Macroeconomics [Instructor's review copy.,5th ed] 9780133455496, 1292059443, 9781292059440, 0133455491, 9780132832205, 0132832208

Table of contents :
Cover......Page 1
Title......Page 9
Copyright......Page 10
Detailed Contents......Page 15
Preface......Page 27
A Word of Thanks......Page 54
Chapter 1: Economics: Foundations and Models......Page 56
Is the Private Doctor’s Office Going to Disappear?......Page 57
1.1 Three Key Economic Ideas......Page 58
Making the Connection: Does Health Insurance Give People an Incentive to Become Obese?......Page 59
Solved Problem 1.1: A Doctor Makes a Decision at the Margin......Page 61
1.2 The Economic Problem That Every Society Must Solve......Page 62
Centrally Planned Economies versus Market Economies......Page 63
The Modern “Mixed” Economy......Page 64
1.3 Economic Models......Page 65
Forming and Testing Hypotheses in Economic Models......Page 66
Positive and Normative Analysis......Page 67
Making the Connection: Should Medical School Be Free?......Page 68
1.4 Microeconomics and Macroeconomics......Page 69
1.5 A Preview of Important Economic Terms......Page 70
Conclusion......Page 71
An Inside Look: Look Into Your Smartphone and Say “Ahh”......Page 72
*Chapter Summary and Problems......Page 74
Appendix: Using Graphs and Formulas......Page 78
Graphs of One Variable......Page 79
Slopes of Lines......Page 80
Taking into Account More Than Two Variables on a Graph......Page 81
Determining Cause and Effect......Page 83
Formulas......Page 85
Formula for a Percentage Change......Page 86
Formulas for the Areas of a Rectangle and a Triangle......Page 87
Summary of Using Formulas......Page 88
Chapter 2: Trade-offs, Comparative Advantage, and the Market System......Page 90
Managers at Tesla Motors Face Trade-Offs......Page 91
Graphing the Production Possibilities Frontier......Page 92
Solved Problem 2.1: Drawing a Production Possibilities Frontier for Tesla Motors......Page 94
Increasing Marginal Opportunity Costs......Page 96
2.2 Comparative Advantage and Trade......Page 97
Specialization and Gains from Trade......Page 98
Absolute Advantage versus Comparative Advantage......Page 99
Comparative Advantage and the Gains from Trade......Page 100
Solved Problem 2.2: Comparative Advantage and the Gains from Trade......Page 101
Making the Connection: Comparative Advantage, Opportunity Cost, and Housework......Page 103
The Circular Flow of Income......Page 104
The Market Mechanism......Page 106
Making the Connection: A Story of the Market System in Action: How Do You Make an iPad?......Page 107
The Role of the Entrepreneur......Page 108
The Legal Basis of a Successful Market System......Page 110
Making the Connection: Who Owns The Wizard of Oz?......Page 111
Conclusion......Page 113
An Inside Look: What’s on the Horizon at Mercedes-Benz?......Page 114
Chapter 3: Where Prices Come From: The Interaction of Demand and Supply......Page 122
Smartphones: The Indispensible Product?......Page 123
Demand Schedules and Demand Curves......Page 124
What Explains the Law of Demand?......Page 125
Variables That Shift Market Demand......Page 126
Making the Connection: Are Tablet Computers Substitutes for E-Readers?......Page 127
Making the Connection: Coke and Pepsi Are Hit by U.S. Demographics......Page 128
A Change in Demand versus a Change in Quantity Demanded......Page 129
Making the Connection: Forecasting the Demand for iPhones......Page 131
Supply Schedules and Supply Curves......Page 132
The Law of Supply......Page 133
Variables That Shift Market Supply......Page 134
A Change in Supply versus a Change in Quantity Supplied......Page 135
3.3 Market Equilibrium: Putting Demand and Supply Together......Page 136
How Markets Eliminate Surpluses and Shortages......Page 137
Solved Problem 3.3: Demand and Supply Both Count: A Tale of Two Letters......Page 138
The Effect of Shifts in Supply on Equilibrium......Page 139
Making the Connection: The Falling Price of Blu-ray Players......Page 140
The Effect of Shifts in Demand and Supply over Time......Page 141
Solved Problem 3.4: What Has Caused the Decline in Beef Consumption?......Page 142
Don’t Let This Happen to You: Remember: A Change in a Good’s Price Does Not Cause the Demand or Supply Curve to Shift......Page 144
Conclusion......Page 145
An Inside Look: Google and Apple Face Supply and Demand Concerns in the Smartphone Market......Page 146
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes......Page 154
The Sharing Economy, Phone Apps, and Rent Control......Page 155
Consumer Surplus......Page 156
Making the Connection: The Consumer Surplus from Broadband Internet Service......Page 158
Producer Surplus......Page 159
4.2 The Efficiency of Competitive Markets......Page 160
Economic Surplus......Page 161
Deadweight Loss......Page 162
Price Floors: Government Policy in Agricultural Markets......Page 163
Making the Connection: Price Floors in Labor Markets: The Debate over Minimum Wage Policy......Page 165
Price Ceilings: Government Rent Control Policy in Housing Markets......Page 166
Black Markets and Peer-to-Peer Sites......Page 167
Solved Problem 4.3: What’s the Economic Effect of a Black Market in Renting Apartments?......Page 168
Positive and Normative Analysis of Price Ceilings and Price Floors......Page 169
The Effect of Taxes on Economic Efficiency......Page 170
Tax Incidence: Who Actually Pays a Tax?......Page 171
Solved Problem 4.4: When Do Consumers Pay All of a Sales Tax Increase?......Page 172
Making the Connection: Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms?......Page 173
Conclusion......Page 175
An Inside Look At Policy: Does the Sharing Economy Increase Efficiency?......Page 176
Demand and Supply Equations......Page 185
Calculating Consumer Surplus and Producer Surplus......Page 186
Chapter 5: The Economics of Health Care......Page 190
How Much Will You Pay for Health Insurance?......Page 191
Changes over Time in U.S. Health......Page 192
Reasons for Long-Run Improvements in U.S. Health......Page 193
The U.S. Health Care System......Page 194
The Health Care Systems of Canada, Japan, and the United Kingdom......Page 196
Comparing Health Care Outcomes around the World......Page 197
Asymmetric Information in the Market for Health Insurance......Page 199
Don’t Let This Happen to You: Don’t Confuse Adverse Selection with Moral Hazard......Page 201
Solved Problem 5.3: If You Are Young and Healthy, Should You Buy Health Insurance?......Page 202
Externalities in the Market for Health Care......Page 203
Making the Connection: Should the Government Run the Health Care System?......Page 205
The Rising Cost of Health Care......Page 206
Making the Connection: Are U.S. Firms Handicapped by Paying for Their Employees’ Health Insurance?......Page 208
Explaining Rapid Increases in Health Care Spending......Page 209
The Continuing Debate over Health Care Policy......Page 211
Making the Connection: How Much Is That MRI Scan?......Page 213
Conclusion......Page 215
Chapter 6: Firms, the Stock Market, and Corporate Governance......Page 222
Facebook Learns the Benefits and Costs of Becoming a Publicly Owned Firm......Page 223
Who Is Liable? Limited and Unlimited Liability......Page 224
Corporations Earn the Majority of Revenue and Profits......Page 225
Making the Connection: How Important Are Small Businesses to the U.S. Economy?......Page 226
Corporate Structure and Corporate Governance......Page 227
6.3 How Firms Raise Funds......Page 228
Sources of External Funds......Page 229
Making the Connection: The Rating Game: Is the U.S. Treasury Likely to Default on Its Bonds?......Page 230
Don’t Let This Happen to You: When Facebook Shares Are Sold, Facebook Doesn’t Get the Money......Page 232
Why Do Stock Prices Fluctuate So Much?......Page 233
Making the Connection: Following Abercrombie & Fitch’s Stock Price in the Financial Pages......Page 234
6.4 Using Financial Statements to Evaluate a Corporation......Page 235
The Income Statement......Page 236
The Accounting Scandals of the Early 2000s......Page 237
The Financial Crisis of 2007–2009......Page 238
Did Principal–Agent Problems Help Cause the 2007–2009 Financial Crisis?......Page 239
Making the Connection: The Ups and Downs of Investing in Facebook......Page 240
Conclusion......Page 241
Using Present Value to Make Investment Decisions......Page 247
Using Present Value to Calculate Bond Prices......Page 249
Using Present Value to Calculate Stock Prices......Page 250
Going Deeper into Financial Statements......Page 251
Analyzing Income Statements......Page 252
Analyzing Balance Sheets......Page 253
Chapter 7: Comparative Advantage and the Gains from International Trade......Page 256
Saving Jobs in the U.S. Tire Industry?......Page 257
The Importance of Trade to the U.S. Economy......Page 258
Making the Connection: Goodyear and the Tire Tariff......Page 259
U.S. International Trade in a World Context......Page 260
A Brief Review of Comparative Advantage......Page 261
Comparative Advantage and Absolute Advantage......Page 262
Increasing Consumption through Trade......Page 263
Solved Problem 7.3: The Gains from Trade......Page 264
Don’t Let This Happen to You: Remember That Trade Creates Both Winners and Losers......Page 266
Where Does Comparative Advantage Come From?......Page 267
Making the Connection: Leaving New York City Is Risky for Financial Firms......Page 268
7.4 Government Policies That Restrict International Trade......Page 269
Tariffs......Page 271
Measuring the Economic Effect of the Sugar Quota......Page 272
Solved Problem 7.4: Measuring the Economic Effect of a Quota......Page 273
The High Cost of Preserving Jobs with Tariffs and Quotas......Page 274
Making the Connection: The Effect on the U.S. Economy of the Tariff on Chinese Tires......Page 275
7.5 The Arguments over Trade Policies and Globalization......Page 276
Why Do Some People Oppose the World Trade Organization?......Page 277
Making the Connection: The Unintended Consequences of Banning Goods Made with Child Labor......Page 278
Positive versus Normative Analysis (Once Again)......Page 280
Conclusion......Page 281
Chapter 8: GDP: Measuring Total Production and Income......Page 290
Ford Motor Company Rides the Business Cycle......Page 291
Measuring Total Production: Gross Domestic Product......Page 293
Production, Income, and the Circular-Flow Diagram......Page 294
Components of GDP......Page 296
An Equation for GDP and Some Actual Values......Page 297
Making the Connection: Adding More of Lady Gaga to GDP......Page 298
Measuring GDP Using the Value-Added Method......Page 299
Shortcomings in GDP as a Measure of Total Production......Page 300
Shortcomings of GDP as a Measure of Well-Being......Page 301
Making the Connection: Did World War II Bring Prosperity?......Page 302
8.3 Real GDP versus Nominal GDP......Page 303
Solved Problem 8.3: Calculating Real GDP......Page 304
Comparing Real GDP and Nominal GDP......Page 305
The GDP Deflator......Page 306
Personal Income......Page 307
The Division of Income......Page 308
Conclusion......Page 309
Chapter 9: Unemployment and Inflation......Page 316
Caterpillar Announces Plans to Lay Off Workers......Page 317
The Household Survey......Page 318
Solved Problem 9.1: What Happens if the BLS Includes the Military?......Page 320
Problems with Measuring the Unemployment Rate......Page 321
Trends in Labor Force Participation......Page 322
How Long Are People Typically Unemployed?......Page 323
Making the Connection: How Unusual Was the Unemployment Situation Following the 2007–2009 Recession?......Page 324
The Establishment Survey: Another Measure of Employment......Page 325
Revisions in the Establishment Survey Employment Data: How Bad Was the 2007–2009 Recession?......Page 326
9.2 Types of Unemployment......Page 327
Structural Unemployment......Page 328
Making the Connection: How Should We Categorize Unemployment at Caterpillar?......Page 329
Government Policies and the Unemployment Rate......Page 330
9.4 Measuring Inflation......Page 332
The Consumer Price Index......Page 333
Is the CPI Accurate?......Page 334
Don’t Let This Happen to You: Don’t Miscalculate the Inflation Rate......Page 335
9.5 Using Price Indexes to Adjust for the Effects of Inflation......Page 336
Solved Problem 9.5: Calculating Real Wages at Caterpillar......Page 337
9.6 Nominal Interest Rates versus Real Interest Rates......Page 338
9.7 Does Inflation Impose Costs on the Economy?......Page 339
The Problem with Anticipated Inflation......Page 340
Making the Connection: What’s So Bad about Falling Prices?......Page 341
Conclusion......Page 343
Chapter 10: Economic Growth, the Financial System, and Business Cycles......Page 352
Economic Growth and the Business Cycle at Whirlpool......Page 353
10.1 Long-Run Economic Growth......Page 354
Making the Connection: The Connection between Economic Prosperity and Health......Page 356
Calculating Growth Rates and the Rule of 70......Page 357
What Determines the Rate of Long-Run Growth?......Page 358
Solved Problem 10.1: Explaining Economic Growth in Singapore......Page 359
Making the Connection: Can India Sustain Its Rapid Growth?......Page 360
Potential GDP......Page 361
An Overview of the Financial System......Page 362
The Macroeconomics of Saving and Investment......Page 364
The Market for Loanable Funds......Page 365
Making the Connection: Ebenezer Scrooge: Accidental Promoter of Economic Growth?......Page 366
Solved Problem 10.2: How Would a Consumption Tax Affect Saving, Investment, the Interest Rate, and Economic Growth?......Page 369
Some Basic Business Cycle Definitions......Page 370
How Do We Know When the Economy Is in a Recession?......Page 371
Making the Connection: Can a Recession Be a Good Time for a Business to Expand?......Page 372
What Happens during the Business Cycle?......Page 373
Don’t Let This Happen to You: Don’t Confuse the Price Level and the Inflation Rate......Page 376
Will the U.S. Economy Return to Stability?......Page 378
Conclusion......Page 379
Chapter 11: Long-Run Economic Growth: Sources and Policies......Page 386
Can China Save General Motors?......Page 387
Economic Growth from 1,000,000 b.c. to the Present......Page 388
Small Differences in Growth Rates Are Important......Page 389
Why Do Growth Rates Matter?......Page 390
“The Rich Get Richer and …”......Page 391
Making the Connection: Is Income All That Matters?......Page 392
The Per-Worker Production Function......Page 393
Technological Change: The Key to Sustaining Economic Growth......Page 395
Making the Connection: What Explains the Economic Failure of the Soviet Union?......Page 396
New Growth Theory......Page 397
11.3 Economic Growth in the United States......Page 399
What Caused the Productivity Slowdown of 1974–1995?......Page 400
Is the United States Headed for Another Productivity Slowdown?......Page 401
11.4 Why Isn’t the Whole World Rich?......Page 402
Catch-Up: Sometimes but Not Always......Page 403
Solved Problem 11.4: The Economic Growth Model’s Prediction of Catch-Up......Page 405
Why Haven’t Most Western European Countries, Canada, and Japan Caught Up to the United States?......Page 406
Why Don’t More Low-Income Countries Experience Rapid Growth?......Page 407
Making the Connection: What Do Parking Tickets in New York City Tell Us about Poverty in the Developing World?......Page 408
The Benefits of Globalization......Page 410
Making the Connection: Will China’s Standard of Living Ever Exceed That of the United States?......Page 411
Policies That Promote Saving and Investment......Page 413
Is Economic Growth Good or Bad?......Page 414
Conclusion......Page 415
Chapter 12: Aggregate Expenditure and Output in the Short Run......Page 424
Fluctuating Demand Helps—and Hurts—Intel and Other Firms......Page 425
Aggregate Expenditure......Page 426
Macroeconomic Equilibrium......Page 427
Adjustments to Macroeconomic Equilibrium......Page 428
Consumption......Page 429
The Relationship between Consumption and National Income......Page 432
Income, Consumption, and Saving......Page 434
Solved Problem 12.2: Calculating the Marginal Propensity to Consume and the Marginal Propensity to Save......Page 435
Planned Investment......Page 436
Making the Connection: Intel Moves into Tablets and Perceptual Computing......Page 437
Government Purchases......Page 438
Net Exports......Page 439
12.3 Graphing Macroeconomic Equilibrium......Page 441
Showing a Recession on the 45°-Line Diagram......Page 444
The Important Role of Inventories......Page 445
A Numerical Example of Macroeconomic Equilibrium......Page 446
Solved Problem 12.3: Determining Macroeconomic Equilibrium......Page 447
12.4 The Multiplier Effect......Page 448
Making the Connection: The Multiplier in Reverse: The Great Depression of the 1930s......Page 451
A Formula for the Multiplier......Page 452
Summarizing the Multiplier Effect......Page 453
Solved Problem 12.4: Using the Multiplier Formula......Page 454
12.5 The Aggregate Demand Curve......Page 455
Conclusion......Page 457
Appendix: The Algebra of Macroeconomic Equilibrium......Page 464
Chapter 13: Aggregate Demand and Aggregate Supply Analysis......Page 466
The Fortunes of FedEx Follow the Business Cycle......Page 467
13.1 Aggregate Demand......Page 468
Why Is the Aggregate Demand Curve Downward Sloping?......Page 469
The Variables That Shift the Aggregate Demand Curve......Page 470
Solved Problem 13.1: Movements along the Aggregate Demand Curve versus Shifts of the Aggregate Demand Curve......Page 471
Making the Connection: Which Components of Aggregate Demand Changed the Most during the 2007–2009 Recession?......Page 474
The Long-Run Aggregate Supply Curve......Page 475
The Short-Run Aggregate Supply Curve......Page 476
Making the Connection: How Sticky Are Wages?......Page 477
Variables That Shift the Short-Run Aggregate Supply Curve......Page 479
13.3 Macroeconomic Equilibrium in the Long Run and the Short Run......Page 480
Recessions, Expansions, and Supply Shocks......Page 482
Making the Connection: Does It Matter What Causes a Decline in Aggregate Demand?......Page 483
Making the Connection: How Long Does It Take to Return to Potential GDP? Economic Forecasts Following the Recession of 2007–2009......Page 486
13.4 A Dynamic Aggregate Demand and Aggregate Supply Model......Page 488
The Recession of 2007–2009......Page 489
Solved Problem 13.4: Showing the Oil Shock of 1974–1975 on a Dynamic Aggregate Demand and Aggregate Supply Graph......Page 492
Conclusion......Page 493
The Monetarist Model......Page 501
The Austrian Model......Page 502
Making the Connection: Karl Marx: Capitalism’s Severest Critic......Page 503
Chapter 14: Money, Banks, and the Federal Reserve System......Page 506
Washing Dollar Bills to Save the Economy of Zimbabwe......Page 507
Barter and the Invention of Money......Page 508
The Functions of Money......Page 509
What Can Serve as Money?......Page 510
14.2 How Is Money Measured in the United States Today?......Page 511
M1: A Narrow Definition of the Money Supply......Page 512
Don’t Let This Happen to You: Don’t Confuse Money with Income or Wealth......Page 513
Making the Connection: Are Bitcoins Money?......Page 514
14.3 How Do Banks Create Money?......Page 515
Using T-Accounts to Show How a Bank Can Create Money......Page 516
The Simple Deposit Multiplier......Page 519
Solved Problem 14.3: Showing How Banks Create Money......Page 520
The Simple Deposit Multiplier versus the Real-World Deposit Multiplier......Page 522
The Establishment of the Federal Reserve System......Page 523
How the Federal Reserve Manages the Money Supply......Page 525
The “Shadow Banking System” and the Financial Crisis of 2007–2009......Page 527
Connecting Money and Prices: The Quantity Equation......Page 529
How Accurate Are Forecasts of Inflation Based on the Quantity Theory?......Page 530
High Rates of Inflation......Page 531
Making the Connection: The German Hyperinflation of the Early 1920s......Page 532
Conclusion......Page 533
Chapter 15: Monetary Policy......Page 540
Why Do Businesses Care What the Federal Reserve Does?......Page 541
The Goals of Monetary Policy......Page 542
The Demand for Money......Page 544
How the Fed Manages the Money Supply: A Quick Review......Page 545
Equilibrium in the Money Market......Page 546
A Tale of Two Interest Rates......Page 547
The Importance of the Federal Funds Rate......Page 548
15.3 Monetary Policy and Economic Activity......Page 549
The Effects of Monetary Policy on Real GDP and the Price Level......Page 550
Making the Connection: Too Low for Zero: The Fed Tries Quantitative Easing and Operation Twist......Page 552
Can the Fed Eliminate Recessions?......Page 553
Fed Forecasts......Page 554
Making the Connection: Trying to Hit a Moving Target: Making Policy with “Real-Time Data”......Page 555
A Summary of How Monetary Policy Works......Page 556
The Effects of Monetary Policy on Real GDP and the Price Level: A More Complete Account......Page 557
Using Monetary Policy to Fight Inflation......Page 559
Solved Problem 15.4: The Effects of Monetary Policy......Page 560
Should the Fed Target the Money Supply?......Page 561
Why Doesn’t the Fed Target Both the Money Supply and the Interest Rate?......Page 562
The Taylor Rule......Page 563
Making the Connection: How Does the Fed Measure Inflation?......Page 564
The Inflation and Deflation of the Housing Market Bubble......Page 566
The Role of Investment Banks......Page 568
Making the Connection: The Wonderful World of Leverage......Page 569
The Fed and the Treasury Department Respond......Page 570
Conclusion......Page 571
Chapter 16: Fiscal Policy......Page 580
Does Government Spending Create Jobs?......Page 581
Automatic Stabilizers versus Discretionary Fiscal Policy......Page 582
An Overview of Government Spending and Taxes......Page 583
Making the Connection: Is Spending on Social Security and Medicare a Fiscal Time Bomb?......Page 585
16.2 The Effects of Fiscal Policy on Real GDP and the Price Level......Page 586
Expansionary and Contractionary Fiscal Policy......Page 587
A Summary of How Fiscal Policy Affects Aggregate Demand......Page 588
16.3 Fiscal Policy in the Dynamic Aggregate Demand and Aggregate Supply Model......Page 589
16.4 The Government Purchases and Tax Multipliers......Page 590
Taking into Account the Effects of Aggregate Supply......Page 593
Solved Problem 16.4: Fiscal Policy Multipliers......Page 594
16.5 The Limits of Using Fiscal Policy to Stabilize the Economy......Page 595
Crowding Out in the Short Run......Page 596
Crowding Out in the Long Run......Page 597
Fiscal Policy in Action: Did the Stimulus Package of 2009 Succeed?......Page 598
Making the Connection: Why Was the Recession of 2007–2009 So Severe?......Page 601
16.6 Deficits, Surpluses, and Federal Government Debt......Page 602
How the Federal Budget Can Serve as an Automatic Stabilizer......Page 604
Making the Connection: Did Fiscal Policy Fail during the Great Depression?......Page 605
Should the Federal Budget Always Be Balanced?......Page 606
The Federal Government Debt......Page 607
The Long-Run Effects of Tax Policy......Page 608
The Economic Effect of Tax Reform......Page 609
How Large Are Supply-Side Effects?......Page 610
Conclusion......Page 611
An Expression for Equilibrium Real GDP......Page 618
A Formula for the Government Purchases Multiplier......Page 619
The Effects of Changes in Tax Rates on the Multiplier......Page 620
The Multiplier in an Open Economy......Page 621
Chapter 17: Inflation, Unemployment, and Federal Reserve Policy......Page 624
Why Does Parker Hannifin Worry about Monetary Policy?......Page 625
17.1 The Discovery of the Short-Run Trade-off between Unemployment and Inflation......Page 626
Explaining the Phillips Curve with Aggregate Demand and Aggregate Supply Curves......Page 627
The Long-Run Phillips Curve......Page 628
The Role of Expectations of Future Inflation......Page 629
Making the Connection: Do Workers Understand Inflation?......Page 630
17.2 The Short-Run and Long-Run Phillips Curves......Page 631
How Does a Vertical Long-Run Phillips Curve Affect Monetary Policy?......Page 632
Making the Connection: Does the Natural Rate of Unemployment Ever Change?......Page 634
17.3 Expectations of the Inflation Rate and Monetary Policy......Page 635
The Effect of Rational Expectations on Monetary Policy......Page 636
Is the Short-Run Phillips Curve Really Vertical?......Page 637
The Effect of a Supply Shock on the Phillips Curve......Page 638
Paul Volcker and Disinflation......Page 639
Solved Problem 17.4: Using Monetary Policy to Lower the Inflation Rate......Page 641
Alan Greenspan, Ben Bernanke, and the Crisis in Monetary Policy......Page 643
Making the Connection: The Debate over Quantitative Easing......Page 645
Has the Fed Lost Its Independence?......Page 646
Conclusion......Page 647
Chapter 18: Macroeconomics in an Open Economy......Page 654
A Strong Dollar Hurts McDonald’s Profits......Page 655
The Current Account......Page 656
The Financial Account......Page 657
The Capital Account......Page 658
Don’t Let This Happen to You: Don’t Confuse the Balance of Trade, the Current Account Balance, and the Balance of Payments......Page 659
Solved Problem 18.1: Understanding the Arithmetic of the Balance of Payments......Page 660
Making the Connection: Exchange Rate Listings......Page 661
Equilibrium in the Market for Foreign Exchange......Page 662
How Do Shifts in Demand and Supply Affect the Exchange Rate?......Page 663
Making the Connection: Japanese Firms Ride the Yen Roller Coaster......Page 665
Solved Problem 18.2: Why Did Honda Move Some Production to the United States?......Page 667
18.3 The International Sector and National Saving and Investment......Page 668
Domestic Saving, Domestic Investment, and Net Foreign Investment......Page 669
Solved Problem 18.3: Arriving at the Saving and Investment Equation......Page 670
18.4 The Effect of a Government Budget Deficit on Investment......Page 671
Making the Connection: Why Is the United States Called the “World’s Largest Debtor”?......Page 672
Fiscal Policy in an Open Economy......Page 674
Conclusion......Page 675
Chapter 19: The International Financial System......Page 682
Volkswagen Deals with Fluctuating Exchange Rates......Page 683
19.1 Exchange Rate Systems......Page 684
The Floating Dollar......Page 685
What Determines Exchange Rates in the Long Run?......Page 686
Making the Connection: The Big Mac Theory of Exchange Rates......Page 687
Solved Problem 19.2: Calculating Purchasing Power Parity Exchange Rates Using Big Macs......Page 688
The Euro......Page 689
Making the Connection: Can the Euro Survive?......Page 691
Pegging against the Dollar......Page 692
Making the Connection: Why Did Iceland Recover So Quickly from the Financial Crisis?......Page 696
19.3 International Capital Markets......Page 697
Conclusion......Page 699
The End of the Gold Standard......Page 704
The Bretton Woods System......Page 705
The Collapse of the Bretton Woods System......Page 706
C......Page 710
G......Page 711
M......Page 712
R......Page 713
w......Page 714
Company Index......Page 715
Subject Index......Page 717
Credits......Page 731
Chapter Feature Chart......Page 733