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Economics: Principles and Policies

by: BAUMOL

Economics: Principles and Policies

by: BAUMOL

ISBN 13:
9780030259487
ISBN 10:
0030259487
Edition: 8th
Format: Paperback
Copyright: 08/02/1999
Publisher: South-Western College Pub
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Summary

Since introducing the aggregate supply/aggregate demand model as a fundamental tool for learning economics in the first edition of their textbook, William Baumol and Alan Blinder have, for over two decades, led the teaching and learning of economics with their authoritative and timely discussion of the field. Now in its eighth edition, Economics: Principles and Policy remains a time-tested tool in teaching and learning the ever-evolving field of economics.

About the Authors

(1)

Preface

vii

PART I Getting Acquainted with Economics

(90)

CHAPTER 1 WHAT IS ECONOMICS?

(14)

IDEAS FOR BEYOND THE FINAL EXAM

(5)

Idea 1 How Much Does It Really Cost?

(1)

Idea 2 Attempts to Repeal the Laws of Supply and Demand--The Market Strikes Back

(1)

Idea 3 The Surprising Principle of Comparative Advantage

(1)

Idea 4 Trade Is a Win-Win Situation

(1)

Idea 5 The Importance of Thinking at the Margin

(1)

Idea 6 Externalities: A Shortcoming of the Market Cured by Market Methods

(1)

Idea 7 Why the Costs of Education and Medical Care Keep Growing

(1)

Idea 8 The Trade-off between Efficiency and Equality

(1)

Idea 9 The Short-Run Trade-off between Inflation and Unemployment

(1)

Idea 10 Inflation Distorts Measurements

(1)

Idea 11 Why Was It Important to Reduce the Budget Deficit?

(1)

Idea 12 Productivity Growth Is (Almost) Everything in the Long Run

(1)

Epilogue

(1)

INSIDE THE ECONOMIST'S TOOL KIT

(6)

Economics as a Discipline

(1)

The Need for Abstraction

(2)

The Role of Economic Theory

(1)

What Is an Economic Model?

(1)

Reasons For Disagreements: Imperfect Information and Value Judgments

(1)

Common Sense: Useful but Dangerous

(1)

Summary

(1)

Key Terms

(1)

Questions For Review

(1)

CHAPTER 2 THE USE AND MISUSE OF GRAPHS

(14)

GRAPHS USED IN ECONOMIC ANALYSIS

(1)

WHAT'S WRONG WITH THIS GRAPH?

(5)

Two-Variable Diagrams

(2)

The Definition and Measurement of Slope

(2)

Rays through the Origin and 45(Degree) Lines

(1)

Squeezing Three Dimensions into Two: Contour Maps

(1)

PERILS IN THE INTERPRETATION OF GRAPHS

(4)

The Interpretation of Growth Trends

(1)

Distorting Trends by Choice of the Time Period

(2)

DANGERS OF OMITTING THE ORIGIN: THE PUZZLE SOLVED

(3)

Unreliability of Steepness and Choice of Units

(2)

Summary

(1)

Key Terms

(1)

Questions for Review

(1)

CHAPTER 3 THE ECONOMY: MYTH AND REALITY

(20)

THE AMERICAN ECONOMY: A THUMBNAIL SKETCH

(5)

A Private Enterprise Economy

(2)

A Relatively "Closed" Economy

(1)

A Growing Economy... but with Inflation

(2)

Bumps along the Growth Path: Recessions

(1)

THE INPUTS: LABOR AND CAPITAL

(4)

The American Workforce: Who Is in It?

(1)

The American Workforce: What It Does

(2)

The American Workforce: What It Earns

(1)

Capital and Its Earnings

(1)

THE OUTPUTS: WHAT DOES AMERICA PRODUCE?

(1)

THE CENTRAL ROLE OF BUSINESS FIRMS

(1)

MEASURING ECONOMIC PROGRESS

(2)

WHAT'S MISSING FROM THE PICTURE? GOVERNMENT

(4)

The Government as Referee

(1)

The Government as Business Regulator

(1)

Government Expenditures

(1)

Taxes in America

(1)

The Government as Redistributor

(1)

CONCLUSION: THE MIXED ECONOMY

(1)

Summary

(1)

Key Terms

(1)

Questions for Review

(1)

CHAPTER 4 SCARCITY AND CHOICE: THE ECONOMIC PROBLEM

(16)

WHAT TO DO WITH THE BUDGET SURPLUS?

(1)

SCARCITY, CHOICE, AND OPPORTUNITY COST

(2)

Opportunity Cost and Money Cost

(1)

SCARCITY AND CHOICE FOR A SINGLE FIRM

(2)

The Production Possibilities Frontier

(1)

The Principle of Increasing Costs

(1)

SCARCITY AND CHOICE FOR THE ENTIRE SOCIETY

(1)

Scarcity and Choice Elsewhere in the Economy

(1)

ALLOCATING THE BUDGET SURPLUS

(2)

Application: Economic Growth in the United States and the Asian "Tigers"

(2)

THE CONCEPT OF EFFICIENCY

(1)

THE THREE COORDINATION TASKS OF ANY ECONOMY

(1)

SPECIALIZATION FOSTERS EFFCIENT RESOURCE ALLOCATION

(2)

The Wonders of the Division of Labor

(1)

The Amazing Principle of Comparative Advantage

(1)

SPECIALIZATION LEADS TO EXCHANGE

(1)

MARKETS, PRICES, AND THE THREE COORDINATION TASKS

(1)

LAST WORD: DON'T CONFUSE ENDS WITH MEANS

(1)

Summary

(1)

Key Terms

(1)

Questions For Review

(2)

CHAPTER 5 SUPPLY AND DEMAND: AN INITIAL LOOK

(24)

WHAT IN THE WORLD HAPPENED TO THOSE ASIAN CURRENCIES?

(1)

THE INVISIBLE HAND

(2)

DEMAND AND QUANTITY DEMANDED

(3)

The Demand Schedule

(1)

The Demand Curve

(1)

Shifts of the Demand Curve

(2)

SUPPLY AND QUANTITY SUPPLIED

(4)

The Supply Schedule and the Supply Curve

(2)

Shifts of the Supply Curve

(2)

SUPPLY AND DEMAND EQUILIBRIUM

(3)

The Law of Supply and Demand

(1)

Effects of Demand Shifts on Supply-Demand Equilibrium

(1)

APPLICATION: THE FALL OF THE RUPIAH

(2)

Supply Shifts and Supply-Demand Equilibrium

(1)

Application: Who Really Pays That Tax?

(1)

FIGHTING THE INVISIBLE HAND: THE MARKET FIGHTS BACK

(5)

Restraining the Market Mechanism: Price Ceilings

(1)

Case Study: Rent Controls in New York City

(2)

Restraining the Market Mechanism: Price Floors

(1)

Case Study: Sugar Price Supports

(1)

A Can of Worms

(1)

A SIMPLE BUT POWERFUL LESSON

(1)

Summary

(1)

Key Terms

(1)

Questions For Review

(3)

PART II The Building Blocks Of Demand and supply

(98)

CHAPTER 6 CONSUMER CHOICE: INDIVIDUAL AND MARKET DEMAND

(24)

PARADOX: SHOULD WATER BE WORTH MORE THAN DIAMONDS?

(1)

SCARCITY AND DEMAND

(1)

UTILITY: A TOOL TO ANALYZE PURCHASE DECISIONS

(7)

Total versus Marginal Utility

(1)

The "Law" of Diminishing Marginal Utility

(3)

Using Marginal Utility: The Optimal Purchase Rule

(2)

From Diminishing Marginal Utility to Downward-Sloping Demand Curves

101

(1)

CONSUMER CHOICE AS A TRADE-OFF: OPPORTUNITY COST

102

(2)

Consumer's Surplus: The Net Gain From a Purchase

102

(2)

RESOLVING THE DIAMOND-WATER PARADOX

104

(1)

Income and Quantity Demanded

105

(1)

FROM INDIVIDUAL DEMAND CURVES TO MARKET DEMAND CURVES

105

(2)

Market Demand as a Horizontal Sum

105

(1)

The "Law" of Demand

105

(2)

Exceptions to the Law of Demand

107

(1)

Summary

107

(1)

Key Terms

108

(1)

Questions for Review

108

(1)

APPENDIX: ANALYZING CONSUMER CHOICE GRAPHICALLY: INDIFFERENCE CURVE ANALYSIS

108

(1)

GEOMETRY OF AVAILABLE CHOICES: THE BUDGET LINE

109

(2)

Properties of the Budget Line

109

(1)

Changes in the Budget Line

110

(1)

WHAT THE CONSUMER PREFERS: PROPERTIES OF THE INDIFFERENCE CURVE

111

(1)

THE SLOPES OF INDIFFERENCE CURVES AND BUDGET LINES

112

(3)

Tangency Conditions

113

(1)

Consequences of Income Changes: Inferior Goods

114

(1)

Consequences of Price Changes: Deriving the Demand Curve

114

(1)

Summary

115

(1)

Key Terms

115

(1)

Questions for Review

116

(1)

CHAPTER 7 DEMAND AND ELASTICITY

117

(20)

WILL TAXING CIGARETTES MAKE TEENAGERS STOP SMOKING?

118

(1)

ELASTICITY: THE MEASURE OF RESPONSIVENESS

119

(5)

Price Elasticity of Demand and the Shapes of Demand Curves

121

(3)

PRICE ELASTICITY OF DEMAND: ITS EFFECT ON TOTAL REVENUE AND TOTAL EXPENDITURE

124

(1)

SO, WILL A CIGARETTE TAX DECREASE TEENAGE SMOKING SIGNIFICANTLY?

125

(1)

WHAT DETERMINES DEMAND ELASTICITY?

126

(1)

ELASTICITY AS A GENERAL CONCEPT

127

(2)

Income Elasticity

127

(1)

Price Elasticity of Supply

127

(1)

Cross Elasticity of Demand

127

(2)

CHANGES IN DEMAND: MOVEMENT ALONG THE DEMAND CURVE VERSUS SHIFTS IN THE DEMAND CURVE

129

(2)

Demand Shifters

129

(2)

THE TIME PERIOD OF THE DEMAND CURVE AND ECONOMIC DECISION MAKING

131

(1)

REAL-WORLD APPLICATION: POLAROID VERSUS KODAK

132

(1)

Summary

133

(1)

Key Terms

133

(1)

Questions for Review

133

(1)

APPENDIX: STATISTICAL ANALYSIS OF DEMAND RELATIONSHIPS

134

(1)

AN ILLUSTRATION: DID THE ADVERTISING PROGRAM WORK?

135

(2)

CHAPTER 8 PRODUCTION, INPUTS, AND COST: BUILDING BLOCKS FOR SUPPLY ANALYSIS

137

(30)

ARE LARGER FIRMS MORE EFFICIENT?

138

(1)

SHORT-RUN VERSUS LONG-RUN COSTS: WHAT MAKES AN INPUT VARIABLE?

139

(2)

The Economic Short Run versus the Economic Long Run

140

(1)

Fixed Costs and Variable Costs

140

(1)

PRODUCTION, INPUT CHOICE, AND COST WITH ONE VARIABLE INPUT

141

(9)

Total, Average, and Marginal Physical Products

141

(1)

Marginal Physical Product and the "Law" of Diminishing Marginal Returns

142

(2)

The Optimal Quantity of an Input and Diminishing Returns

144

(1)

Input Quantities and Total, Average, and Marginal Cost Curves

145

(3)

The Law of Diminishing Marginal Productivity and the U-Shaped Average Cost Curve

148

(1)

The Average Cost Curve in the Short and Long Run

149

(1)

MULTIPLE INPUT DECISIONS: THE CHOICE OF OPTIMAL INPUT COMBINATIONS

150

(5)

Substitutability: The Choice of Input Proportions

150

(1)

The Production Function and Substitutability

151

(2)

The Marginal Rule for Optimal Input Proportions

153

(1)

Changes in Input Prices and Optimal Input Proportions

154

(1)

ECONOMIES OF SCALE

155

(4)

The "Law" of Diminishing Returns and Returns to Scale

157

(1)

Historical Costs versus Analytical Cost Curves

158

(1)

RESOLVING THE ECONOMIES OF SCALE ISSUE

159

(2)

Cost Minimization in Theory and Practice

160

(1)

Summary

161

(1)

Key Terms

161

(1)

Questions for Review

161

(1)

APPENDIX: PRODUCTION INDIFFERENCE CURVES

162

(1)

CHARACTERISTICS OF THE PRODUCTION INDIFFERENCE CURVES, OR ISOQUANTS

163

(1)

THE CHOICE OF INPUT COMBINATIONS

163

(1)

COST MINIMIZATION, EXPANSION PATH, AND COST CURVES

164

(1)

EFFECTS OF CHANGES IN INPUT PRICES

164

(1)

Summary

164

(1)

Key Terms

165

(1)

Questions for Review

165

(2)

CHAPTER 9 OUTPUT, PRICE, AND PROFIT: THE IMPORTANCE OF MARGINAL ANALYSIS

167

(22)

TWO PUZZLES

168

(1)

PRICE AND QUANTITY: ONE DECISION, NOT TWO

169

(1)

TOTAL PROFIT: KEEP YOUR EYE ON THE GOAL

170

(4)

Total, Average, and Marginal Revenue

170

(2)

Total, Average, and Marginal Cost

172

(1)

Maximization of Total Profit

172

(2)

Profit Maximization: A Graphical Interpretation

174

(1)

MARGINAL ANALYSIS AND MAXIMIZATION OF TOTAL PROFIT

174

(5)

Marginal Revenue and Marginal Cost: Guides to Optimization

176

(1)

Finding the Optimal Price from Optimal Output

177

(2)

GENERALIZATION: THE LOGIC OF MARGINAL ANALYSIS AND MAXIMIZATION

179

(2)

Application: Fixed Cost and the Profit-Maximizing Price

180

(1)

MARGINAL ANALYSIS IIV REAL DECISION PROBLEMS

181

(2)

CONCLUSION: THE FUNDAMENTAL ROLE OF MARGINAL ANALYSIS

183

(1)

THE THEORY AND REALITY: A WORD OF CAUTION

183

(2)

Summary

185

(1)

Key Terms

185

(1)

Questions for Review

185

(1)

APPENDIX: THE RELATIONSHIPS AMONG TOTAL, AVERAGE, AND MARGINAL DATA

186

(1)

GRAPHICAL REPRESENTATION OF MARGINAL AND AVERAGE CURVES

187

(1)

Questions for Review

187

(2)

PART III Markets, from Competition to Monopoly: Virtues and Vices

189

(138)

CHAPTER 10 THE FIRM AND THE INDUSTRY UNDER PERFECT COMPETITION

191

(18)

POLLUTION REDUCTION INCENTIVES THAT ACTUALLY INICREASE POLLUTION

192

(1)

PERFECT COMPETITION DEFINED

192

(1)

THE COMPETITIVE FIRM

193

(5)

The Firm's Demand Curve under Perfect Competition

193

(1)

Short-Run Equilibrium for the Perfectly Competitive Firm

194

(2)

Short-Run Profit: Graphic Representation

196

(1)

The Case of Short-Term Losses

196

(1)

Shutdown and Break-Even Analysis

196

(2)

The Competitive Firm's Short-Run Supply Curve

198

(1)

THE COMPETITIVE INDUSTRY

198

(6)

The Competitive Industry's Short-Run Supply Curve

198

(2)

Industry Equilibrium in the Short Run

200

(1)

Industry and Firm Equilibrium in the Long Run

200

(3)

Zero Economic Profit: The Opportunity Cost of Capital

203

(1)

The Long Run Industry Supply Curve

203

(1)

PERFECT COMPETITION AND ECONOMIC EFFICIENCY

204

(2)

WHICH IS BETTER TO CUT POLLUTION--THE CARROT OR THE STICK?

206

(1)

Summary

207

(1)

Key Terms

208

(1)

Questions For Review

208

(1)

CHAPTER 11 THE PRICE SYSTEM AND THE CASE FOR FREE MARKETS

209

(20)

HOW SHOULD CALTRANS SET THE PRICE TO CROSS THE SAN FRANCISCO--OAKLAND BAY BRIDGE?

210

(1)

EFFICIENT RESOURCE ALLOCATION AND PRICING

210

(3)

Pricing to Promote Efficiency: An Example

211

(1)

Can Price Increases Ever Serve the Public Interest?

212

(1)

SCARCITY AND THE NEED TO COORDINATE ECONOMIC DECISIONS

213

(8)

Three Coordination Tasks in the Economy

214

(3)

Input-Output Analysis: The Near Impossibility of Perfect Central Planning

217

(2)

Which Buyers and Which Sellers Get Priority?

219

(2)

HOW PERFECT COMPETITION ACHIEVES EFFICIENCY

221

(5)

Example: Efficient Resource Allocation in Output Selection

221

(2)

The Invisible Hand at Work

223

(1)

Other Roles of Prices: Income Distribution and Fairness

223

(1)

Yet Another Free-Market Achievement: Growth versus Efficiency

224

(2)

SAN FRANCISCO BRIDGE PRICING REVISITED

226

(1)

TOWARD ASSESSMENT OF THE PRICE MECHANISM

227

(1)

Summary

227

(1)

Key Terms

228

(1)

Questions for Review

228

(1)

CHAPTER 12 MONOPOLY

229

(16)

COMPETITION IN LOCAL TELEPHONE SERVICE MARKETS?

230

(1)

MONOPOLY DEFINED

230

(3)

Sources of Monopoly: Barriers to Entry and Cost Advantages

231

(1)

Natural Monopoly

232

(1)

THE MONOPOLIST'S SUPPLY DECISION

233

(6)

Determining the Profit-Maximizing Output

234

(1)

Comparing Monopoly and Perfect Competition

235

(2)

Monopoly Is Likely to Shift Demand

237

(1)

Monopoly Is Likely to Shift Cost Curves

238

(1)

ON BALANCE, CAN ANYTHING GOOD BE SAID ABOUT MONOPOLY?

239

(1)

Monopoly May Aid Innovation

239

(1)

Natural Monopoly: Where Single-Firm Production Is Cheapest

239

(1)

PRICE DISCRIMINATION UNDER MONOPOLY

239

(3)

Is Price Discrimination Always Undesirable?

241

(1)

THE PUZZLE RESOLVED: COMPETITIVE LOCAL TELEPHONE SERVICE

242

(1)

Summary

243

(1)

Key Terms

244

(1)

Questions for Review

244

(1)

CHAPTER 13 BETWEEN COMPETITION AND MONOPOLY

245

(24)

SOME PUZZLING OBSERVATIONS

246

(2)

MONOPOLISTIC COMPETITION

248

(3)

Characteristics of Monopolistic Competition

248

(1)

Price and Output Determination under Monopolistic Competition

249

(1)

The Excess Capacity Theorem and Resource Allocation

250

(1)

EXPLAINING THE ABUNDANCE OF RETAILERS

251

(1)

OLIGOPOLY

252

(1)

WHY OLIGOPOLISTS ADVERTISE BUT PERFECTLY COMPETITIVE FIRMS GENERALLY DO NOT

252

(6)

Why Oligopolistic Behavior Is So Hard to Analyze

253

(1)

A Shopping List

254

(3)

Sales Maximization: An Oligolopoly Model With Interdependence Ignored

257

(1)

THE KINKED DEMAND CURVE MODE

258

(6)

The Game-Theory Approach

260

(4)

MONOPOLISTIC COMPETITION, OLIGOPOLY, AND PUBLIC WELFARE

264

(2)

A GLANCE BACKWARD: COMPARING THE FOUR MARKET FORMS

266

(1)

Summary

267

(1)

Key Terms

267

(1)

Questions for Review

267

(2)

CHAPTER 14 THE MARKET MECHANISM: SHORTCOMINGS AND REMEDIES

269

(22)

WHY ARE HEALTH-CARE COSTS IN CANADA RISING?

270

(1)

WHAT DOES THE MARKET DO POORLY?

270

(1)

EFFICIENT RESOURCE ALLOCATION: A REVIEW

271

(1)

EXTERNALITIES: GETTING THE PRICES WRONG

272

(4)

Externalities and Inefficiency

273

(1)

Externalities Are Everywhere

274

(1)

Government Policy and Externalities

275

(1)

PROVISION OF PUBLIC GOODS

276

(1)

ALLOCATION OF RESOURCES BETWEEN PRESENT AND FUTURE

277

(2)

The Role of the Interest Rate

277

(1)

How Does It Work in Practice?

278

(1)

MARKET FAILURE AND GOVERNMENT FAILURE

279

(1)

THE COST DISEASE OF THE SERVICE SECTOR

279

(5)

Deteriorating Personal Services

279

(1)

personal Services Are Getting More Expensive

280

(1)

Why Are Personal Services Getting Worse but Costing More?

281

(1)

Uneven Labor Productivity Growth in the Economy

282

(1)

A Future of More Goods but Fewer Services: Is It Inevitable?

283

(1)

Government May Make the Problem Worse

283

(1)

EXPLAINING THE RISING COSTS OF CANADIAN HEALTH CARE

284

(1)

SOME OTHER SOURCES OF MARKET FAILURE

285

(2)

Imperfect Information

285

(1)

Rent Seeking

285

(1)

Moral Hazard

286

(1)

THE MARKET SYSTEM ON BALANCE

287

(1)

EPILOGUE: THE UNFORGIVING MARKET, ITS GIFT OF ABUNDANCE, AND ITS DANGEROUS FRIENDS

287

(1)

Summary

288

(1)

Key Terms

289

(1)

Questions for Review

289

(2)

CHAPTER 15 MICROECONOMICS OF INNOVATION: PRIME ENGINE OF GROWTH

291

(16)

THE BIG PUZZLE: WHY 00 ALL RIVAL ECONOMIC SYSTEMS TRAIL SO FAR BEHIND FREE MARKET GROWTH RATES?

293

(1)

THE FREE MARKET'S GROWTH RECORD

293

(2)

Innovation and the Growth Process

294

(1)

What Is Different about Free-Market Economies?

294

(1)

INNOVATION VERSUS PRICE AS THE PRIME COMPETITIVE WEAPON

295

(7)

How Much Will the Profit-Maximizing Firm Spend on Innovation?

296

(1)

The Profits of Innovation

297

(1)

Reducing Risk by Sharing Technology

298

(1)

A Kinked Revenue Curve Model of Spending on Innovation

299

(3)

THREE GROWTH-CREATING PROPERTIES OF INNOVATION

302

(1)

Cumulative Innovation

302

(1)

The Public Good Property of Innovation

302

(1)

The Accelerator Property of Innovation

303

(1)

DO FREE MARKETS SPEND ENOUGH ON R&D ACTIVITIES?

303

(2)

Innovation as a Positive Externality

304

(1)

Effects of Process Research on Amounts of Goods Produced and on Their Prices

305

(1)

THE PUZZLE REVISITED: EXTRAORDINARY GROWTH IN FREE-MARKET ECONOMIES

305

(1)

Summary

306

(1)

key Terms

306

(1)

Questions for Review

306

(1)

CHAPTER 16 REAL FIRMS AND THEIR FINANCING: STOCKS AND BONDS

307

(20)

THE STOCK MARKET'S UNPREDICTABILITY

308

(1)

FIRMS IN THE UNITED STATES

308

(4)

Proprietorships

309

(1)

Partnerships

309

(1)

Corporations

310

(1)

The Effect of Double Taxation of Corporate Earnings

311

(1)

FINANCING CORPORATE ACTIVITY

312

(3)

Loans

312

(1)

Stocks and Bonds

312

(2)

Plowback, or Retained Earnings

314

(1)

FROM THE INVESTOR'S VIEWPOINT: BUYING STOCKS AND BONDS

315

(2)

Selecting a Portfolio: Diversification

315

(1)

Following a Portfolio's Performance

316

(1)

STOCK EXCHANGES AND THEIR FUNCTIONS

317

(2)

Regulation of the Stock Market

318

(1)

Stock Exchanges and Corporate Capital Needs

319

(1)

SPECULATION

319

(3)

UNPREDICTABLE STOCK PRICES AS "RANDOM WALKS"

322

(3)

Summary

325

(1)

Key Terms

326

(1)

Questions for Review

326

(1)

PART IV The Distribution of Income

327

(76)

CHAPTER 17 PRICING THE FACTORS OF PRODUCTION

329

(22)

THE PRINCIPLE OF MARGINAL PRODUCTIVITY

330

(1)

INPUTS AND THEIR DERIVED DEMAND CURVES

331

(2)

INVESTMENT, CAPITAL, AND INTEREST

333

(4)

The Demand for Funds

334

(1)

The Downward-Sloping Demand Curve for Funds

335

(1)

The Supply of Funds

336

(1)

The Issue of Usury Laws: Are Interest Rates Too High?

336

(1)

THE DETERMINATION OF RENT

337

(7)

Land Rents: Complicated Version

338

(2)

Generalization: Economic Rent Seeking

340

(2)

An Application of gent Theory: Shaquille O'Neal's Salary

342

(1)

Rent Controls: The Misplaced Analogy

343

(1)

PAYMENTS TO ENTREPRENEURSHIP: ARE PROFITS TOO HIGH OR TOO Low?

344

(3)

What Accounts for Profits?

345

(1)

Taxing Profits

346

(1)

CRITICISMS OF MARGINAL PRODUCTIVITY THEORY

347

(1)

Summary

348

(1)

Key Terms

348

(1)

Questions for Review

348

(1)

APPENDIX: DISCOUNTING AND PRESENT VALUE

349

(1)

Summary

350

(1)

Key Terms

350

(1)

Questions for Review

350

(1)

CHAPTER 18 LABOR: THE HUMAN INPUT

351

(28)

DO CHEAP FOREIGN LABOR AND TECHNOLOGICAL PROGRESS CONTRIBUTE TO LAGGING WAGES?

353

(1)

WAGE DETERMINATION IN COMPETITIVE LABOR MARKETS

354

(3)

The Demand for Labor and the Determination of Wages

354

(1)

Influences an MRP(L) Shifts in the Demand for Labor

355

(1)

Technical Change, Productivity Growth, and the Demand for Labor

355

(1)

The Service Economy and the Demand for Labor

356

(1)

THE SUPPLY OF LABOR

357

(4)

Rising Labor-Force Participation

357

(2)

An Important Labor Supply Puzzle

359

(1)

The Labor Supply Puzzle Resolved

360

(1)

WHY DO WAGES DIFFER?

361

(6)

Labor Demand in General

362

(1)

Labor Supply in General

362

(1)

Ability and Earnings: The Rent Component of Wages

363

(1)

Investment in Human Capital

363

(1)

Education and Earnings: Dissenting Views

364

(1)

The Effects of Minimum Wage Legislation

365

(2)

UNIONS AND COLLECTIVE BARGAINING

367

(4)

The Development of Unionism in America

368

(2)

Unions as Labor Monopolies

370

(1)

FOREIGN COMPETITION, TECHNOLOGY, AND AMERICAN JOBS: ARE UNION FEARS JUSTIFIED?

371

(4)

Monopsony and Bilateral Monopoly

372

(1)

Collective Bargaining and Strikes

373

(2)

Summary

375

(1)

Key Terms

376

(1)

Questions for Review

376

(3)

CHAPTER 19 POVERTY, INEQUALITY, AND DISCRIMINATION

379

(24)

ENDING WELFARE AS WE KNOW IT

380

(1)

THE FACTS: POVERTY

381

(3)

Counting the Poor: The Poverty Line

382

(1)

Absolute versus Relative Poverty

383

(1)

THE FACTS: INEQUALITY

384

(3)

Depicting Income Distributions: The Lorenz Curve

385

(2)

SOME REASONS FOR UNEQUAL INCOMES

387

(1)

THE FACTS: DISCRIMINATION

388

(1)

THE ECONOMIC THEORY OF DISCRIMINATION

389

(3)

Discrimination by Employers

390

(1)

Discrimination by Fellow Workers

390

(1)

Statistical Discrimination

391

(1)

The Roles of the Market and the Government

391

(1)

THE OPTIMAL AMOUNT OF INEQUALITY

392

(1)

THE TRADE-OFF BETWEEN EQUALITY AND EFFCIENCY

393

(2)

POLICIES TO COMBAT POVERTY

395

(3)

Education as a Way Out

395

(1)

The Welfare Debate

395

(1)

Welfare Reform and the Trade-off

396

(1)

The Negative Income Tax

396

(2)

OTHER POLICIES TO COMBAT INEQUALITY

398

(1)

The Personal Income Tax

398

(1)

Death Duties and Other Taxes

398

(1)

POLICIES TO COMBAT DISCRIMINATION

398

(2)

A LOOK BACK

400

(1)

Summary

400

(1)

Key Terms

401

(1)

Questions for Review

401

(2)

PART V The Government and the Economy

403

(74)

CHAPTER 20 LIMITING MARKET POWER: REGULATION AND ANTITRUST

405

(28)

THE PUBLIC INTEREST ISSUE: MONOPOLY POWER VERSUS MERE SIZE

406

(1)

PART 1: REGULATION

407

(1)

How and Why Did Regulation Arise?

407

(1)

What Is Regulated? By Whom?

408

(1)

WHY DO REGULATORS OFTEN RAISE PRICES?

408

(1)

SOME OBJECTIVES OF REGULATION

409

(3)

Control of Market Power Resulting from Economies of Scale and Scope

409

(1)

Monopoly Power and the Prices of "Bottleneck" Facilities

409

(2)

Universal Service and Rate Averaging

411

(1)

TWO KEY ISSUES THAT FACE REGULATORS

412

(1)

HOW CAN REGULATORS SET PRICES THAT BEST PROTECT CONSUMERS' INTERESTS BUT ENABLE REGULATED FIRMS TO COVER THEIR COSTS?

412

(4)

Marginal versus Average Cost Pricing

413

(1)

Preventing Monopoly Profit but Keeping Incentives for Efficiency and Innovation

414

(2)

THE PROS AND CONS OF "BIGNESS"

416

(1)

Economies of Large Size

416

(1)

Required Scale For Innovation

416

(1)

DEREGULATION

417

(2)

The Effects of Deregulation

417

(2)

THE REASON WHY REGULATORS OFTEN PUSH PRICES UPWARD

419

(1)

PART 2: ANTITRUST LAWS AND POLICIES

420

(1)

THE PUBLIC IMAGE OF BUSINESS WHEN THE ANTITRUST LAWS WERE BORN

420

(1)

THE ANTITRUST LAWS

421

(2)

Sherman Act

422

(1)

Clayton Act of 1914

422

(1)

FTC Act

423

(1)

Robinson-Patman Act

423

(1)

MEASURING MARKET POWER: CONCENTRATION

423

(2)

The Evidence on Concentration in Reality

424

(1)

A CRUCIAL PROBLEM FOR ANTITRUST: THE RESEMBLANCE OF MONOPOLIZATION AND VIGOROUS COMPETITION

425

(1)

ANTICOMPETITIVE PRACTICES AND ANTITRUST

426

(1)

Predatory Pricing

426

(1)

Other Possibly Anticompetitive Practices: Bottleneck Pricing and Bundling

426

(1)

MERGERS AND COMPETITION

427

(1)

USE OF ANTITRUST LAWS TO PREVENT COMPETITION

428

(1)

CONCLUDING OBSERVATIONS

429

(1)

Summary

430

(1)

Key Terms

431

(1)

Questions for Review

431

(2)

CHAPTER 21 TAXATION AND RESOURCE ALLOCATION

433

(20)

SHOULD WE FLATTEN THE INCOME TAX?

434

(1)

THE LEVEL AND TYPES OF TAXATION

434

(2)

Progressive, Proportional, and Regressive Taxes

435

(1)

Direct versus Indirect Taxes

435

(1)

THE FEDERAL TAX SYSTEM

436

(3)

The Federal Personal Income Tax

436

(1)

The Payroll Tax

437

(1)

The Corporate Income Tax

437

(1)

Excise Taxes

438

(1)

The Payroll Tax and the Social Security System

438

(1)

THE STATE AND LOCAL TAX SYSTEM

439

(2)

Sales and Excise Taxes

440

(1)

Property Taxes

440

(1)

Fiscal Federalism

440

(1)

THE CONCEPT OF EQUITY IN TAXATION

441

(1)

Horizontal Equity

441

(1)

Vertical Equity

441

(1)

The Benefits Principle

442

(1)

THE CONCEPT OF EFFICIENCY IN TAXATION

442

(4)

Tax Loopholes and Excess Burden

445

(1)

SHIFTING THE TAX BURDEN: TAX INCIDENCE

446

(2)

The Incidence of Excise Taxes

447

(1)

The Incidence of the Payroll Tax

447

(1)

WHEN TAXATION CAN IMPROVE EFFICIENCY

448

(1)

EQUITY, EFFICIENCY, AND THE OPTIMAL TAX

449

(1)

CONCLUSION: THE PROS AND CONS OF A FLAT TAX

450

(1)

summary

451

(1)

Key Terms

451

(1)

Questions for Review

452

(1)

CHAPTER 22 EXTERNALITIES, THE ENVIRONMENT, AND NATURAL RESOURCES

453

(24)

PART 1: THE ECONOMICS OF ENVIRONMENTAL PROTECTION

454

(1)

EXTERNALITIES: A CRITICAL SHORTCOMING OF THE MARKET MECHANISM

454

(5)

The Facts: Is Everything Really Getting Steadily Worse?

454

(4)

The Law of Conservation of Matter and Energy

458

(1)

The Role of Individuals and Governments in Environmental Damage

459

(1)

Envrironmental Damage as an Externality

459

(1)

SUPPLY-DEMAND ANALYSIS OF ENVIRONMENTAL EXTERNALITIES

459

(2)

BASIC APPROACHES TO ENVIRONMENTAL POLICY

461

(5)

Emissions Taxes versus Direct Controls

462

(2)

Another Financial Device to Protect the Environment: Emissions Permits

464

(2)

TWO CHEERS FOR THE MARKET

466

(1)

PART 2: THE ECONOMICS OF NATURAL RESOURCES

467

(1)

THOSE RESILIENT RESOURCE SUPPLIES

467

(1)

ECONOMIC ANALYSIS: THE FREE MARKET AND PRICING OF DEPLETABLE RESOURCES

467

(4)

Scarcity and Rising Prices

468

(2)

Supply-Demand Analysis and Consumption

470

(1)

ACTUAL RESOURCE PRICES IN THE 20TH CENTURY

471

(3)

Interferences with Price Patterns

471

(1)

Is Price Interference Justified?

472

(1)

On the Virtues of Rising Prices

473

(1)

GROWING RESERVES OF EXHAUSTIBLE RESOURCES

474

(1)

Summary

474

(1)

Key Terms

474

(1)

Questions for Review

475

(2)

PART VI The Macroeconomy: Aggregate Supply and Demand

477

(120)

CHAPTER 23 THE REALM OF MACROECONOMICS

479

(20)

HOW DID WE GROW SO FAST?

480

(1)

DRAWING A LINE BETWEEN MACROECONOMICS AND MICROECONOMICS

480

(2)

Aggregation and Macroeconomics

480

(1)

Foundations of Aggregation

481

(1)

The Line of Demarcation Revisited

481

(1)

SUPPLY AND DEMAND REINTERPRETED THROUGH A MACROECONOMIC LENS

482

(1)

A Quick Review

482

(1)

Moving to Macroeconomic Aggregates

482

(1)

Inflation

483

(1)

Recession and Unemployment

483

(1)

Economic Growth

483

(1)

GROSS DOMESTIC PRODUCT

483

(4)

Money as the Measuring Rod: Real versus Nominal GDP

484

(1)

What Gets Counted in GDP?

484

(1)

Limitations of the GDP: What GDP Is Not

485

(2)

THE ECONOMY ON A ROLLER COASTER

487

(7)

Growth, But with Fluctuations

487

(2)

Inflation and Deflation

489

(1)

The Great Depression

489

(2)

From World War II to 1973

491

(1)

The Great Stagflation, 1973-1980

492

(1)

Reaganomics and Its Aftermath

492

(1)

Clintonomics: Deficit Reduction and "The Best Economy in 30 Years"

493

(1)

THE PROBLEM OF MACROECONOMIC STABILIZATION: A SNEAK PREVIEW

494

(2)

Combating Unemployment

495

(1)

Combating Inflation

495

(1)

Does It Really Work?

495

(1)

Summary

496

(1)

Key Terms

497

(1)

Questions for Review

497

(2)

CHAPTER 24 THE GOALS OF MACROECONOMIC POLICY

499

(28)

PART 1: THE GOAL OF ECONOMIC GROWTH

500

(1)

IS MORE GROWTH ALWAYS BETTER?

500

(1)

THE CAPACITY TO PRODUCE: POTENTIAL GDP

501

(1)

ALTERNATIVE MEASURES OF ECONOMIC GROWTH

502

(1)

THE U.S. PRODUCTIVITY SLOWDOWN: IS AMERICA ON THE DECLINE?

503

(1)

EXPLANATIONS FOR THE PRODUCTIVITY SLOWDOWN

504

(1)

Lagging Investment

504

(1)

High Energy Prices

504

(1)

Workforce Skills

505

(1)

A Technological Slowdown

505

(1)

PART 2: THE COSTS OF UNEMPLOYMENT

505

(2)

THE HUMAN COSTS OF HIGH UNEMPLOYMENT

507

(1)

COUNTING THE UNEMPLOYED: THE OFFICIAL STATISTICS

508

(1)

TYPES OF UNEMPLOYMENT

509

(1)

HOW MUCH EMPLOYMENT IS "FULL EMPLOYMENT"?

510

(1)

UNEMPLOYMENT INSURANCE: THE INVALUABLE CUSHION

510

(2)

PART 3: THE COSTS OF INFLATION

512

(1)

INFLATION: THE MYTH AND THE REALITY

512

(3)

Inflation and Real Wages

512

(1)

The Illusion of Traditional "Fair" Prices

513

(1)

The Importance of Relative Prices

513

(2)

INFLATION AS A REDISTRIBUTOR OF INCOME AND WEALTH

515

(1)

REAL VERSUS NOMINAL INTEREST RATES

515

(1)

INFLATION DISTORTS MEASUREMENTS

516

(2)

Confusing Real and Nominal Interest Rates

517

(1)

Public Utility Regulation

517

(1)

The Malfunctioning Tax System

517

(1)

Usury Laws

517

(1)

OTHER COSTS OF INFLATION

518

(1)

THE COSTS OF LOW VERSUS HIGH INFLATION

518

(1)

LOW INFLATION DOES NOT NECESSARILY LEAD TO HIGH INFLATION

519

(2)

Summary

521

(1)

Key Terms

521

(1)

Questions for Review

521

(1)

APPENDIX: HOW STATISTICIANS MEASURE INFLATION

522

(1)

INDEX NUMBERS FOR INFLATION

522

(1)

THE CONSUMER PRICE INDEX

522

(1)

HOW TO USE A PRICE INDEX TO "DEFLATE" MONETARY FIGURES

523

(1)

THE GDP DEFLATOR

524

(1)

Summary

524

(1)

Key Terms

524

(1)

Questions for Review

525

(2)

CHAPTER 25 INCOME AND SPENDING: THE POWERFUL CONSUMER

527

(20)

DEMAND MANAGEMENT AND THE ORNERY CONSUMER

528

(1)

AGGREGATE DEMAND, DOMESTIC PRODUCT, AND NATIONAL INCOME

529

(1)

THE CIRCULAR FLOW OF SPENDING, PRODUCTION, AND INCOME

530

(2)

CONSUMER SPENDING AND INCOME: THE IMPORTANT RELATIONSHIP

532

(2)

THE CONSUMPTION FUNCTION AND THE MARGINAL PROPENSITY TO CONSUME

534

(2)

MOVEMENTS ALONG VERSUS SHIFTS OF THE CONSUMPTION FUNCTION

536

(2)

Other Determinants of Consumer Spending

536

(2)

WHY TAX POLICY FAILED IN 1975

538

(1)

HOW PREDICTABLE IS CONSUMER BEHAVIOR?

539

(1)

Summary

540

(1)

Key Terms

540

(1)

Questions to Review

541

(1)

APPENDIX: NATIONAL INCOME ACCOUNTING

541

(1)

DEFINING GDP: EXCEPTIONS TO THE RULES

541

(1)

GDP AS THE SUM OF FINAL GOODS AND SERVICES

542

(1)

GDP AS THE SUM OF ALL FACTOR PAYMENTS

542

(2)

GDP AS THE SUM OF VALUES ADDED

544

(1)

Summary

545

(1)

Key Terms

546

(1)

Question for Review

546

(1)

CHAPTER 26 DEMAND-SIDE EQUILIBRIUM: UNEMPLOYMENT OR INFLATION?

547

(18)

WHY DOES THE MARKET PERMIT UNEMPLOYMENT?

548

(1)

THE EXTREME VARIABILITY OF INVESTMENT

549

(2)

Business Confidence and Expectations about the Future

549

(1)

The Level and Growth of Demand

550

(1)

Technical Change and Product Innovation

550

(1)

The Real Rate of Interest

550

(1)

Tax Provisions

551

(1)

THE DETERMINANTS OF NET EXPORTS

551

(1)

National Incomes

551

(1)

Relative Prices and Exchange Rates

552

(1)

EQUILIBRIUM ON THE DEMAND SIDE OF THE ECONOMY

552

(5)

The Meaning of Equilibrium GDP

553

(1)

Constructing the Expenditure Schedule

554

(2)

The Mechanics of Income Determination

556

(1)

THE AGGREGATE DEMAND CURVE

557

(2)

DEMAND-SIDE EQUILIBRIUM AND FULL EMPLOYMENT

559

(1)

THE COORDINATION OF SAVING AND INVESTMENT

560

(2)

Summary

562

(1)

Key Terms

563

(1)

Questions for Review

563

(1)

APPENDIX: THE SIMPLE ALGEBRA OF INCOME DETERMINATION

563

(1)

Questions for Review

564

(1)

CHAPTER 27 CHANGES ON THE DEMAND SIDE: MULTIPLIER ANALYSIS

565

(16)

WOULD CUTTING TAXES WORK IN JAPAN?

566

(1)

THE MAGIC OF THE MULTIPLIER

566

(4)

Demystifying the Multiplier: How It Works

567

(1)

Algebraic Statement of the Multiplier

568

(2)

THE MULTIPLIER: A GENERAL CONCEPT

570

(2)

The Multiplier Effect of Consumer Spending

570

(1)

Other Multipliers

571

(1)

THE MULTIPLIER IN REVERSE

572

(1)

The Paradox of Thrift

572

(1)

TAX CUTTING IN JAPAN

573

(1)

THE MULTIPLIER AND THE AGGREGATE DEMAND CURVE

574

(1)

Summary

575

(1)

Key Terms

575

(1)

Questions for Review

575

(1)

APPENDIX A: THE SIMPLE ALGEBRA OF THE MULTIPLIER

576

(1)

APPENDIX B: THE MULTIPLIER WITH VARIABLE IMPORTS

576

(2)

Summary

578

(1)

Questions for Review

579

(2)

CHAPTER 28 SUPPLY-SIDE EQUILIBRIUM: UNEMPLOYMENT AND INFLATION?

581

(16)

HOW COULD INFLATION FALL WHILE THE ECONOMY BOOMED?

582

(1)

THE AGGREGATE SUPPLY CURVE

582

(3)

Why the Aggregate Supply Curve Slopes Upward

582

(1)

Shifts of the Aggregate Supply Curve

583

(2)

EQUILIBRIUM OF AGGREGATE DEMAND AND SUPPLY

585

(1)

RECESSIONARY AND INFLATIONARY GAPS REVISITED

586

(2)

ADJUSTING TO A RECESSIONARY GAP: DEFLATION OR UNEMPLOYMENT?

588

(1)

Does the Economy Have a Self-Correcting Mechanism?

589

(1)

An Example from Recent History: Disinflation in the 1990s

589

(1)

ADJUSTING TO AN INFLATIONARY GAP: INFLATION

589

(3)

Demand Inflation and Stagflation

590

(1)

A Recent Example

591

(1)

STAGFLATION FROM A SUPPLY SHOCK

592

(1)

EXPLAINING THE ROARING NINETIES

592

(1)

INFLATION AND THE MULTIPLIER

593

(1)

A ROLE FOR STABILIZATION POLICY

594

(1)

Summary

595

(1)

Key Terms

595

(1)

Questions for Review

595

(2)

PART VII Fiscal and Monetary Policy

597

(130)

CHAPTER 29 MANAGING AGGREGATE DEMAND: FISCAL POLICY

599

(20)

HOW TO STIMULATE JAPAN'S ECONOMY

600

(1)

INCOME TAXES AND THE CONSUMPTION SCHEDULE

600

(3)

THE MULTIPLIER REVISITED

603

(2)

Automatic Stabilizers

604

(1)

Multipliers for Tax Policy

605

(1)

THE JAPANESE ECONOMY

605

(1)

Government Transfer Payments

606

(1)

PLANNING EXPANSIONARY FISCAL POLICY

606

(2)

PLANNING CONTRACTIONARY FISCAL POLICY

608

(1)

THE CHOICE BETWEEN SPENDING POLICY AND TAX POLICY

608

(1)

SOME HARSH REALITIES

609

(1)

THE IDEA BEHIND SUPPLY-SIDE TAX CUTS

610

(1)

SOME FLIES IN THE OINTMENT

611

(2)

Toward an Assessment of Supply-Side Economics

612

(1)

TWO SIDES TO THE SUPPLY SIDE

613

(1)

Summary

614

(1)

Key Terms

614

(1)

Questions for Review

614

(1)

APPENDIX: ALGEBRAIC TREATMENT OF FISCAL POLICY AND AGGREGATE DEMAND

615

(4)

Questions for Review

617

(2)

CHAPTER 30 MONEY AND THE BANKING SYSTEM

619

(22)

WHAT CAUSED THE BIGGEST "BANK RUN" IN HISTORY?

620

(1)

THE NATURE OF MONEY

621

(3)

Barter versus Monetary Exchange

621

(1)

The Conceptual Definition of Money

622

(1)

What Serves as Money?

622

(2)

HOW THE QUANTITY OF MONEY IS MEASURED

624

(2)

625

(1)

625

(1)

Other Definitions of the Money Supply

626

(1)

THE BANKING SYSTEM

626

(4)

How Banking Began

627

(2)

Principles of Bank Management: Profits versus Safety

629

(1)

Bank Regulation

630

(1)

THE ORIGINS OF THE MONEY SUPPLY

630

(2)

How Bankers Keep Books

630

(2)

BANKS AND MONEY CREATION

632

(5)

The Limits to Money Creation by a Single Bank

632

(2)

Multiple Money Creation by a Series of Banks

634

(2)

The Process in Reverse: Multiple Contractions of the Money Supply

636

(1)

WHY THE DEPOSIT CREATION FORMULA IS OVERSIMPLIFIED

637

(1)

THE ASIAN BANK RUN EXPLAINED

638

(1)

THE NEED FOR MONETARY POLICY

638

(1)

Summary

639

(1)

Key Terms

639

(1)

Questions for Review

640

(1)

CHAPTER 31 MONETARY POLICY AND THE NATIONAL ECONOMY

641

(20)

JUST WHY IS ALAN GREENSPAN SO IMPORTANT?

642

(1)

MONEY AND INCOME: THE IMPORTANT DIFFERENCE

643

(1)

AMERICA'S CENTRAL BANK: THE FEDERAL RESERVE SYSTEM

643

(3)

Origins and Structure

643

(1)

The Independence of the Fed

644

(2)

CONTROLLING THE MONEY SUPPLY: OPEN MARKET OPERATIONS

646

(3)

Open Market Operations, Bond Prices, and Interest Rates

648

(1)

OTHER METHODS OF MONETARY CONTROL

649

(2)

Lending to Banks

650

(1)

Changing Reserve Requirements

651

(1)

SUPPLY-DEMAND ANALYSIS OF THE MONEY MARKET

651

(3)

The Money Supply Mechanism

651

(1)

The Demand for Money

652

(1)

Equilibrium in the Money Market

653

(1)

HOW MONETARY POLICY WORKS

654

(1)

Investment and Interest Rates

655

(1)

MONETARY POLICY AND TOTAL EXPENDITURE

655

(1)

MONEY AND THE PRICE LEVEL IN THE KEYNESIAN MODEL

656

(2)

Application: Why the Aggregate Demand Curve Slopes Downward

657

(1)

From Models to Policy Debates

658

(1)

Summary

658

(1)

Key Terms

659

(1)

Questions for Review

659

(2)

CHAPTER 32 THE DEBATE OVER MONETARY POLICY

661

(22)

SHOULD WE FORSAKE STABILIZATION POLICY?

662

(1)

VELOCITY AND THE QUANTITY THEORY OF MONEY

662

(5)

The Determinants of Velocity

664

(2)

Monetarism: The Quantity Theory Modernized

666

(1)

FISCAL POLICY, INTEREST RATES, AND VELOCITY

667

(2)

Application: The Multiplier Formula Revisited

669

(1)

Application: Deficit Reduction and Investment

669

(1)

DEBATE: SHOULD STABILIZATION POLICY RELY ON FISCAL OR MONETARY POLICY?

669

(2)

DEBATE: SHOULD THE FED CONTROL THE MONEY SUPPLY OR CONTROL INTEREST RATES?

671

(3)

Two Imperfect Alternatives

672

(1)

What Has the Fed Actually Done?

672

(2)

DEBATE: THE SHAPE OF THE AGGREGATE SUPPLY CURVE

674

(2)

DEBATE: SHOULD THE GOVERNMENT INTERVENE?

676

(2)

Lags and the Rules-versus-Discretion Debate

677

(1)

DIMENSIONS OF THE RULES-VERSUS-DISCRETION DEBATE

678

(2)

How Fast Does the Economy's Self-Correcting Mechanism Work?

678

(1)

How Long Are the Lags in Stabilization Policy?

678

(1)

How Accurate Are Economic Forecasts?

678

(1)

The Size of Government

678

(1)

Uncertainties Caused by Government Policy

679

(1)

A Political Business Cycle?

679

(1)

WHAT SHOULD BE DONE?

680

(1)

Summary

680

(1)

Key Terms

681

(1)

Questions for Review

681

(2)

CHAPTER 33 DEFICITS, MONETARY POLICY, AND GROWTH

683

(22)

ARE SMALLER DEFICITS GOOD OR BAD FOR GROWTH?

684

(1)

SHOULD THE BUDGET BE BALANCED?

684

(2)

The Importance of the Policy Mix

685

(1)

DEFICITS AND DEBT: TERMINOLOGY AND FACTS

686

(2)

Some Facts about the National Debt

686

(2)

INTERPRETING THE BUDGET DEFICIT

688

(4)

The Structural Deficit

688

(2)

Inflation Accounting for Interest Payments

690

(1)

Conclusion: What Happened after 1981?

691

(1)

BOGUS ARGUMENTS ABOUT THE BURDEN OF THE DEBT

692

(2)

BUDGET DEFICITS AND INFLATION

694

(2)

The Monetization Issue

695

(1)

DEFICITS, INTEREST RATES, AND CROWDING OUT

696

(2)

The Bottom Line

698

(1)

THE TRUE BURDEN OF THE NATIONAL DEBT: SLOWER GROWTH

698

(1)

RESOLVING THE ISSUE OF DEFICITS AND GROWTH

699

(2)

The Importance of the Policy Mix

700

(1)

THE ECONOMICS AND POLITICS OF THE U.S. BUDGET DEFICIT

701

(1)

Summary

702

(1)

Key Terms

703

(1)

Questions for Review

703

(2)

CHAPTER 34 THE PHILLIPS CURVE AND ECONOMIC GROWTH

705

(22)

IS THE TRADE-OFF BETWEEN INFLATION AND UNEMPLOYMENT A RELIC OF THE PAST?

706

(1)

DEMAND-SIDE INFLATION VERSUS SUPPLY-SIDE INFLATION: A REVIEW

706

(1)

APPLYING THE MODEL TO A GROWING ECONOMY

707

(1)

DEMAND-SIDE INFLATION AND THE PHILLIPS CURVE

708

(3)

SUPPLY-SIDE INFLATION AND THE COLLAPSE OF THE PHILLIPS CURVE

711

(1)

Explaining the 1990s

711

(1)

WHY INFLATION AND UNEMPLOYMENT BOTH DECLINED

712

(1)

WHAT THE PHILLIPS CURVE IS NOT

712

(3)

Fighting Unemployment with Fiscal and Monetary Policy

714

(1)

WHAT SHOULD BE DONE?

715

(1)

The Costs of Inflation and Unemployment

715

(1)

The Slope of the (Short-Run) Phillips Curve

715

(1)

The Efficiency of the Economy's Self-Correcting Mechanism

715

(1)

INFLATIONARY EXPECTATIONS AND THE PHILLIPS CURVE

716

(2)

THE THEORY OF RATIONAL EXPECTATIONS

718

(2)

What Are Rational Expectations?

718

(1)

Rational Expectations and the Trade-off

719

(1)

An Evaluation

720

(1)

WHY ECONOMISTS (AND POLITICIANS) DISAGREE

720

(1)

THE DILEMMA OF DEMAND MANAGEMENT

721

(1)

The Trade-off between Inflation and Unemployment

721

(1)

ATTEMPTS TO REDUCE THE NATURAL RATE OF UNEMPLOYMENT

721

(2)

INDEXING

723

(1)

Summary

724

(1)

Key Terms

724

(1)

Questions for Review

724

(3)

PART VIII The United States in the World Economy

727

(58)

CHAPTER 35 INTERNATIONAL TRADE AND COMPARATIVE ADVANTAGE

729

(22)

HOW CAN AMERICANS COMPETE WITH "CHEAP FOREIGN LABOR"?

730

(1)

WHY TRADE?

731

(1)

Mutual Gains from Trade

732

(1)

INTERNATIONAL VERSUS INTRANATIONAL TRADE

732

(1)

Political Factors in International Trade

733

(1)

The Many Currencies Involved in International Trade

733

(1)

Impediments to Mobility of Labor and Capital

733

(1)

THE LAW OF COMPARATIVE ADVANTAGE

733

(4)

The Arithmetic of Comparative Advantage

734

(1)

The Graphics of Comparative Advantage

735

(2)

COMPARATIVE ADVANTAGE EXPOSES THE FALLACY OF "CHEAP FOREIGN LABOR"

737

(1)

SUPPLY-DEMAND EQUILIBRIUM AND PRICING IN WORLD TRADE

738

(1)

TARIFFS, QUOTAS, AND OTHER INTERFERENCES WITH TRADE

739

(3)

How Tariffs and Quotas Work

740

(2)

Tariffs versus Quotas

742

(1)

WHY INHIBIT TRADE?

742

(3)

Gaining a Price Advantage

742

(1)

Protecting Particular Industries

743

(2)

OTHER ARGUMENTS FOR PROTECTION

745

(2)

National Defense and Other Noneconomic Considerations

745

(1)

The Infant-Industry Argument

745

(1)

Strategic Trade Policy

745

(2)

CAN CHEAP IMPORTS HURT A COUNTRY?

747

(1)

A LAST LOOK AT THE "CHEAP FOREIGN LABOR" ARGUMENT

748

(1)

Summary

748

(1)

Key Terms

749

(1)

Questions for Review

749

(2)

CHAPTER 36 THE INTERNATIONAL MONETARY SYSTEM: ORDER OR DISORDER?

751

(20)

WHAT HAPPENED TO THE ASIAN TIGERS?

752

(1)

WHAT ARE EXCHANGE RATES?

752

(2)

EXCHANGE RATE DETERMINATION IN A FREE MARKET

754

(4)

The Purchasing-Power Parity Theory: The Long Run

754

(2)

Economic Activity and Exchange Rates: The Medium Run

756

(1)

Interest Rates and Exchange Rates: The Short Run

757

(1)

Market Determination of Exchange Rates: Summary

758

(1)

FIXED EXCHANGE RATES AND THE BALANCE OF PAYMENTS

758

(3)

Defining the Balance of Payments in Practice

760

(1)

A BIT OF HISTORY: THE GOLD STANDARD AND THE BRETTON WOODS SYSTEM

761

(1)

The Classical Gold Standard

761

(1)

The Bretton Woods System

761

(1)

ADJUSTMENT MECHANISMS UNDER FIXED EXCHANGE RATES

762

(1)

WHY TRY TO FIX EXCHANGE RATES?

763

(1)

THE CURRENT "NONSYSTEM"

764

(4)

The Role of the IMF

765

(1)

The Volatile Dollar

765

(1)

The Dawn of the Euro

766

(2)

THE FATE OF THE ASIAN TIGERS

768

(1)

Summary

768

(1)

Key Terms

769

(1)

Questions for Review

769

(2)

CHAPTER 37 EXCHANGE RATES AND THE MACROECONOMY

771

(14)

SHOULD THE YEN RISE OR FALL?

772

(1)

INTERNATIONAL TRADE, EXCHANGE RATES, AND AGGREGATE DEMAND

772

(2)

Relative Prices, Exports, and Imports

773

(1)

The Effects of Changes in Exchange Rates

773

(1)

AGGREGATE SUPPLY IN AN OPEN ECONOMY

774

(1)

THE MACROECONOMIC EFFECTS OF EXCHANGE RATES

775

(1)

Interest Rates and International Capital Flows

776

(1)

FISCAL AND MONETARY POLICIES IN AN OPEN ECONOMY

776

(2)

Fiscal Policy Revisited

777

(1)

Monetary Policy Revisited

778

(1)

INTERNATIONAL ASPECTS OF DEFICIT REDUCTION

778

(2)

The Loose Link between the Budget Deficit and the Trade Deficit

779

(1)

IS THE TRADE DEFICIT A PROBLEM?

780

(1)

ON CURING THE TRADE DEFICIT

781

(2)

Change the Mix of Fiscal and Monetary Policy

781

(1)

More Rapid Economic Growth Abroad

781

(1)

Raise Domestic Saving or Reduce Domestic Investment?

781

(1)

Protectionism

782

(1)

CONCLUSION: NO NATION IS AN ISLAND

783

(1)

THE YEN'S EFFECT ON SMALLER ASIAN ECONOMIES

783

(1)

Summary

783

(1)

Key Terms

784

(1)

Questions for Review

784

(1)

GLOSSARY

785

(12)

INDEX

797

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Economics: Principles and Policies

Economics: Principles and Policies

9780030259487

0030259487

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Table of Contents

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Economics: Principles and Policies

Economics: Principles and Policies

9780030259487

0030259487

Summary

Table of Contents

Supplemental Materials

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