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Macroeconomics - 2nd Edition - ISBN: 9780123110701, 9781483214054


2nd Edition

Private and Public Choice

Authors: James D Gwartney Richard Stroup
eBook ISBN: 9781483214054
Imprint: Academic Press
Published Date: 1st January 1980
Page Count: 567
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Macroeconomics: Private and Public Choice discusses the principle of macroeconomics, particularly government expenditure, taxation, public choice theory, and labor markets. The book also covers aggregate supply, fiscal policy, inflation, unemployment, traditional Keynesian theory, low productivity, rapid inflation. The text explains international economics and comparative systems such as the export-import link, export taxes, and foreign finance. It analyzes the existence of trade barriers as being due to domestic protectionism policies, special interest nature of trade restrictions, and economic illiteracy. The book examines the economics of government failure, namely, the collective decision-making process as being both beneficial and limited of public sector economic action. Among the reasons cited for government failure are voter ignorance, inefficient public policy, existence of special interests, imprecise knowledge of consumer preferences, as well as government shortsightedness. The book also examines why government intervention in some activities can be beneficial, for example, weak market competition or monopoly, uninformed consumers, and when conditions of external benefits can be achieved. Economists, sociologists, professors in economics, or policy makers involved in economic and rural development will find the text valuable.

Table of Contents



Part One: The Economic Way of Thinking—An Introduction

Chapter 1 The Economic Approach

What Is Economics About?

The Economic Way of Thinking

Positive Economics

Normative Economics

Pitfalls of Positive Economics

What Do Economists Do?

Outstanding Economist: Adam Smith (1723-1790) and the Historical Roots of Economics

Myths of Economics: "Economic Analysis Assumes that People Act Only Out of Selfish Motives. It Rejects the Humanitarian Side of Humankind."

Chapter 2 Some Tools of the Economist

Opportunity Cost Is the Highest Valued Opportunity Lost

The Production Possibilities Curve

Trade Tips and Comparative Advantage

Three Economizing Decisions Facing All Nations: What, How, and for Whom?

Two Methods of Making Decisions-The Market and Government Planning

Outstanding Economists: David Ricardo (1772-1823) and the Early Followers of Smith

Myths of Economics: "In Exchange, when Someone Gains, Someone Else must Lose. Trading is a Zero-Sum Game."

Chapter 3 Supply, Demand, and the Market Process

Scarcity Necessitates Rationing

Consumer Choice and the Law of Demand

Producer Choice and the Law of Supply

Markets and the Coordination of Supply and Demand

Shifts in Demand and Advice on How to Pass Your First Economics


Shifts in Supply

Time and the Adjustment Process

Repealing the Laws of Supply and Demand

The Communicating, Coordinating, and Motivating Functions of the Market

Outstanding Economist: Alfred Marshall (1842-1924)

Myths of Economics: "Rent Controls are an Effective Method of Ensuring Adequate Housing at a Price the Poor can Afford."

Chapter 4 A Bird's-Eye View of the Public Sector

Ideal Economic Efficiency

Why Might the Invisible Hand Fail?

Government—A Potential Vehicle for Gain

Redistribution—Dividing the Economic Pie

The Market and the Public Sector—Two Methods of Economic Organization

Conflicts between Good Economics and Good Politics

Outstanding Economist: James Buchanan (1919- )

Chapter 5 Taxes and Government Spending

What Do Federal, State, and Local Governments Buy?

How Big Is Government?

The Growth of Government

Taxes to Pay for a Growing Government

Politics, Tax Incidence, and the Structure of Taxes

Who Pays the Tax Bill?

The Taxes Paid in Other Countries

Taxes and Politics—A Final Word

Myths of Economics: "The Growth of the Federal Government has been the Major Source of Government Expansion."

Part Two: Macroeconomics

Chapter 6 Taking the Nation's Economic Pulse

The Concept of the GNP

The Circular Flow of Expenditures and Resource Costs

Two Ways of Measuring GNP

The Expenditure Approach

The Resource Cost-Income Approach

Gross National Product or Gross National Cost?

Five Problems with GNP as a Measuring Rod

What GNP Does Not Measure

The Great Contribution of GNP

Other Related Income Measures

The Real Income-Real Output Link

Outstanding Economist: Simon Kuznets (1901- )

Perspectives in Economics: Beyond the GNP-Pioneering Research on the Measurement of Economic Welfare

Chapter 7 Unemployment, Inflation, and Business Cycles

Micro- and Macroeconomics

Swings in the Economic Pendulum

Three Different Views of the Business Cycle

Employment Fluctuations in a Dynamic Economy

What Is Full Employment?

A Closer Look at the Employment Statistics

The Economics of Inflation

The Cost of Inflation

Myths of Economics: "Unemployed Resources would not Exist if the Economy were Operating Efficiently."

Chapter 8 Aggregate Equilibrium and a Simple Keynesian Model

Tools of the Modern Keynesian Analysis

Saving, Investment, and the Circular Flow Analysis

Keynes and the Views of Classical Economists

The Determinants of Consumption

The Determinants of Investment

Equilibrium and the Keynesian Model

Leakages and Injections—Another Way of Looking at Equilibrium

The Major Message of Keynes

Outstanding Economist: John Maynard Keynes (1883-1946)

Chapter 9 The Multiplier, the Accelerator, and a Keynesian View of the Business Cycle

The Multiplier Principle

The Paradox of Thrift

Business Pessimism—A Self-Fulfilling Prophecy

Investment Instability and the Accelerator

A Keynesian View of the Business Cycle

Investment and the Cycle

Chapter 10 Fiscal Policy

The Birth of Real-World Keynesian Fiscal Policy

Fiscal Policy for Dealing with a Recession

Fiscal Policy for Dealing with Inflation

The Balanced-Budget Multiplier-The Simple Keynesian Model

Adding Realism to the Keynesian Multiplier Analysis

A Simple Verbal Explanation of Why Fiscal Policy Works during Normal Times

The Central Idea of Fiscal Policy

The Full-Employment Budget Concept

The Practical Limitations of Real-World Fiscal Policy

Has Real-World Fiscal Policy Had a Stabilizing Effect?

Automatic Stabilizers

Outstanding Economist: Charles L. Schultze (1924- )

Perspectives in Economics: Fact and Fiction about the National Debt

Chapter 11 Money and the Banking System

What Is Money?

The Business of Banking

Fractional Reserve Goldsmithing

Fractional Reserve Banking

The Federal Reserve System

How the Fed Controls Our Money Supply

The Fed and the Treasury

Dynamics of Monetary Policy

Chapter 12 Money, Employment, Inflation, and a More Complete Keynesian Model

The Demand for and Supply of Money

Interest Rates and Investment

Expansionary and Restrictive Monetary Policy

How Monetary Policy Works-The Keynesian View

The Evolution of Keynesian Thought

The Basic Propositions of the Modern Keynesian View

Did Macropolicy Cause the Inflation of the 1970s?

Outstanding Economist: Paul Samuelson (1915- )

Perspectives in Economics: Will There Ever Be Another Great Depression? Yes

Will There Ever Be Another Great Depression? No

Addendum: Tax Cuts, Supply-Side Fiscal Policy, and the Work-Leisure Substitution Effect

Chapter 13 The Monetarist Challenge to the Keynesian View

Historical Background on the Importance of Money

The Modern Monetarist View-Money Matters Most

The Impact of Money-The Monetarist View

The Basic Propositions of Monetarism

Constant Rate of Monetary Growth—The Monetarist View of Proper Policy

Monetarists—Past and Future

Outstanding Economist: Milton Friedman (1912- )

Chapter 14 Unemployment, Inflation, and the Limits of Macropolicy

Monetary and Fiscal Policies—A Consensus View

The Phillips Curve—The Dream and the Reality

The Shifting of the Real-World Phillips Curve

The Long-Run Phillips Curve

The Economics of Inflation

The Economics of Cost-Push Inflation

The Great Inflation (1967-Present)-A Closer Look

Stop—Go Policy and the Racheting Upward of the Rate of Inflation

Myths of Economics: Two Popular Myths of Inflation

Chapter 15 Instability, Stagflation, and the Direction of Macroeconomics

The Economics of Discretionary Macropolicy

The Failure of Macroeconomists

Stabilization Policy and Macropolicy Rules

Putting the Rates of Unemployment and Growth of the 1970s into Perspective

The Natural Rate of Unemployment during the 1980s

The New Microapproach to Macroeconomic Problems

Macroeconomics in the 1980s

Outstanding Economist: Martin Feldstein (1939- )

Perspectives in Economics: The Economics of Constitutional Amendments Limiting Spending and Mandating a Balanced Budget

Part Three: International Economics and Comparative Systems

Chapter 16 Gaining from International Trade

The Composition of the International Sector

Why Is There Trade between Nations?

The Export-Import Link

Supply, Demand, and International Trade

Tariffs and Quotas

Why Industries Are on the Dole

International Trade, Export Taxes, and the OPEC Cartel

Myths of Economics: "Free Trade with Low-Wage Countries such as China and India would Cause the Wages of U.S. Workers to Fall."

Chapter 17 International Finance and the Foreign Exchange Market

Exchange Rates and the Price of Foreign Goods

Balance of Payments and International Exchanges

The Determination of Exchange Rates

Changing Market Conditions and Exchange Rates

The Evolution of International Monetary Arrangements

The Current System—A Flexible Rate with Selective Intervention

Chapter 18 Economic Development and the Growth of Income

Characteristics of Less Developed Countries

How Wide Is the Economic Gap between the Developed and Less Developed Nations?

Are Growth and Development the Same Thing?

The Importance of Small Differences in Rates of Growth

Sources of Economic Growth

Why Poor Nations Remain Poor

Perspectives in Economics: Rich and Poor Nations—Are They Two Worlds Drifting Apart?

Chapter 19 Comparative Economic Systems

Comparing Capitalism and Socialism

Classifying Real-World Economies

Common Constraints and the Universality of Economic Tools

The Soviet Economy

Yugoslavia—Socialism or the Market?

The Japanese "Miracle"

Outstanding Economist: Karl Marx (1818-1883)

Part Four: Public Choice

Chapter 20 Problem Areas for the Market

External Effects and the Market

Market Failure: External Costs

External Costs and Property Rights

Market Failure: External Benefits and Missed Opportunities

Alternative Public Sector Responses to Externalities

Should the Government Always Try to Control Externalities?

Market Failure: Public Goods

Market Failure: Poor Information

Outstanding Economist: Allen Kneese (1930- )

Chapter 21 Public Choice and Gaining from Government

Voters and the Demand for Political Action

Supply, Profits, and the Political Entrepreneur

The Opportunity Cost of Government

Market Failure and Gaining from Government

Gaining from Government Provision of Public Goods

Income Redistribution and Public Policy

Outstanding Economist: Kenneth Arrow (1921- )

Chapter 22 The Economics of Government Failure

Government Failure: Voter Ignorance and Inefficient Public Policy

Government Failure: The Special Interest Effect

Government Failure: Imprecise Reflection of Consumer Preferences

Government Failure: The Shortsightedness Effect

Government Failure: Little Entrepreneurial Incentive for Internal Efficiency

Is the Economic Analysis of the Public Sector Cynical?

Perspectives in Economics: Bureaucracy, Competition, and Improving the Efficiency of Government

Perspectives in Economics: Dealing with Special Interests

Appendix A: A Graphic Look at Economics

Appendix B: Analyzing the Equilibrium Level of Income with Equations

Appendix C: Analyzing Aggregate Equilibrium with the IS-LM Model

Appendix D: Quarterly Economic Indicators, 1965-1979

Suggestions for Additional Reading

Hints for Answering Discussion Questions



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© Academic Press 1980
1st January 1980
Academic Press
eBook ISBN:

About the Authors

James D Gwartney

Richard Stroup

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