Macroeconomics, Global Edition

Pearson Education Limited, 2015. — 432 р. — ISBN 978-1292080635. Throughout Macroeconomics, authors Daron Acemoglu, David Laibson, and John List use real economic questions and data to help students learn about the world around them. . Taking a fresh approach, the authors use the themes of optimization, equilibrium and empiricism to illustrate the power of simple economic ideas, and their ability to explain, predict, and improve what happens in the world. Each chapter begins with an empirical question that is later answered using data in the Evidence-Based Economics feature. As a result of the text’s practical emphasis, students will learn to apply economic principles to guide the decisions they make in their own lives. I ntroduction to Economics . The Principles and Practice of Economics. Economic Methods and Economic Questions. Optimization: Doing the Best You Can. Demand, Supply, and Equilibrium. Introduction to Macroeconomics . The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates. Aggregate Incomes. Long-Run Growth and Development . Economic Growth. Why Isn’t the Whole World Developed? Equilibrium in the Macroeconomy . Employment and Unemployment. Credit Markets. The Monetary System. Short-Run Fluctuations and Macroeconomic Policy . Short-Run Fluctuations. Countercyclical Macroeconomic Policy. Macroeconomics in a Global Economy . Macroeconomics and International Trade. Open Economy Macroeconomics. Endnotes. Glossary. Credits. Index. Front Cover 1 Title Page 5 Copyright Page 6 Dedication Page 7 About the Authors 8 Brief Contents 11 CONTENTS 13 Preface 19 PART I Introduction to Economics 36 1. The Principles and Practice of Economics 36 1.1 The Scope of Economics 37 Economic Agents and Economic Resources 37 Definition of Economics 38 Positive Economics and Normative Economics 39 Microeconomics and Macroeconomics 40 1.2 Three Principles of Economics 40 1.3 The First Principle of Economics: Optimization 41 Trade-offs and Budget Constraints 42 Opportunity Cost 42 Cost-Benefit Analysis 43 Evidence-Based Economics: Is Facebook free? 44 1.4 The Second Principle of Economics: Equilibrium 47 The Free-Rider Problem 48 1.5 The Third Principle of Economics: Empiricism 48 1.6 Is Economics Good for You? 49 Summary 50 Key Terms 50 Questions 51 Problems 51 2. Economic Methods and Economic Questions 54 2.1 The Scientific Method 55 Models and Data 55 An Economic Model 57 Evidence-Based Economics: How much more do workers with a college education earn? 58 Means 59 Argument by Anecdote 59 2.2 Causation and Correlation 60 The Red Ad Campaign Blues 60 Causation versus Correlation 61 Experimental Economics and Natural Experiments 62 Evidence-Based Economics: How much do wages increase when an individual is compelled by law to get an extra year of schooling? 63 2.3 Economic Questions and Answers 64 Summary 65 Key Terms 65 Questions 66 Problems 66 Appendix: Constructing and Interpreting Graphs 68 A Study About Incentives 68 Experimental Design 68 Describing Variables 69 Cause and Effect 71 Appendix Key Terms 74 Appendix Problems 75 3. Optimization: Doing the Best You Can 76 3.1 Two Kinds of Optimization: A Matter of Focus 77 Choice & Consequence: Do People Really Optimize? 79 3.2 Optimization in Levels 80 Comparative Statics 82 3.3 Optimization in Differences: Marginal Analysis 84 Marginal Cost 84 Evidence-Based Economics: How does location affect the rental cost of housing? 87 Summary 90 Key Terms 90 Questions 91 Problems 91 4. Demand, Supply, and Equilibrium 94 4.1 Markets 95 Competitive Markets 96 4.2 How Do Buyers Behave? 97 Demand Curves 98 Willingness to Pay 98 From Individual Demand Curves to Aggregated Demand Curves 99 Building the Market Demand Curve 100 Shifting the Demand Curve 101 Evidence-Based Economics: How much more gasoline would people buy if its price were lower? 103 4.3 How Do Sellers Behave? 105 Supply Curves 105 Willingness to Accept 106 From the Individual Supply Curve to the Market Supply Curve 106 Shifting the Supply Curve 106 4.4 Supply and Demand in Equilibrium 109 Curve Shifting in Competitive Equilibrium 111 4.5 What Would Happen If the Government Tried to Dictate the Price of Gasoline? 113 Choice & Consequence: The Unintended Consequences of Fixing Market Prices 115 Summary 116 Key Terms 117 Questions 117 Problems 118 PART II Introduction to Macroeconomics 120 5. The Wealth of Nations: Defining and Measuring Macroeconomic Aggregates 120 5.1 Macroeconomic Questions 121 5.2 National Income Accounts: Production = Expenditure = Income 123 Production 123 Expenditure 124 Income 124 Circular Flows 125 National Income Accounts: Production 126 National Income Accounts: Expenditure 128 Evidence-Based Economics: In the United States, what is the total market value of annual economic production? 130 National Income Accounting: Income 132 Letting The Data Speak: Saving vs. Investment 132 5.3 What Isn’t Measured by GDP? 133 Physical Capital Depreciation 134 Home Production 134 The Underground Economy 135 Negative Externalities 135 Gross Domestic Product vs. Gross National Product 136 Leisure 137 Does GDP Buy Happiness? 137 5.4 Real vs. Nominal 138 The GDP Deflator 140 The Consumer Price Index 142 Inflation 143 Adjusting Nominal Variables 143 Summary 144 Key Terms 145 Questions 145 Problems 145 6. Aggregate Incomes 148 6.1 Inequality Around the World 149 Measuring Differences in Income per Capita 149 Letting The Data Speak: The Big Mac Index 151 Inequality in Income per Capita 151 Income per Worker 152 Productivity 153 Incomes and the Standard of Living 154 Choice & Consequence: Dangers of Just Focusing on Income per Capita 154 6.2 Productivity and the Aggregate Production Function 156 Productivity Differences 156 The Aggregate Production Function 157 Labor 157 Physical Capital and Land 158 Representing the Aggregate Production Function 158 6.3 The Role and Determinants of Technology 160 Technology 160 Dimensions of Technology 160 Letting The Data Speak: Moore’s Law 161 Letting The Data Speak: Efficiency of Production and Productivity at the Company Level 162 Entrepreneurship 163 Letting The Data Speak: Monopoly and GDP 163 Evidence-Based Economics: Why is the average American so much richer than the average Indian? 164 Summary 166 Key Terms 166 Questions 167 Problems 167 Appendix: The Mathematics of Aggregate Production Functions 170 PART III Long-Run Growth and Development 172 7. Economic Growth 172 7.1 The Power of Economic Growth 173 A First Look at U.S. Growth 174 Exponential Growth 174 Choice & Consequence: The Power of Growth 176 Patterns of Growth 177 Letting The Data Speak: Levels versus Growth 179 7.2 How Does a Nation’s Economy Grow? 181 Optimization: The Choice Between Saving and Consumption 182 What Brings Sustained Growth? 182 Choice & Consequence: Is Increasing the Saving Rate Always a Good Idea? 183 Knowledge, Technological Change, and Growth 183 Evidence-Based Economics: Why are you so much more prosperous than your great-great-grandparents were? 185 7.3 The History of Growth and Technology 187 Growth Before Modern Times 189 Malthusian Limits to Growth 188 The Industrial Revolution 189 Growth and Technology Since the Industrial Revolution 189 7.4 Growth, Inequality, and Poverty 189 Growth and Inequality 189 Letting The Data Speak: Income Inequality in the United States 190 Choice & Consequence: Inequality versus Poverty 191 Growth and Poverty 191 How Can We Reduce Poverty? 192 Letting The Data Speak: Life Expectancy and Innovation 193 Summary 194 Key Terms 194 Questions 194 Problems 195 Appendix: The Solow Growth Model 197 Appendix Key Terms 205 Appendix Problems 205 8. Why Isn’t the Whole World Developed? 206 8.1 Proximate Versus Fundamental Causes of Prosperity 207 Geography 208 Culture 209 Institutions 209 A Natural Experiment of History 210 8.2 Institutions and Economic Development 212 Inclusive and Extractive Economic Institutions 212 How Economic Institutions Affect Economic Outcomes 213 Letting The Data Speak: Divergence and Convergence in Eastern Europe 214 The Logic of Extractive Economic Institutions 217 Inclusive Economic Institutions and the Industrial Revolution 218 Letting The Data Speak: Blocking the Railways 218 Evidence-Based Economics: Are tropical and semitropical areas condemned to poverty by their geographies? 219 8.3 Is Foreign Aid the Solution to World Poverty? 224 Choice & Consequence: Foreign Aid and Corruption 225 Summary 226 Key Terms 227 Questions 227 Problems 227 PART IV Equilibrium in the Macroeconomy 230 9. Employment and Unemployment 230 9.1 Measuring Employmentand Unemployment 231 Classifying Potential Workers 231 Calculating the Unemployment Rate 232 Trends in the Unemployment Rate 233 Who Is Unemployed? 234 9.2 Equilibrium in the Labor Market 235 The Demand for Labor 235 Shifts in the Labor Demand Curve 236 The Supply of Labor 238 Shifts in the Labor Supply Curve 238 Equilibrium in a Competitive Labor Market 239 9.3 Why Is There Unemployment? 240 9.4 Job Search and Frictional Unemployment 240 9.5 Wage Rigidity and Structural Unemployment 241 Minimum Wage Laws 241 Choice & Consequence: The Luddites 242 Labor Unions and Collective Bargaining 243 Efficiency Wages and Unemployment 244 Downward Wage Rigidity and Unemployment Fluctuations 244 The Natural Rate of Unemployment and Cyclical Unemployment 245 Evidence-Based Economics: What happens to employment and unemployment if local employers go out of business? 247 Summary 248 Key Terms 249 Questions 250 Problems 250 10. Credit Markets 254 10.1 What Is the Credit Market? 255 Borrowers and the Demand for Loans 255 Real and Nominal Interest Rates 256 The Credit Demand Curve 257 Saving Decisions 258 The Credit Supply Curve 259 Choice & Consequence: Why Do People Save? 260 Equilibrium in the Credit Market 261 Credit Markets and the Efficient Allocation of Resources 263 10.2 Banks and FinancialIntermediation: Putting Supply and Demand Together 263 Assets and Liabilities on the Balance Sheet of a Bank 264 10.3 What Banks Do 266 Identifying Profitable Lending Opportunities 266 Maturity Transformation 266 Management of Risk 267 Bank Runs 268 Bank Regulation and Bank Solvency 269 Evidence-Based Economics: How often do banks fail? 270 Choice & Consequence: Too Big to Fail 271 Choice & Consequence: Asset Price Fluctuations and Bank Failures 272 Summary 272 Key Terms 273 Questions 273 Problems 274 11. The Monetary System 276 11.1 Money 277 The Functions of Money 277 Types of Money 278 The Money Supply 278 Choice & Consequence: Non-Convertible Currencies in U.S. History 279 11.2 Money, Prices, and GDP 280 Nominal GDP, Real GDP, and Inflation 280 The Quantity Theory of Money 281 11.3 Inflation 282 What Causes Inflation? 282 The Consequences of Inflation 282 The Social Costs of Inflation 283 The Social Benefits of Inflation 284 Evidence-Based Economics: What caused the German hyperinflation of 1922–1923? 285 11.4 The Federal Reserve 287 The Central Bank and the Objectives of Monetary Policy 287 What Does the Central Bank Do? 288 Bank Reserves 288 The Demand Side of the Federal Funds Market 290 The Supply Side of the Federal Funds Marketand Equilibrium in the Federal Funds Market 291 The Fed’s Influence on the MoneySupply and the Inflation Rate 294 Choice & Consequence: Obtaining Reserves Outside the Federal Funds Market 295 The Relationship Between the Federal Funds Rateand the Long-Term Real Interest Rate 296 Choice & Consequence: Two Models of Inflation Expectations 297 Summary 299 Key Terms 299 Questions 300 Problems 300 PART V Short-Run Fluctuations and Macroeconomic Policy 302 12. Short-Run Fluctuations 302 12.1 Economic Fluctuations and Business Cycles 303 Patterns of Economic Fluctuations 305 The Great Depression 307 12.2 Macroeconomic Equilibrium and Economic Fluctuations 309 Labor Demand and Fluctuations 309 Sources of Fluctuations 311 Letting the Data Speak: Unemployment and the Growth Rate of Real GDP: Okun’s Law 312 Equilibrium in the Short Run, with Multipliers and Downward Wage Rigidity 317 Equilibrium in the Medium Run: Partial Recovery and Full Recovery 318 12.3 Modeling Expansions 322 Evidence-Based Economics: What caused the recession of 2007–2009? 323 Summary 328 Key Terms 329 Questions 329 Problems 330 13. Countercyclical Macroeconomic Policy 332 13.1 The Role of Countercyclical Policies in Economic Fluctuations 333 13.2 Countercyclical Monetary Policy 335 Controlling the Federal Funds Rate 336 Other Tools of the Fed 338 Expectations, Inflation, and Monetary Policy 339 Letting the Data Speak: Managing Expectations 340 Contractionary Monetary Policy: Control of Inflation 340 Zero Lower Bound 342 Choice & Consequence: Policy Mistakes 342 Policy Trade-offs 343 13.3 Countercyclical Fiscal Policy 344 Fiscal Policy Over the Business Cycle: Automatic and Discretionary Components 344 Analysis of Expenditure-Based Fiscal Policy 348 Analysis of Taxation-Based Fiscal Policy 349 Fiscal Policies that Directly Target the Labor Market 349 Policy Waste and Policy Lags 350 Evidence-Based Economics: How much does government expenditure stimulate GDP? 351 13.4 Policies That Blurthe Line Between Fiscaland Monetary Policy 353 Summary 354 Key Terms 354 Questions 355 Problems 355 PART VI Macroeconomics in a Global Economy 358 14. Macroeconomics and International Trade 358 14.1 Why and How We Trade 359 Absolute Advantage and Comparative Advantage 359 Comparative Advantage and International Trade 362 Efficiency and Winners and Losers from Trade 363 How We Trade 364 Trade Barriers: Tariffs 365 Letting The Data Speak: Living in an Interconnected World 366 Choice & Consequence: Tariffs and Votes 367 14.2 The Current Accountand the Financial Account 367 Trade Surpluses and Trade Deficits 367 International Financial Flows 368 The Workings of the Current Account and the Financial Account 369 14.3 International Trade, Technology Transfer, and Economic Growth 371 Letting The Data Speak: From IBM to Lenovo 373 Evidence-Based Economics: Are companies like Nike harming workers in Vietnam? 374 Summary 376 Key Terms 377 Questions 377 Problems 377 15. Open Economy Macroeconomics 380 15.1 Exchange Rates 381 Nominal Exchange Rates 381 Flexible, Managed, and Fixed Exchange Rates 382 15.2 The Foreign Exchange Market 383 How Do Governments Intervene in the Foreign Exchange Market? 386 Defending an Overvalued Exchange Rate 387 Choice & Consequence: Fixed Exchange Rates and Corruption 389 Evidence-Based Economics: How did George Soros make $1 billion? 389 15.3 The Real Exchange Rate and Exports 391 From the Nominal to the Real Exchange Rate 391 Co-Movement Between the Nominaland the Real Exchange Rates 392 The Real Exchange Rate and Net Exports 393 15.4 GDP in the Open Economy 394 Letting The Data Speak: Why Have Chinese Authorities Kept the Yuan Undervalued? 395 Interest Rates, Exchange Rates, and Net Exports 396 Revisiting Black Wednesday 397 Letting The Data Speak: The Costs of Fixed Exchange Rates 398 Summary 398 Key Terms 399 Questions 399 Problems 400 Endnotes 403 Glossary 405 A, B, C 405 D, E 406 F, G, H, I 407 J, K, L, M 408 N, O 409 P, Q, R, S 410 T, U, V, W, Z 411 Credits 413 INDEX 415 A, B 415 C 415 D 416 E 417 F 418 G 419 H 419 I, J 420 K 421 L 421 M 421 N, O 422 P 422 Q 423 R 423 S, T 424 U 425 V 425 W 425 X, Y, Z 426 For courses in Principles of Macroeconomics Acemoglu, Laibson, List: An evidence-based approach to economicsThroughout Macroeconomics, authors Daron Acemoglu, David Laibson, and John List use real economic questions and data to help students learn about the world around them. Taking a fresh approach, the authors use the themes of optimization, equilibrium and empiricism to illustrate the power of simple economic ideas, and their ability to explain, predict, and improve what happens in the world. Each chapter begins with an empirical question that is later answered using data in the Evidence-Based Economics feature. As a result of the text's practical emphasis, students will learn to apply economic principles to guide the decisions they make in their own lives. MyEconLab is an online homework, tutorial, and assessment product designed to personalize learning and improve results. With a wide range of interactive, engaging, and assignable activities, students are encouraged to actively learn and retain tough course concepts. Please note that the product you are purchasing does not include MyEconLab. MyEconLab Join over 11 million students benefiting from Pearson MyLabs. 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