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Macroeconomics, 12th edition
Published by Pearson (July 14, 2021) © 2012
- Robert J. Gordon Northwestern University
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Macroeconomics uses theory to evaluate key macro questions, such as why some countries are rich and others are poor. You'll learn about business cycles and monetary-fiscal policy in both closed and open economies as well as demand and supply shocks as causes of inflation and unemployment.
Table of Contents
- CHAPTER 1 What Is Macroeconomics?
- 1-1 How Macroeconomics Affects Our Everyday Lives
- Global Economic Crisis Focus: What Makes It Unique?
- 1-2 Defining Macroeconomics
- 1-3 Actual and Natural Real GDP
- 1-4 Macroeconomics in the Short Run and Long Run
- 1-5 CASE STUDY: How Does the Global Economic Crisis Compare to Previous Business Cycles?
- Global Economic Crisis Focus: How It Differs from 1982—83
- 1-6 Macroeconomics at the Extremes
- 1-7 Taming Business Cycles: Stabilization Policy
- International Perspective: Differences Between the United States and Europe Before and During the Global Economic Crisis
- Global Economic Crisis Focus: New Challenges for Monetary and Fiscal Policy
- 1-8 The “Internationalization” of Macroeconomics
- CHAPTER 2 The Measurement of Income, Prices, and Unemployment
- 2-1 Why We Care About Income
- 2-2 The Circular Flow of Income and Expenditure
- 2-3 What GDP Is, and What GDP Is Not
- [BOX]Where to Find the Numbers: A Guide to the Data
- 2-4 Components of Expenditure
- Global Economic Crisis Focus: Which Component of GDP Declined the Most in the Global Economic Crisis?
- 2-5 The “Magic” Equation and the Twin Deficits
- Global Economic Crisis Focus: Chicken or Egg in Recessions?
- 2-6 Where Does Household Income Come From?
- 2-7 Nominal GDP, Real GDP, and the GDP Deflator
- [BOX] How to Calculate Inflation, Real GDP Growth, or Any Other Growth Rate
- 2-8 Measuring Unemployment
- Understanding the Global Economic Crisis: The Ranks of the Hidden Unemployed
- APPENDIX TO CHAPTER 2: How We Measure Real GDP and the Inflation Rate
- CHAPTER 3 Income and Interest Rates: The Keynesian Cross Model and the IS Curve
- 3-1 Business Cycles and the Theory of Income Determination
- Global Economic Crisis Focus: What Were the Shocks That Made the 2008—09 Economic Crisis So Severe?
- 3-2 Income Determination, Unemployment, and the Price Level
- 3-3 Planned Expenditure
- Global Economic Crisis Focus: Financial Market Instability as the Main Cause of the Global Economic Crisis
- 3-4 The Economy In and Out of Equilibrium
- Understanding the Global Economic Crisis: How Changes in Wealth Influence Consumer Spending
- 3-5 The Multiplier Effect
- 3-6 Sources of Shifts in Planned Spending
- 3-7 How Can Monetary Policy Affect Planned Spending?
- 3-8 The Relation of Autonomous Planned Spending to the Interest Rate
- Understanding the Global Economic Crisis: A Central Explanation of Business Cycles Is the Volatility of Investment
- 3-9 The IS Curve
- 3-10 Conclusion: The Missing Relation
- [BOX] Learning About Diagrams: The IS Curve
- APPENDIX TO CHAPTER 3:Allowing for Income Taxes and Income-Dependent Net Exports
- CHAPTER 4 Strong and Weak Policy Effects in the IS-LM Model
- 4-1 Introduction: The Power of Monetary and Fiscal Policy
- 4-2 Income, the Interest Rate, and the Demand for Money
- 4-3 The LM Curve
- [BOX]Learning About Diagrams: The LM Curve
- 4-4 The IS Curve Meets the LM Curve
- Global Economic Crisis Focus: TITLE TO COME
- 4-5 Monetary Policy in Action
- 4-6 How Fiscal Expansion Can “Crowd Out” Private Investment
- Global Economic Crisis Focus: TITLE TO COME
- 4-7 Strong and Weak Effects of Monetary Policy
- Understanding the Global Economic Crisis: How Easy Money Helped to Create the Housing Bubble and Bust
- 4-8 Strong and Weak Effects of Fiscal Policy
- 4-9 Using Fiscal and Monetary Policy Together
- International Perspective: Monetary Policy Hits the Zero Lower Bound in Japan and the United States
- APPENDIX TO CHAPTER 4:The Elementary Algebra of the IS-LM Model
- CHAPTER 5 Financial Markets, Financial Regulation, and Economic Instability
- 5-1 Introduction: Financial Markets and Macroeconomics
- 5-2 CASE STUDY: Dimensions of the Global Economic Crisis
- 5-3 Financial Institutions, Balance Sheets, and Leverage
- 5-4 A Hardy Perennial: Bubbles and Crashes
- Understanding the Global Economic Crisis: Two Bubbles: 1927—29 in the Stock Market Versus 2000—06 in the Housing Market
- 5-5 Financial Innovation and the Subprime Mortgage Market
- 5-6 The IS-LM Model, Financial Markets, and the Monetary Policy Dilemma
- [BOX] Why Do Asset Purchases Reduce Interest Rates?
- Understanding the Global Economic Crisis: The IS-LM Summary of the Causes of the Global Economic Crisis
- 5-7 The Fed’s New Instrument: Quantitative Easing
- 5-8 How the Crisis Became Worldwide and the Dilemma for Policymakers
- International Perspective: Weighing the Causes: Why Did Canada Perform Better?
- CHAPTER 6 The Government Budget, the Government Debt, and Limitations of Fiscal Policy
- 6-1 Introduction: Can Fiscal Policy Rescue Monetary Policy from Ineffectiveness?
- 6-2 The Pervasive Effects of the Government Budget
- 6-3 CASE STUDY:The Government Budget in Historical Perspective
- 6-4 Automatic Stabilization and Discretionary Fiscal Policy
- Global Economic Crisis Focus: Automatic Stabilization and Fiscal Stimulus in the Crisis
- 6-5 Government Debt Basic Concepts
- 6-6 Will the Government Remain Solvent?
- International Perspective: The Debt-GDP Ratio: How Does the United States Compare?
- 6-7 CASE STUDY: Historical Behavior of the Debt-GDP Ratio Since 1790
- 6-8 Factors Influencing the Multiplier Effect of a Fiscal Policy Stimulus
- 6-9 CASE STUDY: The Fiscal Policy Stimulus of 2008—11
- 6-10 Government Spending and Transfers to States/Localities
- Understanding the Global Economic Crisis: Comparing the Obama Stimulus with FDR’s New Deal
- 6-11 Conclusion: Strengths and Limitations of Fiscal Policy
- CHAPTER 7 International Trade, Exchanges Rates, and Macroeconomic Policy
- 7-1 Introduction
- 7-2 The Current Account and Balance of Payments
- 7-3 Exchange Rates
- 7-4 The Market for Foreign Exchange
- 7-5 Real Exchange Rates and Purchasing Power Parity
- International Perspective: Big Mac Meets PPP
- 7-6 Exchange Rate Systems
- 7-7 CASE STUDY: Asia Intervenes with Buckets to Buy Dollars and Finance the U.S. Current Account Deficit–How Long Can This Continue?
- 7-8 Determinants of Net Exports
- 7-9 The Real Exchange Rate and Interest Rate
- 7-10 Effects of Monetary and Fiscal Policy with Fixed and Flexible Exchange Rates
- Global Economic Crisis Focus: Is the United States Prevented from Implementing a Fiscal Policy Stimulus by Its Flexible Exchange Rate?
- [BOX] Summary of Monetary and Fiscal Policy Effects in Open Economies
- 7-11 Conclusion: Economic Policy in the Open Economy
- CHAPTER 8 Aggregate Demand, Aggregate Supply, and the Great Depression
- 8-1 Combining Aggregate Demand with Aggregate Supply
- 8-2 Flexible Prices and the AD Curve
- 8-3 Shifting the Aggregate Demand Curve with Monetary and Fiscal Policy
- Global Economic Crisis Focus: The Crisis Was a Demand Problem Not Involving Supply
- [BOX] Learning About Diagrams: The AD Curve
- 8-4 Alternative Shapes of the Short-Run Aggregate Supply Curve
- 8-5 The Short-Run Aggregate Supply (SAS) Curve When the Nominal Wage Rate Is Constant
- [BOX] Learning About Diagrams: The SAS Curve
- 8-6 Fiscal and Monetary Expansion in the Short and Long Run
- [BOX] Summary of the Economy’s Adjustment to an Increase in Aggregate Demand
- 8-7 Classical Macroeconomics: The Quantity Theory of Money and the Self-Correcting Economy
- 8-8 The Keynesian Revolution: The Failure of Self-Correction
- Global Economic Crisis Focus: The Zero Lower Bound as Another Source of Monetary Impotence
- 8-9 CASE STUDY: What Caused the Great Depression?
- International Perspective: Why Was the Great Depression Worse in the United States Than in Europe?
- CHAPTER 9 Inflation: Its Causes and Cures
- 9-1 Introduction
- 9-2 Real GDP, the Inflation Rate, and the Short-Run Phillips Curve
- 9-3 The Adjustment of Expectations
- [BOX] Learning About Diagrams: The Short-Run (SP) and Long-Run (LP) Phillips Curves
- 9-4 Nominal GDP Growth and Inflation
- 9-5 Effects of an Acceleration in Nominal GDP Growth
- 9-6 Expectations and the Inflation Cycle
- 9-7 Recession as a Cure for Inflation
- International Perspective: Did Disinflation in Europe Differ from That in the United States?
- Global Economic Crisis Focus: Policymakers Face the Perils of Deflation
- 9-8 The Importance of Supply Shocks
- [BOX] Types of Supply Shocks and When They Mattered
- 9-9 The Response of Inflation and the Output Ratio to a Supply Shock
- Understanding the Global Economic Crisis: The Role of Inflation During the Housing Bubble and Subsequent Economic Collapse
- 9-10 Inflation and Output Fluctuations: Recapitulation of Causes and Cures
- 9-11 How Is the Unemployment Rate Related to the Inflation Rate?
- APPENDIX TO CHAPTER 9: The Elementary Algebra of the SP-DG Model
- CHAPTER 10 The Goals of Stabilization Policy: Low Inflation and Low Unemployment
- Global Economic Crisis Focus: Inflation Versus Unemployment in the Crisis
- 10-1 The Costs and Causes of Inflation
- 10-2 Money and Inflation
- International Perspective: Money Growth and Inflation
- 10-3 Why Inflation Is Not Harmless
- Global Economic Crisis Focus: The Housing Bubble as Surprise Inflation Followed by Surprise Deflation
- [BOX] The Wizard of Oz as a Monetary Allegory
- 10-4 Indexation and Other Reforms to Reduce the Costs of Inflation
- [BOX] The Indexed Bond (TIPS) Protects Investors from Inflation
- 10-5 The Government Budget Constraint and the Inflation Tax
- Understanding the Global Economic Crisis: How a Large Recession Can Create a Large Fiscal Deficit
- 10-6 Starting and Stopping a Hyperinflation
- 10-7 Why the Unemployment Rate Cannot Be Reduced to Zero
- 10-8 Sources of Mismatch Unemployment
- Global Economic Crisis Focus: The Crisis Raises the Incidence of Structural Unemployment
- 10-10 The Costs of Persistently High Unemployment
- Understanding the Global Economic Crisis: Why Did Unemployment Rise Less in Europe Than in the United States After 2007?
- 10-11 Conclusion: Solutions to the Inflation and Unemployment Dilemma
- CHAPTER 11 The Theory of Economic Growth
- 11-1 The Importance of Economic Growth
- 11-2 Standards of Living as the Consequence of Economic Growth
- International Perspective: The Growth Experience of Seven Countries Over the Last Century
- 11-3 The Production Function and Economic Growth
- 11-4 Solow’s Theory of Economic Growth
- 11-5 Technology in Theory and Practice
- 11-6 Puzzles That Solow’s Theory Cannot Explain
- 11-7 Human Capital, Immigration, and the Solow Puzzles
- 11-8 Endogenous Growth Theory: How Is Technological Change Produced?
- 11-9 Conclusion: Are There Secrets of Growth?
- APPENDIX TO CHAPTER 11:General Functional Forms and the Production Function
- CHAPTER 12 The Big Questions of Economic Growth
- 12-1 Answering the Big Questions
- 12-2 The Standard of Living and Concepts of Productivity
- 12-3 The Failure of Convergence
- 12-4 Human Capital and Technology
- 12-5 Political Capital, Infrastructure, and Geography
- International Perspective: A Symptom of Poverty: Urban Slums in the Poor Cities
- International Perspective: Institutions Matter: South Korea Versus North Korea
- International Perspective: Growth Success and Failure in the Tropics
- 12-6 CASE STUDY: Uneven U.S. Productivity Growth Across Eras
- Global Economic Crisis Focus: Lingering Effects of the 2007—09 Recession on Long-Term Economic Growth
- 12-7 CASE STUDY: The Productivity Growth Contrast Between Europe and the United States
- 12-8 Conclusion on the Great Questions of Growth
- CHAPTER 13 Money, Banks, and the Federal Reserve
- 13-1 Money as a Tool of Stabilization Policy
- 13-2 Definitions of Money
- 13-3 High-Powered Money and Determinants of the Money Supply
- 13-4 The Fed’s Three Tools for Changing the Money Supply
- 13-5 Theories of the Demand for Money
- International Perspective: Plastic Replaces Cash, and the Cell Phone Replaces Plastic
- 13-6 Why the Federal Reserve “Sets” Interest Rates
- CHAPTER 14 The Goals, Tools, and Rules of Monetary Policy
- 14-1 The Central Role of Demand Shocks
- Global Economic Crisis Focus: The Weakness of Monetary Policy After 2008 Reveals a More General Problem
- 14-2 Stabilization Targets and Instruments in the Activists’ Paradise
- [BOX]Rules Versus Activism in a Nutshell: The Optimism-Pessimism Grid
- 14-3 Policy Rules
- 14-4 Policy Pitfalls: Lags and Uncertain Multipliers
- 14-5 CASE STUDY: Was the Fed Responsible for the Great Moderation of 1986—2007?
- 14-6 Time Inconsistency, Credibility, and Reputation
- 14-7 CASE STUDY: The Taylor Rule and the Changing Fed Attitude Toward Inflation and Output
- Global Economic Crisis Focus: Taylor’s Rule Confronts the Zero Lower Bound
- 14-8 Rules Versus Discretion: An Assessment
- International Perspective: The Debate About the Euro
- 14-9 CASE STUDY: Should Monetary Policy Target the Exchange Rate?
- CHAPTER 15 The Economics of Consumption Behavior
- 15-1 Consumption and Economic Stability
- 15-2 CASE STUDY: Main Features of U.S. Consumption Data
- 15-3 Background: The Conflict Between the Time-Series and Cross-Section Evidence
- 15-4 Forward-Looking Behavior: The Permanent-Income Hypothesis
- 15-5 Forward-Looking Behavior: The Life-Cycle Hypothesis
- Global Economic Crisis Focus: The Modigliani Theory Helps Explain the Crisis and Recession of 2007—09
- 15-6 Rational Expectations and Other Amendments to the Simple Forward-Looking Theories
- Understanding the Global Economic Crisis:Did Households Spend or Save the 2008 Economic Stimulus Payments?
- 15-7 Bequests and Uncertainty
- International Perspective: Why Do Some Countries Save So Much?
- 15-8 CASE STUDY: Did the Rise and Collapse of Household Assets Cause the Decline and Rise of the Household Saving Rate?
- 15-9 Why the Official Household Saving Data Are Misleading
- 15-10 Conclusion: Does Consumption Stabilize the Economy?
- CHAPTER 16 The Economics of Investment Behavior
- 16-1 Investment and Economic Stability
- 16-2 CASE STUDY: The Historical Instability of Investment
- 16-3 The Accelerator Hypothesis of Net Investment
- 16-4 CASE STUDY: The Simple Accelerator and the Postwar U.S. Economy
- 16-5 The Flexible Accelerator
- [BOX] Tobin’s q: Does It Explain Investment Better Than the Accelerator or Neoclassical Theories?
- 16-6 The Neoclassical Theory of Investment Behavior
- 16-7 User Cost and the Role of Monetary and Fiscal Policy
- 16-8 Business Confidence and Speculation
- [BOX] Investment in the Great Depression and World War II
- International Perspective: The Level and Variability of Investment Around the World
- 16-9 Investment as a Source of Instability of Output and Interest Rates
- 16-10 Conclusion: Investment as a Source of Instability 545
- CHAPTER 17 New Classical Macro and New Keynesian Macro
- 17-1 Introduction: Classical and Keynesian Economics, Old and New
- 17-2 Imperfect Information and the “Fooling Model”
- 17-3 The Lucas Model and the Policy Ineffectiveness Proposition
- 17-4 The Real Business Cycle Model
- 17-5 New Classical Macroeconomics: Limitations and Positive Contributions
- International Perspective: Productivity Fluctuations in the United States and Japan
- Global Economic Crisis Focus: The 2007—09 Crisis and the Real Business Cycle Model
- 17-6 Essential Features of the New Keynesian Economics
- 17-7 Why Small Nominal Rigidities Have Large Macroeconomic Effects
- 17-8 Coordination Failures and Indexation
- 17-9 Long-Term Labor Contracts as a Source of the Business Cycle
- 17-10 Assessment of the New Keynesian Model
- CHAPTER 18 Conclusion: Where We Stand
- 18-1 The Evolution of Events and Ideas
- Global Economic Crisis Focus: Can Economics Explain the Crisis or Does the Crisis Require New Ideas?
- 18-2 The Reaction of Ideas to Events, 1923—47
- 18-3 The Reaction of Ideas to Events, 1947—69
- 18-4 The Reaction of Ideas to Events, 1970—2010
- Global Economic Crisis Focus: Termites Were Nibbling Away at the Prosperity of 2003—07
- 18-5 The Reaction of Ideas to Events in the World Economy
- 18-6 Macro Mysteries: Unsettled Issues and Debates
- International Perspective: How Does Macroeconomics Differ in the United States and Europe?
APPENDIXES
- Time Series Data for the U.S. Economy: 1875—2010
- International Annual Time Series Data for Selected Countries: 1960—2010
- Data Sources and Methods
Glossary
Index
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