Target Rate of Unemployment=540

Is GDP Biased against Women?=551

In the Long Run, We're All Dead=569

Why Are Prices Inflexible?=577

Demand, Keynesian Economics, and Growth=596

Is Growth Good?=598

Is the 21st Century the Age of Technology or One of Many Ages of Technology?=608

Business Cycles in History=618

The Other Side of the Story=636

Money Laundering=649

Interest Rates and the Price of Bonds=660

Do Financial Assets Make Society Richer?=668

How Independent Should the Central Bank Be?=675

Using the Money Multiplier in Practice=679

Generational Accounting=719

Measurement Problems with Price Indexes=776

The Keeper of the Classical Faith : Milton Friedman=782

What to Call Developing Countries=835

A REMINDER

Production Possibility Curves=28

Inverse and Direct Relationships=44

Six Things to Remember about a Demand Curve=84

Six Things to Remember about a Supply Curve=89

Supply and Demand in Action=102

A Review of the Alternative Elasticity Terms=137

What Goods Should Be Taxed?=148

A Review of Costs=240

Finding Output, Price, and Profit=278

A Summary of a Perfectly Competitive Industry=281

Finding a Monopolist's Output, Price, and Profit=294

A Comparison of Various Market Structures=321

Choices at the Margin=419

The Austan Goolsbee Check-a-Box Method for Finding Dominant Strategies and Nash Equilibria=441

Modern Traditional and Behavioral Economists=480

A Review of the AS/AD Model=582

Some Limits of Fed Control=686

Conventional Wisdom about Conventional Monetary Policy=687

Four Important Points about Deficits and Debt=724

Fundamental Forces and Exchange Rates=797

Monetary and Fiscal Policy's Effect on International Goals=827

THINKING LIKE A MODERN ECONOMIST

Why Do So Many Prices End in 99 Cents?=128

How to Get Students to Be Responsible=158

What "Goods" Do Firms Produce? The Cost of Producing Image=234

Social Norms and Production=253

Profit Maximization and Real-World Firms=275

The Traditional Models as Stepping Stones=412

Mental Accounting=423

Tulipmania, the South Sea Bubble, and Behavioral Economics=694