Front Matter

Front Matter Introduction

ABOUT THE AUTHORS

PREFACE: TO THE INSTRUCTOR

What's New in the Third Edition?

What's in the Chapters?

Alternative Paths through the Book

Media and Supplements

Acknowledgements

Chapter 1: The Big Ideas

Chapter Introduction

Big Idea One: Incentives Matter

Big Idea Two: Good Institutions Align Self-Interest with the Social Interest

Big Idea Three: Trade-offs Are Everywhere

Big Idea Four: Thinking on the Margin

Big Idea Five: The Power of Trade

Big Idea Six: The Importance of Wealth and Economic Growth

Big Idea Seven: Institutions Matter

Big Idea Eight: Economic Booms and Busts Cannot Be Avoided but Can Be Moderated

Big Idea Nine: Prices Rise When the Government Prints Too Much Money

Big Idea Ten: Central Banking Is a Hard Job

The Biggest Idea of All: Economics Is Fun

KEY CONCEPTS

CHAPTER REVIEW

Chapter 2: The Power of Trade and Comparative Advantage

Chapter Introduction

Trade and Preferences

Specialization, Productivity, and the Division of Knowledge

Comparative Advantage

Trade and Globalization

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 3: Supply and Demand

Chapter Introduction

The Demand Curve for Oil

Consumer Surplus

What Shifts the Demand Curve?

The Supply Curve for Oil

Producer Surplus

What Shifts the Supply Curve?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 4: Equilibrium: How Supply and Demand Determine Prices

Chapter Introduction

Equilibrium and the Adjustment Process

A Free Market Maximizes Producer Plus Consumer Surplus (the Gains from Trade)

Does the Model Work? Evidence from the Laboratory

Shifting Demand and Supply Curves

Terminology: Demand Compared with Quantity Demanded and Supply Compared with Quantity Supplied

Understanding the Price of Oil

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 5: Price Ceilings and Floors

Chapter Introduction

Price Ceilings

Rent Controls (Optional Section)

Arguments for Price Ceilings

Universal Price Controls

Price Floors

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 6: GDP and the Measurement of Progress

Chapter Introduction

What Is GDP?

Growth Rates

Nominal vs. Real GDP

Cyclical and Short-Run Changes in GDP

The Many Ways of Splitting GDP

Problems with GDP as a Measure of Output and Welfare

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 7: The Wealth of Nations and Economic Growth

Chapter Introduction

Key Facts about the Wealth of Nations and Economic Growth

Understanding the Wealth of Nations

Incentives and Institutions

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 7 APPENDIX The Magic of Compound Growth Using a Spreadsheet

CHAPTER 7 APPENDIX QUESTIONS

Chapter 8: Growth, Capital Accumulation, and the Economics of Ideas: Catching Up vs. the Cutting Edge

Chapter Introduction

The Solow Model and Catching-Up Growth

The Investment Rate and Conditional Convergence

New Ideas and Cutting-Edge Growth

The Economics of Ideas

The Future of Economic Growth

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 8 APPENDIX Excellent Growth

CHAPTER 8 EXCEL APPENDIX QUESTION

Chapter 9: Saving, Investment, and the Financial System

Chapter Introduction

The Supply of Savings

The Demand to Borrow

Equilibrium in the Market for Loanable Funds

The Role of Intermediaries: Banks, Bonds, and Stock Markets

What Happens When Intermediation Fails?

The Financial Crisis of 2007-2008: Leverage, Securitization, and Shadow Banking

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 9 APPENDIX Bond Pricing and Arbitrage

Bond Pricing with a Spreadsheet

Chapter 10: Stock Markets and Personal Finance

Chapter Introduction

Passive vs. Active Investing

Why Is It Hard to Beat the Market?

How to Really Pick Stocks, Seriously

Other Benefits and Costs of Stock Markets

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 11: Unemployment and Labor Force Participation

Chapter Introduction

Defining Unemployment

Frictional Unemployment

Structural Unemployment

Cyclical Unemployment

Labor Force Participation

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 12: Inflation and the Quantity Theory of Money

Chapter Introduction

Defining and Measuring Inflation

The Quantity Theory of Money

The Costs of Inflation

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 12 APPENDIX Get Real! An Excellent Adventure

Chapter 13: Business Fluctuations: Aggregate Demand and Supply

Chapter Introduction

The Aggregate Demand Curve

The Long-Run Aggregate Supply Curve

Real Shocks

Aggregate Demand Shocks and the Short-Run Aggregate Supply Curve

Shocks to the Components of Aggregate Demand

Understanding the Great Depression: Aggregate Demand Shocks and Real Shocks

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 14: Transmission and Amplification Mechanisms

Chapter Introduction

Intertemporal Substitution

Uncertainty and Irreversible Investments

Labor Adjustment Costs

Time Bunching

Collateral Damage

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 14 APPENDIX Business Fluctuations and the Solow Model

Chapter 15: The Federal Reserve System and Open Market Operations

Chapter Introduction

What Is the Federal Reserve System?

The U.S. Money Supplies

Fractional Reserve Banking, the Reserve Ratio, and the Money Multiplier

How the Fed Controls the Money Supply

The Federal Reserve and Systemic Risk

Revisiting Aggregate Demand and Monetary Policy

Who Controls the Fed?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

CHAPTER 15 APPENDIX The Money Multiplier Process in Detail

Chapter 16: Monetary Policy

Chapter Introduction

Monetary Policy: The Best Case

The Negative Real Shock Dilemma

When the Fed Does Too Much

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 17: The Federal Budget: Taxes and Spending

Chapter Introduction

Tax Revenues

Spending

Is Government Spending Wasted?

The National Debt, Interest on the National Debt, and Deficits

Will the U.S. Government Go Bankrupt?

Revenues and Spending Undercount the Role of Government in the Economy

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 18: Fiscal Policy

Chapter Introduction

Fiscal Policy: The Best Case

The Limits to Fiscal Policy

When Fiscal Policy Might Make Matters Worse

So When Is Fiscal Policy a Good Idea?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 19: International Trade

Chapter Introduction

Analyzing Trade with Supply and Demand

The Costs of Protectionism

Arguments Against International Trade

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 20: International Finance

Chapter Introduction

The U.S. Trade Deficit and Your Trade Deficit

The Balance of Payments

What Are Exchange Rates?

How Monetary and Fiscal Policy Affect Exchange Rates and How Exchange Rates Affect Aggregate Demand

Fixed vs. Floating Exchange Rates

What Are the IMF and the World Bank?

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Chapter 21: Political Economy and Public Choice

Chapter Introduction

Voters and the Incentive to Be Ignorant

Special Interests and the Incentive to Be Informed

A Formula for Political Success: Diffuse Costs, Concentrate Benefits

Voter Myopia and Political Business Cycles

Two Cheers for Democracy

Takeaway

KEY CONCEPTS

CHAPTER REVIEW

Appendix A Reading Graphs and Making Graphs

Chapter Introduction

Graphs Express Ideas

Data Graphs

Graphing Three Variables

Cause and Effect

Appendix A Questions

Appendix B Solutions to Check Yourself Questions

Chapter Introduction

Check Yourself Solutions for Chapter 2 through Chapter 4

Check Yourself Solutions for Chapter 5 through Chapter 8

Check Yourself Solutions for Chapter 9 through Chapter 13

Check Yourself Solutions for Chapter 13 through Chapter 16

Check Yourself Solutions for Chapter 17 through Chapter 21