Introductory Macroeconomics

Introductory Macroeconomics, Second Edition deals with national economic issues, such as unemployment, inflation, the aggregate demand-aggregate supply model of macroeconomics, government economic policy, exchange, rates, international trade, and finance. The book examines national economic problems, economic goals, the role markets play in the economy, price control, unemployment, and inflation. By using the Phillips curve trade-off, the text notes that inflation increases the demand for labor. In the long term, according to the long-run Phillips curve, increased inflation does not actually lessen unemployment levels (known as the natural unemployment rate hypothesis). The text also examines whether minimum wage laws are necessary (to fight poverty, prevent exploitation) or cause poverty (in which the imposition of minimum wage results in lower demand for unskilled labor). The book notes that politics and unions favor minimum wage laws. The poor, uneducated, and unskilled laborers are left out. The text also tackles goals and trade-offs: for example, that economic growth suffers from both inflation and unemployment, or the trade-off that preventing unemployment only results in worse inflation problems. Economists, sociologists, professors in economics, or policy makers involved in economic and social development will find the text valuable.

I Tools and Problems

1 Macroeconomic Problems

What Is Economics?

Macroeconomic Goals and Problems

The Great Depression

The 1940s: War and Inflation

The 1950s: Business Cycles

The 1960s: The New Economics

The Phillips Curve

The 1970s: Stagflation

What Happened to the Phillips Curve?

The 1980s and Beyond

Economic Controversy: Another Great Depression?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

2 Supply and Demand

The Market

The Idea of Demand

The Demand Curve

Shifts in Demand

The Idea of Supply

The Supply Curve

Shifts in Supply

The Market at Work

Applications of Supply and Demand

Inflation: A Preview

Review of Market Actions

Economic Controversy: Are Price Controls Desirable?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

3 The Problem of Unemployment

The Unemployment Record

The Unemployment Rate

Unemployment and the Unemployment Rate

Types of Unemployment

The Goal of Full Employment

How Serious Is the Unemployment Problem?

The Labor Market

Causes of Unemployment

Inflation and Unemployment

Economic Controversy: Minimum Wage

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

4 Understanding Inflation

What Is Inflation?

The Inflation Record

Economic Effects of Inflation

The Power of Compound Inflation

Coping with Inflation

Measuring Inflation

Price Index Problems

Three Inflation Measures

Calculating Real Values

Economic Controversy: Inflation or Unemployment?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

II A Simple Model of the Economy

5 Measuring Economic Activity

Why Measure Economic Activity?

Gross National Product

Three Views of GNP

Take This with a Grain of Salt

Real Gross National Product

Are We Better Off Today Than in Years Past?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

6 Keynesian Aggregate Demand

Depression Economics

Spending Creates Income

Macroeconomic Equilibrium

Is Equilibrium Good?

What Caused the Great Depression?

Depression Economic Policies

Inflation and Unemployment

Four Components of Aggregate Demand

The Aggregate Demand Curve

Economic Controversy: Keynes Versus the Classics

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

Appendix: The 45-Degree Model of Circular Flow

7 Aggregate Supply and the Economy

Aggregate Supply

The Aggregate Supply Curve

Shifts in the Aggregate Supply Curve

Macroeconomic Equilibrium

Adjusting to Equilibrium

Leading Indicators

Inflation and Unemployment

That Old-Time Religion

Wage and Price Controls

Indexation

Increasing Aggregate Supply

Winners and Losers from Economic Policies

Economic Controversy: Wage and Price Controls

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

8 Fiscal Policy

The Economic Role of Government

Tools of Fiscal Policy

The Multiplier Analysis

Tax and Transfer Multipliers

Multipliers and Government Policy

Government and the Economy

Multipliers in the Real World

Government Spending Policies

Different Types of Taxes

Major United States Taxes

The Total Tax Burden

Tax Expenditures

Automatic Stabilizers

Advantages and Disadvantages of Fiscal Policies

Deficit Spending and the National Debt

Economic Controversy: Supply-Side

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

III Money, Credit, and the Economy

9 Money and Banking

A Financial Fable

The Money Supply

Money Substitutes

The Interest Rate

The Prime Interest Rate

Money and Banks

Fractional Reserve Banking

How Banks Create Money

The Fed

Open Market Operations

Reserve Requirement Policy

Discount Rate Policy

Economic Controversy: Return to the Gold Standard?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

10 Credit Markets and Monetary Policy

The Stock Market

Commodity Markets

Bond Markets

Credit Markets

The Demand for Credit

The Credit Demand Curve

The Supply of Credit

The Credit Supply Curve

The Credit Market at Work

The Inflation Premium

High Interest Rates and Disintermediation

Investment and the Credit Market

Monetary Policy

The Pros and Cons of Monetary Policy

Economic Controversy: Interest Rate Ceilings?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

11 Monetary versus Fiscal Policy

Fighting Unemployment

Policy Options

Fighting Inflation

Fighting Stagflation

Financing Government Spending

Reviewing the Alternatives

Congress Versus the Fed

Economic Controversy: The Independence of the Federal Reserve

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

12 The Challenge to Keynesian Economics

Keynesian Doctrine

Monetarist Theory

Modern Monetarist Theory

Friedman's Policy of Rules

The Monetarist Influence

Rational Expectations Theory

Rational Expectations Policies

Disequilibrium Theory

Supply-Side Economics

Who Is Right Here?

Economic Controversy: How Do You Fight Inflation?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

IV International Economics

13 International Trade

Why Do Nations Trade?

The Law of Comparative Advantage

Gains from Trade

Economic Effects of Trade

Comparative Advantage in the Real World

Tariffs and Quotas

Who Pays the Tariff?

Arguments for Tariffs

Arguments against Tariffs

Customs Unions

Balance-of-Payments Accounts

Stages in the Balance of Payments

Is a Deficit Bad?

Economic Controversy: Automobile Import Quotas?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

14 The Foreign-Exchange Market

The Exchange Rate

The Foreign-Exchange Market

Demand for Francs

Demand for Dollars

Games Exchange Rates Play

Here Is Demand, Where Is Supply?

Exchange-Market Equilibrium

The Foreign-Exchange Market at Work

The Traveller's Paradox

Fixed Exchange Rates

Economic Controversy: Flexible or Fixed Exchange Rates?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

15 International Economics

Trade and the Economy

International Credit Movements

Eurodollars

Economic Policy with Flexible Exchange Rates

Economic Lessons for the 1980s

Economic Policy with Fixed Exchange Rates

Economic Lessons from the 1970s

Economic Policy with Intervention

Oil and International Economic Policy

Interest Rate Wars

Economic Controversy: Defending the Dollar

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

16 Problems, Goals, and Trade-Offs

Goal 1: Full Employment

Goal 2: Stable Prices

Goal 3: Economic Growth

Other National Goals

International Economic Goals

Trade-Offs: Give Up a Goal?

Three Questions in Search of an Answer

Policy Problems

Questions? Answers! Answers?

Economic Controversy: Where Are We Going?

Summary

Discussion Questions

Test Yourself

Suggestions for Further Reading

Suggestions for Further Reading

Glossary

Answers to "Test Yourself"

Index