BUSINESS CYCLES
Alternative Measures of the Business Cycle
NATIONAL INCOME ACCOUNTING
The Expenditures (Spending) Approach to Calculating GDP
The Income Approach to Calculating GDP
GDP AND OUR STANDARD OF LIVING
Different Ways of Comparing GDP Across Countries
Population and GDP per Capita
Nonmarket Activities and the Informal Economy
WHAT IS ECONOMICS ABOUT?
Why Should One Study Economics?
Microeconomics Versus Macroeconomics
Economic Theories and Reality
Positive Versus Normative Questions
KEY PRINCIPLES OF ECONOMICS
Principle 1: Economics Is Concerned With Making Choices With Limited Resources
Principle 2: When Making Decisions, One Must Take Into Account Tradeoffs and Opportunity Costs
Principle 3: Specialization Leads to Gains for All Involved
Principle 4: People Respond to Incentives, Both Good and Bad
Principle 5: Rational Behavior Requires Thinking on the Margin
Principle 6: Markets Are Generally Efficient; When They Aren’t, Government Can Sometimes Correct the Failure
Principle 7: Economic Growth, Low Unemployment, and Low Inflation Are Economic Goals That Do Not Always Coincide
Principle 8: Institutions and Human Creativity Help Explain the Wealth of Nations
Summing It All Up: Economics Is All Around Us
Linear Relationships
Computing the Slope of a Linear Line
Nonlinear Relationships
Computing the Slope of a Nonlinear Curve
Ceteris Paribus, Simple Equations, and Shifting Curves
Ceteris Paribus: All Else Equal
Correlation Is Not Causation
BASIC ECONOMIC QUESTIONS AND PRODUCTION
Production and Efficiency
PRODUCTION POSSIBILITIES AND ECONOMIC GROWTH
SPECIALIZATION, COMPARATIVE ADVANTAGE, AND TRADE
Absolute and Comparative Advantage
Practical Constraints on Trade
DEMAND
Willingness-to-Pay: The Building Block of Market Demand
The Law of Demand: The Relationship Between Quantity Demanded and Price
Changes in Demand Versus Changes in Quantity Demanded
SUPPLY
The Law of Supply: The Relationship Between Quantity Supplied and Price
Changes in Supply Versus Changes in Quantity Supplied
MARKET EQUILIBRIUM
Moving to a New Equilibrium: Changes in Supply and Demand
CONSUMER AND PRODUCER SURPLUS: A TOOL FOR MEASURING ECONOMIC EFFICIENCY
USING CONSUMER AND PRODUCER SURPLUS: THE GAINS FROM TRADE
The Consequences of Deviating From Market Equilibrium
Market Efficiency Versus Equity
PRICE CEILINGS AND PRICE FLOORS
INFLATION
Measuring Inflation: Consumer Price Index, Producer Price Index, and GDP Deflator
Adjusting for Inflation: Escalating and Deflating Series (Nominal Versus Real Values)
The Consequences of Inflation
UNEMPLOYMENT
Defining and Measuring Unemployment
Monthly Employment Surveys
Problems With Unemployment Statistics
UNEMPLOYMENT AND THE ECONOMY
WHY IS ECONOMIC GROWTH IMPORTANT?
How Is Economic Growth Measured?
Small Differences in Growth Lead to Large Differences in Income Over Time
THINKING ABOUT SHORT-RUN AND LONG-RUN ECONOMIC GROWTH
Short-Run Versus Long-Run Growth
APPLYING THE PRODUCTION FUNCTION: ACHIEVING ECONOMIC GROWTH
Achieving More Land or Natural Resources
Growth of the Labor Force
Increasing the Quality of the Labor Force
Increasing the Capital-to-Labor Ratio
Improvements in Technology and Ideas
Including Everything Else: Total Factor Productivity
THE ROLE OF GOVERNMENT IN PROMOTING ECONOMIC GROWTH
Government as a Contributor to Physical Capital, Human Capital, and Technology
Government as a Facilitator of Economic Growth
Government as a Promoter of Free and Competitive Markets
AGGREGATE EXPENDITURES
Some Simplifying Assumptions
THE SIMPLE AGGREGATE EXPENDITURES MODEL
Macroeconomic Equilibrium in the Simple Model
The Multiplier Works in Both Directions
THE FULL AGGREGATE EXPENDITURES MODEL
Adding Government Spending and Taxes
Recessionary and Inflationary Gaps
AGGREGATE DEMAND
Why Is the Aggregate Demand Curve Negatively Sloped?
Determinants of Aggregate Demand
AGGREGATE SUPPLY
Determinants of Long-Run Aggregate Supply
Determinants of Short-Run Aggregate Supply
MACROECONOMIC EQUILIBRIUM
FISCAL POLICY AND AGGREGATE DEMAND
Discretionary and Mandatory Spending
Discretionary Fiscal Policy
Expansionary and Contractionary Fiscal Policy
FISCAL POLICY AND AGGREGATE SUPPLY
Expanding Investment and Reducing Regulations
IMPLEMENTING FISCAL POLICY
Fiscal Policy Timing Lags
The Government’s Bias Toward Borrowing and Away From Taxation
FINANCING THE FEDERAL GOVERNMENT
Defining Deficits and the National Debt
Balanced Budget Amendments
Financing Debt and Deficits
WHY IS THE PUBLIC DEBT SO IMPORTANT?
Is the Size of the Public Debt a Problem?
Does It Matter If Foreigners Hold a Significant Portion of the Public Debt?
Does Government Debt Crowd Out Consumption and Investment?
How Will the National Debt Affect Our Future? Are We Doomed?
WHAT IS MONEY?
Defining the Money Supply
THE MARKET FOR LOANABLE FUNDS
Supply and Demand for Loanable Funds
Shifts in the Supply of Loanable Funds
Shifts in the Demand for Loanable Funds
THE FINANCIAL SYSTEM
The Bridge Between Savers and Borrowers
The Roles of Financial Institutions
Types of Financial Assets
Bond Prices and Interest Rates
Stocks and Investment Returns
FINANCIAL TOOLS FOR A BETTER FUTURE
The Power (or Danger) of Compounding Interest
Risk Assessment and Asset Allocation
Saving for the Future: Employer-Based Programs
Other Retirement Savings Tools: Social Security, Pensions, and IRAs
HOW BANKS CREATE MONEY
Creating Money as if Out of Thin Air
Fractional Reserve Banking System
THE MONEY MULTIPLIER AND ITS LEAKAGES
Bank Reserves and the Money Multiplier
What Is the Actual Money Multiplier in the Economy?
THE FEDERAL RESERVE SYSTEM
The Structure of the Federal Reserve
THE FEDERAL RESERVE AT WORK: TOOLS, TARGETS, AND POLICY LAGS
WHAT IS MONETARY POLICY?
The Twin Goals of Monetary Policy
Examples of Monetary Policy in Action
Why Is the Interest Rate So Important to the Economy?
When Is It Optimal to Loosen or Tighten Monetary Policy?
MONETARY THEORIES
The Short Run Versus the Long Run: What’s the Difference?
The Long Run: The Classical Theory
Short-Run Effects of Monetary Policy
Summary of the Effectiveness of Monetary Policy
Monetary Policy and Economic Shocks
MODERN MONETARY POLICY
The Federal Funds Target and the Taylor Rule
A Recap of the Fed’s Policy Tools
Transparency and the Federal Reserve
NEW MONETARY POLICY CHALLENGES
The Fed: Dealing with an Economic Crisis Not Seen in 80 Years
The Eurozone Crisis and the Role of the European Central Bank
THE GREAT RECESSION AND MACROECONOMIC POLICY
From the Housing Bubble to the Financial Crisis
The Government’s Policy Response
The Financial Crisis and Its Effects
EFFECTIVENESS OF MACROECONOMIC POLICY: PHILLIPS CURVES AND RATIONAL EXPECTATIONS
Unemployment and Inflation: Phillips Curves
MACROECONOMIC ISSUES THAT CONFRONT OUR FUTURE
Are Recoveries Becoming “Jobless Recoveries”?
Will Rising Debt and Future Debt Obligations Lead to Inflation?
Will Globalization Lead to Increased Obstacles to Economic Growth?
THE GAINS FROM TRADE
Absolute and Comparative Advantage
THE TERMS OF TRADE
Determining the Terms of Trade
Effects of Tariffs and Quotas
ARGUMENTS AGAINST FREE TRADE
Traditional Economic Arguments
Recent Globalization Concerns
EXCHANGE RATES
Exchange Rate Determination
Exchange Rates and the Current Account
Exchange Rates and the Capital Account
Exchange Rates and Aggregate Supply and Demand
MONETARY AND FISCAL POLICY IN AN OPEN ECONOMY
Fixed and Flexible Exchange Rate Systems
Pegging Exchange Rates Under a Flexible Exchange Rate System
Policies Under Fixed Exchange Rates
Policies Under Flexible Exchange Rates
Rethinking the Connection Between Author, Text, and Technology