www.ebook3000.com Principles of Macroeconomics SENIOR CONTRIBUTING AUTHORS STEVEN A GREENLAW, UNIVERSITY OF MARY WASHINGTON TIMOTHY TAYLOR, MACALESTER COLLEGE www.ebook3000.com OpenStax Rice University 6100 Main Street MS-375 Houston, Texas 77005 To learn more about OpenStax, visit https://openstax.org Individual print copies and bulk orders can be purchased through our website ©2017 Rice University Textbook content produced by OpenStax is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0) Under this license, any user of this textbook or the textbook contents herein must provide proper attribution as follows: - - - - If you redistribute this textbook in a digital format (including but not limited to PDF and HTML), then you must retain on every page the following attribution: “Download for free at https://openstax.org/details/books/principles-macroeconomics.” If you redistribute this textbook in a print format, then you must include on every physical 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PRINT BOOK ISBN-13 PDF VERSION ISBN-10 PDF VERSION ISBN-13 ENHANCED TEXTBOOK ISBN-10 ENHANCED TEXTBOOK ISBN-13 Revision Number Original Publication Year 1-938168-25-9 978-1-938168-25-3 1-947172-30-1 978-1-947172-30-2 1-938168-32-1 978-1-938168-32-1 MA-2014-003(03/16)-BW 2014 OPENSTAX OpenStax provides free, peer-reviewed, openly licensed textbooks for introductory college and Advanced Placement® courses and low-cost, personalized courseware that helps students learn A nonprofit ed tech initiative based at Rice University, we’re committed to helping students access the tools they need to complete their courses and meet their educational goals RICE UNIVERSITY OpenStax, OpenStax CNX, and OpenStax Tutor are initiatives of Rice University As a leading research university with a distinctive commitment to undergraduate education, Rice University aspires to path-breaking research, unsurpassed teaching, and contributions to the betterment of our world It seeks to fulfill this mission by 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and philanthropy, and makes grants to support disadvantaged communities in the San Francisco Bay Area Calvin K Kazanjian was the founder and president of Peter Paul (Almond Joy), Inc He firmly believed that the more people understood about basic economics the happier and more prosperous they would be Accordingly, he established the Calvin K Kazanjian Economics Foundation Inc, in 1949 as a philanthropic, nonpolitical educational organization to support efforts that enhanced economic understanding Guided by the belief that every life has equal value, the Bill & Melinda Gates Foundation works to help all people lead healthy, productive lives In developing countries, it focuses on improving people’s health with vaccines and other life-saving tools and giving them the chance to lift themselves out of hunger and extreme poverty In the United States, it seeks to significantly improve education so that all young people have the opportunity to reach their full potential Based in Seattle, Washington, the foundation is led by CEO Jeff Raikes and Co-chair William H Gates Sr., under the direction of Bill and Melinda Gates and Warren Buffett The Maxfield Foundation supports projects with potential for high impact in science, education, sustainability, and other areas of social importance Our mission at The Michelson 20MM Foundation is to grow access and success by eliminating unnecessary hurdles to affordability We support the creation, sharing, and proliferation of more effective, more affordable educational content by leveraging disruptive technologies, open educational resources, and new models for collaboration between for-profit, nonprofit, and public entities The Bill and Stephanie Sick Fund supports innovative projects in the areas of Education, Art, Science and Engineering www.ebook3000.com I WOULDN’T THIS PENS I LOOK BETTER TUDENT E ON A BRAND MEET SC E NEW IPAD QUIREMENT I MINI? URSES THESE AR EER-REVIEWED TEXTS WR ROFESSIONAL CONTENT EVELOPERS ADOPT A BO ODAY FOR A TURNKEY LASSROOM SOLUTION OR TO SUIT YOUR TEACHING PPROACH FREE ONLINE Knowing where our textbooks are used can help us provide better services to students and receive more grant support for future projects If you’re using an OpenStax textbook, either as required for your course or just as an extra resource, send your course syllabus to contests@openstax.org and you’ll be entered to win an iPad Mini If you don’t win, don’t worry – we’ll be holding a new contest each semester Table of Contents Preface Chapter 1: Welcome to Economics! 1.1 What Economics Is and Why It's Important 1.2 Microeconomics and Macroeconomics 1.3 How Economists Use Theories and Models to Understand Economic Issues 1.4 How Economies Can Be Organized: An Overview of Economic Systems Chapter 2: Choice in a World of Scarcity 2.1 How Individuals Make Choices Based on Their Budget Constraint 2.2 The Production Possibilities Frontier and Social Choices 2.3 Confronting Objections to the Economic Approach Chapter 3: Demand and Supply 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services 3.2 Shifts in Demand and Supply for Goods and Services 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process 3.4 Price Ceilings and Price Floors 3.5 Demand, Supply, and Efficiency Chapter 4: Labor and Financial Markets 4.1 Demand and Supply at Work in Labor Markets 4.2 Demand and Supply in Financial Markets 4.3 The Market System as an Efficient Mechanism for Information Chapter 5: Elasticity 5.1 Price Elasticity of Demand and Price Elasticity of Supply 5.2 Polar Cases of Elasticity and Constant Elasticity 5.3 Elasticity and Pricing 5.4 Elasticity in Areas Other Than Price Chapter 6: The Macroeconomic Perspective 6.1 Measuring the Size of the Economy: Gross Domestic Product 6.2 Adjusting Nominal Values to Real Values 6.3 Tracking Real GDP over Time 6.4 Comparing GDP among Countries 6.5 How Well GDP Measures the Well-Being of Society Chapter 7: Economic Growth 7.1 The Relatively Recent Arrival of Economic Growth 7.2 Labor Productivity and Economic Growth 7.3 Components of Economic Growth 7.4 Economic Convergence Chapter 8: Unemployment 8.1 How the Unemployment Rate is Defined and Computed 8.2 Patterns of Unemployment 8.3 What Causes Changes in Unemployment over the Short Run 8.4 What Causes Changes in Unemployment over the Long Run Chapter 9: Inflation 9.1 Tracking Inflation 9.2 How Changes in the Cost of Living are Measured 9.3 How the U.S and Other Countries Experience Inflation 9.4 The Confusion Over Inflation 9.5 Indexing and Its Limitations Chapter 10: The International Trade and Capital Flows 10.1 Measuring Trade Balances 10.2 Trade Balances in Historical and International Context 10.3 Trade Balances and Flows of Financial Capital 10.4 The National Saving and Investment Identity 10.5 The Pros and Cons of Trade Deficits and Surpluses 10.6 The Difference between Level of Trade and the Trade Balance Chapter 11: The Aggregate Demand/Aggregate Supply Model 11.1 Macroeconomic Perspectives on Demand and Supply 11.2 Building a Model of Aggregate Demand and Aggregate Supply www.ebook3000.com 12 13 15 25 26 31 36 43 44 49 59 65 68 79 80 89 94 103 104 109 111 119 127 129 137 142 144 147 155 156 159 165 169 179 180 185 189 193 205 206 210 214 219 224 233 234 238 240 243 247 249 257 259 260 11.3 Shifts in Aggregate Supply 11.4 Shifts in Aggregate Demand 11.5 How the AD/AS Model Incorporates Growth, Unemployment, and Inflation 11.6 Keynes’ Law and Say’s Law in the AD/AS Model Chapter 12: The Keynesian Perspective 12.1 Aggregate Demand in Keynesian Analysis 12.2 The Building Blocks of Keynesian Analysis 12.3 The Phillips Curve 12.4 The Keynesian Perspective on Market Forces Chapter 13: The Neoclassical Perspective 13.1 The Building Blocks of Neoclassical Analysis 13.2 The Policy Implications of the Neoclassical Perspective 13.3 Balancing Keynesian and Neoclassical Models Chapter 14: Money and Banking 14.1 Defining Money by Its Functions 14.2 Measuring Money: Currency, M1, and M2 14.3 The Role of Banks 14.4 How Banks Create Money Chapter 15: Monetary Policy and Bank Regulation 15.1 The Federal Reserve Banking System and Central Banks 15.2 Bank Regulation 15.3 How a Central Bank Executes Monetary Policy 15.4 Monetary Policy and Economic Outcomes 15.5 Pitfalls for Monetary Policy Chapter 16: Exchange Rates and International Capital Flows 16.1 How the Foreign Exchange Market Works 16.2 Demand and Supply Shifts in Foreign Exchange Markets 16.3 Macroeconomic Effects of Exchange Rates 16.4 Exchange Rate Policies Chapter 17: Government Budgets and Fiscal Policy 17.1 Government Spending 17.2 Taxation 17.3 Federal Deficits and the National Debt 17.4 Using Fiscal Policy to Fight Recession, Unemployment, and Inflation 17.5 Automatic Stabilizers 17.6 Practical Problems with Discretionary Fiscal Policy 17.7 The Question of a Balanced Budget Chapter 18: The Impacts of Government Borrowing 18.1 How Government Borrowing Affects Investment and the Trade Balance 18.2 Fiscal Policy, Investment, and Economic Growth 18.3 How Government Borrowing Affects Private Saving 18.4 Fiscal Policy and the Trade Balance Chapter 19: Macroeconomic Policy Around the World 19.1 The Diversity of Countries and Economies across the World 19.2 Improving Countries’ Standards of Living 19.3 Causes of Unemployment around the World 19.4 Causes of Inflation in Various Countries and Regions 19.5 Balance of Trade Concerns Chapter 20: International Trade 20.1 Absolute and Comparative Advantage 20.2 What Happens When a Country Has an Absolute Advantage in All Goods 20.3 Intra-industry Trade between Similar Economies 20.4 The Benefits of Reducing Barriers to International Trade Chapter 21: Globalization and Protectionism 21.1 Protectionism: An Indirect Subsidy from Consumers to Producers 21.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions 21.3 Arguments in Support of Restricting Imports 21.4 How Trade Policy Is Enacted: Globally, Regionally, and Nationally 21.5 The Tradeoffs of Trade Policy This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 266 268 272 275 285 286 290 293 297 303 305 310 317 323 324 326 329 334 343 344 347 350 353 358 369 370 378 382 385 397 398 401 403 406 409 411 415 423 424 427 432 433 441 443 446 451 452 453 463 464 470 474 478 485 486 493 496 503 506 Appendix A: The Use of Mathematics in Principles of Economics 515 Appendix B: The Expenditure-Output Model 533 Index 595 www.ebook3000.com This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 586 References American Community Survey 2012 "School Enrollment and Work Status: 2011." Accessed April 13, 2015 http://www.census.gov/prod/2013pubs/acsbr11-14.pdf National Center for Educational Statistics “Digest of Education Statistics.” (2008 and 2010) Accessed December 11, 2013 nces.ed.gov CreditCards.com 2013 statistics-1276.php http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt- Elasticity Abkowitz, A “How Netflix got started: Netflix founder and CEO Reed Hastings tells Fortune how he got the idea for the DVD-by-mail service that now has more than eight million customers.” CNN Money Last Modified January 28, 2009 http://archive.fortune.com/2009/01/27/news/newsmakers/hastings_netflix.fortune/index.htm Associated Press (a) ”Analyst: Coinstar gains from Netflix pricing moves.” Boston Globe Media Partners, LLC Accessed June 24, 2013 http://www.boston.com/business/articles/2011/10/12/ analyst_coinstar_gains_from_netflix_pricing_moves/ Associated Press (b) “Netflix loses 800,000 US subscribers in tough 3Q.” ABC Inc Accessed June 24, 2013 http://abclocal.go.com/wpvi/story?section=news/business&id=8403368 Baumgardner, James 2014 “Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget.” Congressional Budget Office Accessed March 27, 2015 http://www.cbo.gov/sites/default/ files/45214-ICA_Presentation.pdf Funding Universe 2015 “Netflix, Inc History.” Accessed March 11, 2015 http://www.fundinguniverse.com/ company-histories/netflix-inc-history/ Laporte, Nicole “A tale of two Netflix.” Fast Company 177 (July 2013) 31-32 Accessed December 2013 http://www.fastcompany-digital.com/fastcompany/20130708?pg=33#pg33 Liedtke, Michael, The Associated Press “Investors bash Netflix stock after slower growth forecast - fee hikes expected to take toll on subscribers most likely to shun costly bundled Net, DVD service.” The Seattle Times Accessed June 24, 2013 from NewsBank on-line database (Access World News) Netflix, Inc 2013 “A Quick Update On Our Streaming Plans And Prices.” Netflix (blog) Accessed March 11, 2015 http://blog.netflix.com/2014/05/a-quick-update-on-our-streaming-plans.html Organization for Economic Co-Operation and Development (OECC) n.d “Average annual hours actually worked per worker.” Accessed March 11, 2015 https://stats.oecd.org/Index.aspx?DataSetCode=ANHRS Savitz, Eric “Netflix Warns DVD Subs Eroding; Q4 View Weak; Losses Ahead; Shrs Plunge.” Forbes.com, 2011 Accessed December 3, 2013 http://www.forbes.com/sites/ericsavitz/2011/10/24/netflix-q3-top-ests-but-shareshit-by-weak-q4-outlook/ Statistica.com 2014 “Coffee Export Volumes Worldwide in November 2014, by Leading Countries (in 60-kilo sacks).” Accessed March 27, 2015 http://www.statista.com/statistics/268135/ranking-of-coffee-exportingcountries/ Stone, Marcie “Netflix responds to customers angry with price hike; Netflix stock falls 9%.” News & Politics Examiner, 2011 Clarity Digital Group Accessed June 24, 2013 http://www.examiner.com/article/netflixresponds-to-customers-angry-with-price-hike-netflix-stock-falls-9 Weinman, J (2012) Die hard, hardly dying Maclean's, 125(18), 44 The World Bank Group 2015 “Gross Savings (% of GDP).” Accessed March 11, 2015 http://data.worldbank.org/ indicator/NY.GNS.ICTR.ZS Yahoo Finance Retrieved from http://finance.yahoo.com/q?s=NFLX The Macroeconomic Perspective U.S Department of Commerce: Bureau of Economic Analysis “National data: National Income and Product Accounts Tables.” http://bea.gov/iTable/iTable.cfm?ReqID=9&step=1 This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 References 587 U.S Department of Commerce: United States Census Bureau “Census of Governments: 2012 Census of Governments.” http://www.census.gov/govs/cog/ United States Department of Transportation “About DOT.” Last modified March 2, 2012 http://www.dot.gov/about U.S Department of Energy “Energy.gov.” http://energy.gov/ U.S Department of Health & Human Services “Agency for Healthcare Research and Quality.” http://www.ahrq.gov/ United States Department of Agriculture “USDA.” http://www.usda.gov/wps/portal/usda/usdahome Schneider, Friedrich Department of Economics “Size and Development of the Shadow Economy of 31 European and other OECD Countries from 2003 to 2013: A Further Decline.” Johannes Kepler University Last modified April 5, 2013 http://www.econ.jku.at/members/Schneider/files/publications/2013/ ShadEcEurope31_Jan2013.pdf The National Bureau of Economic Research “Information on Recessions and Recoveries, the NBER Business Cycle Dating Committee, and related topics.” http://www.nber.org/cycles/main.html Economic Growth Bolt, Jutta, and Jan Luiten van Zanden “The Maddison Project: The First Update of the Maddison Project ReEstimating Growth Before 1820 (Maddison-Project Working Paper WP-4).” University of Groningen: Groningen Growth and Development Centre Last modified January 2013 http://www.ggdc.net/maddison/ publications/pdf/wp4.pdf Central Intelligence Agency “The World Factbook: Country Comparison GDP (Purchasing Power Parity).” https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html DeLong, Brad “Lighting the Rocket of Growth and Lightening the Toil of Work: Another Outtake from My ‘Slouching Towards Utopia’ MS ” This is Brad DeLong's Grasping Reality (blog) September 3, 2013 http://delong.typepad.com/sdj/2013/09/lighting-the-rocket-of-growth-and-lightening-the-toil-of-work-anotherouttake-from-my-slouching-towards-utopia-ms.html Easterlin, Richard A “The Worldwide Standard of Living since 1800.” The Journal of Economic Perspectives no (2000): 7–26 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.1.7 Maddison, Angus Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History Oxford: Oxford University Press, 2007 British Library “Treasures in Full: Magna Carta.” http://www.bl.uk/treasures/magnacarta/ Rothbard, Murray N Ludwig von Mises Institute “Property Rights and the Theory of Contracts.” The Ethics of Liberty Last modified June 22, 2007 http://mises.org/daily/2580 Salois, Matthew J., J Richard Tiffin, and Kelvin George Balcombe IDEAS: Research Division of the Federal Reserve Bank of St Louis “Impact of Income on Calorie and Nutrient Intakes: A Cross-Country Analysis.” Presention at the annual meeting of the Agricultural and Applied Economics Association, Pittsburg, PA, July 24–26, 2011 http://ideas.repec.org/p/ags/aaea11/103647.html van Zanden, Jan Luiten The Long Road to the Industrial Revolution: The European Economy in a Global Perspective, 1000–1800 (Global Economic History Series) Boston: Brill, 2009 The World Bank “CPIA Property Rights and Rule-based Governance Rating (1=low to 6=high).” http://data.worldbank.org/indicator/IQ.CPA.PROP.XQ Rex A Hudson, ed Brazil: A Country Study “Spectacular Growth, 1968–73.” Washington: GPO for the Library of Congress, 1997 http://countrystudies.us/brazil/64.htm “Women and the World Economy: A Guide to Womenomics.” The Economist, April 12, 2006 http://www.economist.com/node/6802551 Farole, Thomas, and Gokhan Akinci, eds Special Economic Zones: Progress, Emerging Challenges, and Future Directions Washington: The World Bank, 2011 http://publications.worldbank.org/ index.php?main_page=product_info&products_id=24138 Garcia, Abraham, and Pierre Mohnen United Nations University, Maastricht Economic and Social Research and Training Centre on Innovation and Technology: UNU-MERIT “Impact of Government Support on R&D www.ebook3000.com 588 References and Innovation (Working Paper Series #2010-034).” http://www.merit.unu.edu/publications/wppdf/2010/ wp2010-034.pdf Heston, Alan, Robert Summers, and Bettina Aten “Penn World Table Version 7.1.” Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania Last modified July 2012 https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php United States Department of Labor: Bureau of Labor Statistics “Women at Work: A Visual Essay.” Monthly Labor Review, October 2003, 45–50 http://www.bls.gov/opub/mlr/2003/10/ressum3.pdf Central Intelligence Agency “The World Factbook: Country Comparison: GDP–Real Growth Rate.” https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html Sen, Amartya “Hunger in the Contemporary World (Discussion Paper DEDPS/8).” The Suntory Centre: London School of Economics and Political Science Last modified November 1997 http://sticerd.lse.ac.uk/dps/de/ dedps8.pdf Unemployment Bureau of Labor Statistics Labor Force Statistics from the Current Population Survey Accessed March 6, 2015 http://data.bls.gov/timeseries/LNS14000000 Cappelli, P (20 June 2012) “Why Good People Can’t Get Jobs: Chasing After the Purple Squirrel.” http://knowledge.wharton.upenn.edu/article.cfm?articleid=3027 Inflation Sources for Table 9.1: http://www.eia.gov/dnav/pet/pet_pri_gnd_a_epmr_pte_dpgal_w.htm http://data.bls.gov/cgi-bin/surveymost?ap http://www.bls.gov/ro3/apmw.htm http://www.autoblog.com/2014/03/12/who-can-afford-the-average-car-price-only-folks-in-washington/ https://www.census.gov/construction/nrs/pdf/uspricemon.pdf http://www.bls.gov/news.release/empsit.t24.htm http://variety.com/2015/film/news/movie-ticket-prices-increased-in-2014-1201409670/ US Inflation Calculator "Historical Inflation Rates: 1914-2013." http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ Accessed March 4, 2015 Bernhard, Kent “Pump Prices Jump Across U.S after Katrina.” NBC News, September 1, 2005 http://www.nbcnews.com/id/9146363/ns/business-local_business/t/pump-prices-jump-across-us-afterkatrina/#.U00kRfk7um4 Wynne, Mark A “Core Inflation, A Review of Some Conceptual Issues.” Federal Reserve Bank of St Louis p 209 Accessed April 14, 2014 http://research.stlouisfed.org/publications/review/08/05/part2/Wynne.pdf Shiller, Robert “Why Do People Dislike Inflation?” NBER Working Paper Series, National Bureau of Economic Research, p 52 1996 Wines, Michael “How Bad is Inflation in Zimbabwe?” The New York Times, May 2, 2006 http://www.nytimes.com/ 2006/05/02/world/africa/02zimbabwe.html?pagewanted=all&_r=0 Hanke, Steve H “R.I.P Zimbabwe Dollar.” CATO Institute Accessed December 31, 2013 http://www.cato.org/ zimbabwe Massachusetts Institute of Technology 2015 "Billion Prices Project." Accessed March 4, 2015 http://bpp.mit.edu/ usa/ The International Trade and Capital Flows Central Intelligence Agency “The World Factbook.” Last modified October 31, 2013 https://www.cia.gov/library/ publications/the-world-factbook/geos/gm.html U.S Department of Commerce “Bureau of Economic Analysis.” Last modified December 1, 2013 http://www.bea.gov/ This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 References 589 U.S Department of Commerce “United States Census Bureau.” http://www.census.gov/ Tabuchi, Hiroko “Japan Reports a $78 Billion Trade Deficit for 2012.” The New York Times, January 23, 2013 http://www.nytimes.com/2013/01/24/business/global/japan-reports-a-78-billion-trade-deficitfor-2012.html?_r=0 World Bank 2014 "Exports of Goods and Services (% of GDP)." Accesed April 13, 2015 http://data.worldbank.org/ indicator/NE.EXP.GNFS.ZS/countries The Aggregate Demand/Aggregate Supply Model Keynes, John Maynard The General Theory of Employment, Interest and Money London: Palgrave Macmillan, 1936 U.S Department of Commerce: United States Census Bureau “New Residential Sales: Historical Data.” http://www.census.gov/construction/nrs/historical_data/ Library of Economics and Liberty “The Concise Encyclopedia of Economics: Jean-Baptiste Say.” http://www.econlib.org/library/Enc/bios/Say.html Library of Economics and Liberty “The Concise Encyclopedia of Economics: John Maynard Keynes.” http://www.econlib.org/library/Enc/bios/Keynes.html Organization for Economic Cooperation and Development 2015 "Business Tendency Surveys: Construction." Accessed March 4, 2015 http://stats.oecd.org/mei/default.asp?lang=e&subject=6 University of Michigan 2015 "Surveys of Consumers." Accessed March 4, 2015 http://www.sca.isr.umich.edu/ tables.html The Keynesian Perspective Mahapatra, Lisa “US Exports To China Have Grown 294% Over The Past Decade.” International Business Times Last modified July 09, 2013 http://www.ibtimes.com/us-exports-china-have-grown-294-over-pastdecade-1338693 The Conference Board, Inc “Global Economic Outlook 2014, November 2013.” http://www.conference-board.org/ data/globaloutlook.cfm Thomas, G Scott “Recession claimed 170,000 small businesses in two years.” The Business Journals Last modified July 24, 2012 http://www.bizjournals.com/bizjournals/on-numbers/scott-thomas/2012/07/recessionclaimed-170000-small.html United States Department of Labor: Bureau of Labor Statistics “Top Picks.” http://data.bls.gov/cgi-bin/ surveymost?bls Harford, Tim “What Price Supply and Demand?” http://timharford.com/2014/01/what-price-supply-anddemand/?utm_source=dlvr.it&utm_medium=twitter National Employment Law Project “Job Creation and Economic Recovery.” http://www.nelp.org/index.php/content/ content_issues/category/job_creation_and_economic_recovery/ Hoover, Kevin “Phillips Curve.” The Concise Encyclopedia of Economics http://www.econlib.org/library/Enc/ PhillipsCurve.html U.S Government Printing Office “Economic Report of the President.” http://1.usa.gov/1c3psdL Blinder, Alan S., and Mark Zandi “How the Great Recession Was Brought to an End.” Last modified July 27, 2010 http://www.princeton.edu/~blinder/End-of-Great-Recession.pdf The Neoclassical Perspective Lumina Foundation 2014 "A Stronger Nation Through Higher Education." Accessed March 4, 2015 http://www.luminafoundation.org/publications/A_stronger_nation_through_higher_education-2014.pdf The National Bureau of Economic Research http://www.nber.org/ U.S Department of Commerce: United States Census Bureau http://www.census.gov/compendia/statab/cats/education.html www.ebook3000.com “The 2012 Statistical Abstract.” 590 References U.S Department of the Treasury “TARP Programs.” Last modified December 12, 2013 http://www.treasury.gov/ initiatives/financial-stability/TARP-Programs/Pages/default.aspx United States Government “Recovery.gov: Track http://www.recovery.gov/Pages/default.aspx the Money.” Last modified October 30, 2013 American Statistical Association “ASA Headlines.” http://www.amstat.org/ Haubrich, Joseph G., George Pennacchi, and Peter Ritchken “Working Paper 11-07: Inflation Expectations, Real Rates, and Risk Premia: Evidence from Inflation Swaps.” Federal Reserve Bank of Cleveland Last modified March 2011 http://www.clevelandfed.org/research/workpaper/2011/wp1107.pdf University of Michigan: Institute for Social Research “Survey Research Center.” http://www.src.isr.umich.edu/ Carvalho, Carlos, Stefano Eusepi, and Christian Grisse “Policy Initiatives in the Global Recession: What Did Forecasters Expect?” Federal Reserve Bank of New York: Current Issues in Economics and Finance, 18, no (2012) http://www.newyorkfed.org/research/current_issues/ci18-2.pdf Money and Banking Hogendorn, Jan and Marion Johnson The Shell Money of the Slave Trade Cambridge University Press, 2003 Federal Reserve Statistical Release November 23, 2013 http://www.federalreserve.gov/RELEASES/h6/current/ default.htm#t2tg1link Credit Union National Association 2014 "Monthly Credit Union Estimates." Last accessed March 4, 2015 http://www.cuna.org/Research-And-Strategy/Credit-Union-Data-And-Statistics/ Dallas Federal Reserve 2013 "Ending `Too Big To Fail': A Proposal for Reform Before It's Too Late" Accessed March 4, 2015 http://www.dallasfed.org/news/speeches/fisher/2013/fs130116.cfm Richard W Fisher “Ending 'Too Big to Fail': A Proposal for Reform Before It's Too Late (With Reference to Patrick Henry, Complexity and Reality) Remarks before the Committee for the Republic, Washington, D.C Dallas Federal Reserve January 16, 2013 “Commercial Banks in the U.S.” Federal Reserve Bank of St Louis Accessed November 2013 http://research.stlouisfed.org/fred2/series/USNUM Bitcoin 2013 www.bitcoin.org National Public Radio Lawmakers and Regulators Take Closer Look at Bitcoin November 19, 2013 http://thedianerehmshow.org/shows/2013-11-19/lawmakers-and-regulators-take-closer-look-bitcoin Monetary Policy and Bank Regulation Matthews, Dylan “Nine amazing facts about Janet Yellen, our next Fed chair.” Wonkblog The Washington Post Posted October 09, 2013 http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/09/nine-amazing-factsabout-janet-yellen-our-next-fed-chair/ Appelbaum, Binyamin “Divining the Regulatory Goals of Fed Rivals.” The New York Times Posted August 14, 2013 http://www.nytimes.com/2013/08/14/business/economy/careers-of-2-fed-contenders-reveal-little-onregulatory-approach.html?pagewanted=3 U.S Department of the Treasury “Office of the Comptroller of the Currency.” Accessed November 2013 http://www.occ.gov/ National Credit Union Administration “About NCUA.” Accessed November 2013 http://www.ncua.gov/about/ Pages/default.aspx Board of Governors of the Federal Reserve System “Federal Open Market Committee.” Accessed September 3, 2013 http://www.federalreserve.gov/monetarypolicy/fomc.htm Board of Governors of the Federal Reserve System “Reserve Requirements.” Accessed November 5, 2013 http://www.federalreserve.gov/monetarypolicy/reservereq.htm Cox, Jeff 2014 "Fed Completes the Taper." Accessed March 31, 2015 http://www.cnbc.com/id/102132961 Jahan, Sarwat n.d "Inflation Targeting: Holding the Line." International Monetary Fund Accessed March 31, 2015 http://www.imf.org/external/pubs/ft/fandd/basics/target.htm This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 References 591 Tobin, James “The Concise Encyclopedia of Economics: Monetary Policy.” Library of Economics and Liberty Accessed November 2013 http://www.econlib.org/library/Enc/MonetaryPolicy.html Federal Reserve Bank of New York “The Founding of http://www.newyorkfed.org/aboutthefed/history_article.html the Fed.” Accessed November 2013 Exchange Rates and International Capital Flows Friedman, Milton Capitalism and Freedom Chicago: University of Chicago Press, 1962 Government Budgets and Fiscal Policy Kramer, Mattea, et al A People's Guide to the Federal Budget National Priorities Project Northampton: Interlink Books, 2012 Kurtzleben, Danielle “10 States With The Largest Budget Shortfalls.” U.S News & World Report Januray 14, 2011 http://www.usnews.com/news/articles/2011/01/14/10-states-with-the-largest-budget-shortfalls Miller, Rich, and William Selway “U.S Cities and States Start Spending Again.” BloombergBusinessweek, January 10, 2013 http://www.businessweek.com/articles/2013-01-10/u-dot-s-dot-cities-and-states-start-spending-again Weisman, Jonathan “After Year of Working Around Federal Cuts, Agencies Face Fewer Options.” The New York Times, October 26, 2013 http://www.nytimes.com/2013/10/27/us/politics/after-year-of-working-around-federalcuts-agencies-face-fewer-options.html?_r=0 Chantrill, Christopher USGovernmentSpending.com “Government Spending Details: United States Federal State and Local Government Spending, Fiscal Year 2013.” http://www.usgovernmentspending.com/ year_spending_2013USbn_15bs2n_20 Burman, Leonard E., and Joel Selmrod Taxes in America: What Everyone Needs to Know New York: Oxford University Press, 2012 Hall, Robert E., and Alvin Rabushka The Flat Tax (Hoover Classics) Stanford: Hoover Institution Press, 2007 Kliff, Sarah “How Congress Paid for Obamacare (in Two Charts).” The Washington Post: WonkBlog (blog), August 30, 2012 http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/30/how-congress-paid-for-obamacarein-two-charts/ Matthews, Dylan “America’s Taxes are the Most Progressive in the World Its Government is Among the Least.” The Washington Post: WonkBlog (blog) April 5, 2013 http://www.washingtonpost.com/blogs/wonkblog/wp/2013/ 04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/ Eisner, Robert The Great Deficit Scares: The Federal Budget, Trade, and Social Security New York: Priority Press Publications, 1997 Weisman, Jonathan, and Ashley Parker “Republicans Back Down, Ending Crisis Over Shutdown and Debt Limit.” The New York Times, October 16, 2013 http://www.nytimes.com/2013/10/17/us/congress-budget-debate.html Wessel, David Red Ink: Inside the High-Stakes Politics of Federal Budget New York: Crown Publishing Group, 2013 Alesina, Alberto, and Francesco Giavazzi Fiscal Policy after the Financial Crisis (National Bureau of Economic Research Conference Report) Chicago: University Of Chicago Press, 2013 Martin, Fernando M “Fiscal Policy in the Great Recession and Lessons from the Past.” Federal Reserve Bank of St Louis: Economic Synopses no (2012) http://research.stlouisfed.org/publications/es/12/ES_2012-01-06.pdf Bivens, Josh, Andrew Fieldhouse, and Heidi Shierholz “From Free-fall to Stagnation: Five Years After the Start of the Great Recession, Extraordinary Policy Measures Are Still Needed, But Are Not Forthcoming.” Economic Policy Institute Last modified February 14, 2013 http://www.epi.org/publication/bp355-five-years-after-startof-great-recession/ Lucking, Brian, and Dan Wilson Federal Reserve Bank of San Francisco, “FRBSF Economic Letter—U.S Fiscal Policy: Headwind or Tailwind?” Last modified July 2, 2012 http://www.frbsf.org/economic-research/ publications/economic-letter/2012/july/us-fiscal-policy/ www.ebook3000.com 592 References Greenstone, Michael, and Adam Looney Brookings “The Role of Fiscal Stimulus in the Ongoing Recovery.” Last modified July 6, 2012 http://www.brookings.edu/blogs/jobs/posts/2012/07/06-jobs-greenstone-looney Leduc, Sylvain, and Daniel Wilson Federal Reserve Bank of San Francisco: Working Paper Series “Are State Governments Roadblocks to Federal Stimulus? Evidence from Highway Grants in the 2009 Recovery Act (Working Paper 2013-16).” Last modified July 2013 http://www.frbsf.org/economic-research/files/ wp2013-16.pdf Lucking, Brian, and Daniel Wilson “FRBSF Economic Letter-Fiscal Headwinds: Is the Other Shoe About to Drop?” Federal Reserve Bank of San Francisco Last modified June 3, 2013 http://www.frbsf.org/economic-research/ publications/economic-letter/2013/june/fiscal-headwinds-federal-budget-policy/ Recovery.gov “Track the Money.” http://www.recovery.gov/Pages/default.aspx Bastagli, Francesca, David Coady, and Sanjeev Gupta International Monetary Fund “IMF Staff Discussion Note: Income Inequality and Fiscal Policy.” Last modified June 28, 2012 http://www.imf.org/external/pubs/ft/sdn/ 2012/sdn1208.pdf The Impacts of Government Borrowing U.S Department of Commerce: Bureau of Economic Analysis “National Data: National Income and Product Accounts Tables.” Accessed December 1, 2013 http://www.bea.gov/iTable/ iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&910=X&911=0&903=146&904=2008&905=2013&906=A Board of Governors of the Federal Reserve System, “Selected Interest Rates (Daily) – H.15.” Accessed December 10, 2013 http://www.federalreserve.gov/releases/h15/data.htm The White House “Fiscal Year 2013 Historical Tables: Budget of the U.S Government.” Accessed December 12, 2013 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist.pdf The National Science Foundation Accessed December 19, 2013 http://www.nsf.gov/ The White House “This is why it's time to make college more affordable.” Last modified August 20, 2013 http://www.whitehouse.gov/share/college-affordability Rubin, Robert E., Peter R Orszag, and Allen Sinai “Sustained Budget Deficits: Longer-Run U.S Economic Performance and the Risk of Financial and Fiscal Disarray.” Last modified January 4, 2004 http://www.brookings.edu/~/media/research/files/papers/2004/1/05budgetdeficit%20orszag/20040105.pdf Macroeconomic Policy Around the World International Labour Organization “Global Employment Trends for Youth 2013.” http://www.ilo.org/global/research/ global-reports/global-employment-trends/youth/2013/lang en/index.htm International Monetary Fund “World Economic and Financial Surveys: World Economic Outlook—Transitions and Tensions.” Last modified October 2013 http://www.imf.org/external/pubs/ft/weo/2013/02/pdf/text.pdf Nobelprize.org “The Prize in Economics 1987 - Press Release.” Nobel Media AB 2013 Last modified October 21, 1987 http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1987/press.html Redvers, Louise BBC News Business “Youth unemployment: The big question and South Africa.” Last modified October 31, 2012 http://www.bbc.co.uk/news/business-20125053 The World Bank “The Complete World Development Report Online.” http://www.wdronline.worldbank.org/ The World Bank “World DataBank.” http://databank.worldbank.org/data/home.aspx Todaro, Michael P., and Stephen C Smith Economic Development (11thEdition) Boston, MA: Addison-Wesley: Pearson, 2011, chap 1–2 “Shinzo Abe’s Government Looks Likely to Disappoint on Fiscal Consolidation.” The Economist, May 4, 2013 http://www.economist.com/news/finance-and-economics/21577080-shinzo-abes-government-looks-likelydisappoint-fiscal-consolidation-dont Banerjee, Abhijit V., and Esther Duflo Poor Economics “About the Book: Overview.” http://pooreconomics.com/ about-book CARE International “About Us.” Accessed January 14, 2014 http://www.care-international.org/about-us.aspx This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 References 593 Central Intelligence Agency “The World Factbook: Africa, Burundi.” Last modified November 12, 2013 https://www.cia.gov/library/publications/the-world-factbook/geos/by.html Central Intelligence Agency “The World Factbook: Africa, Democratic Republic of the Congo.” Last modified November 12, 2013 https://www.cia.gov/library/publications/the-world-factbook/geos/cg.html Easterly, William The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good Penguin Group (USA), 2006 Goel, Vindu “Facebook Leads an Effort to Lower Barriers to Internet Access,” The New York Times Last modified August 20, 2013 Google “Project Loon.” http://www.google.com/loon/ GOV.UK “Department for International Development.” https://www.gov.uk/government/organisations/departmentfor-international-development The World Bank “Millennium Development Goals.” http://www.worldbank.org/mdgs/ Todaro, Michael P., and Stephen C Smith Economic Development (11th Edition) Boston, MA: Addison-Wesley: Pearson, 2011, chap Vercillo, Siera “The Failures of Canadian Foreign Aid: Tied, Mismanaged and Uncoordinated.” The Attaché Journal of International Affairs (2010) http://theattachejia.files.wordpress.com/2013/10/the-attache-2010-issue.pdf Viscusi, Gregory, and Mark Deen “Why France Has So Many 49-Employee Companies.” Business Week Last modified May 3, 2012 http://www.businessweek.com/articles/2012-05-03/why-france-has-somany-49-employee-companies Edwards, S (n.d.) “America’s Unsustainable Current Account Deficit.” National Bureau of Economic Research Digest http://www.nber.org/digest/mar06/w11541.html http://www.ustr.gov/trade-agreements/free-tradeagreements/north-american-free-trade-agreement-nafta New Country Classifications | Data (n.d.) Accessed January 14, 2014 http://data.worldbank.org/news/new-countryclassifications Office of the United States Trade Representative: Executive Office of the President “North American Free Trade Agreement (NAFTA).” Why India’s Labour Laws are a Problem (2006, May 18) BBC May 18, 2006 http://news.bbc.co.uk/2/hi/south_asia/ 4984256.stm International Trade Krugman, Paul R Pop Internationalism The MIT Press, Cambridge 1996 Krugman, Paul R “What Do Undergrads Need to Know about Trade?” American Economic Review 83, no 1993 23-26 Ricardo, David On the Principles of Political Economy and Taxation London: John Murray, 1817 Ricardo, David “On the Principles of Political Economy and Taxation.” Library of Economics and Liberty http://www.econlib.org/library/Ricardo/ricP.html Bernstein, William J A Splendid Exchange: How Trade Shaped the World Atlantic Monthly Press New York 2008 U.S Census Bureau 2015 “U.S International Trade in Goods and Services: December 2014.” Accessed April 13, 2015 http://www.bea.gov/newsreleases/international/trade/2015/pdf/trad1214.pdf U.S Census Bureau U.S Bureau of Economic Analysis 2015 “U.S International Trade in Goods and Services February 2015.” Accessed April 10, 2015 https://www.census.gov/foreign-trade/Press-Release/ current_press_release/ft900.pdf Vernengo, Matias “What Do Undergraduates Really Need to Know About Trade and Finance?” in Political Economy and Contemporary Capitalism: Radical Perspectives on Economic Theory and Policy, ed Ron Baiman, Heather Boushey, and Dawn Saunders M E Sharpe Inc, 2000 Armonk 177-183 World Trade Organization “The Doha Round.” Accessed October 2013 http://www.wto.org/english/tratop_e/dda_e/ dda_e.htm www.ebook3000.com 594 References The World Bank “Data: World Development Indicators.” Accessed October 2013 http://data.worldbank.org/datacatalog/world-development-indicators Globalization and Protectionism Bureau of Labor Statistics “Industries at a Glance.” Accessed December 31, 2013 http://www.bls.gov/iag/ Oxfam International Accessed January 6, 2014 http://www.oxfam.org/ Bureau of Labor Statistics “Data Retrieval: Employment, Hours, and Earnings (CES).” Last modified February 1, 2013 http://www.bls.gov/webapps/legacy/cesbtab1.htm Dhillon, Kiran 2015 “Why Are U.S Oil Imports Falling?” Time.com Accessed April 1, 2015 http://time.com/ 67163/why-are-u-s-oil-imports-falling/ Kristof, Nicholas “Let Them Sweat.” The New York Times, June 25, 2002 http://www.nytimes.com/2002/06/25/ opinion/let-them-sweat.html Kohut, Andrew, Richard Wike, and Juliana Horowitz “The Pew Global Attitudes Project.” Pew Research Center Last modified October 4, 2007 http://www.pewglobal.org/files/pdf/258.pdf Lutz, Hannah 2015 “U.S Auto Exports Hit Record in 2014.” Automotive News Accessed April 1, 2015 http://www.autonews.com/article/20150206/OEM01/150209875/u.s.-auto-exports-hit-record-in-2014 United States Department of Labor Bureau of Labor Statistics 2015 “Employment Situation Summary.” Accessed April 1, 2015 http://www.bls.gov/news.release/empsit.nr0.htm United States Department of Commerce “About the Department of Commerce.” Accessed January 6, 2014 http://www.commerce.gov/about-department-commerce United States International Trade Commission “About the USITC.” Accessed January 6, 2014 http://www.usitc.gov/ press_room/about_usitc.htm E Helpman, and O Itskhoki, “Labour Market Rigidities, Trade and Unemployment,” The Review of Economic Studies, 77 (2010): 1100-1137 M.J Melitz, and D Trefler “Gains from Trade when Firms Matter.” The Journal of Economic Perspectives, 26.2 (2012): 91-118 Rauch, J “Was Mancur Olson Wrong?” The American, February 15, 2013 http://www.american.com/archive/2013/ february/was-mancur-olson-wrong Office of the United States Trade Representative “U.S Trade Representative Froman Announces FY 2014 WTO Tariff-Rate Quota Allocations for Raw Cane Sugar, Refined and Specialty Sugar and Sugar-Containing Products.”Accessed January 6, 2014 http://www.ustr.gov/about-us/press-office/press-releases/2013/september/ WTO-trq-for-sugar The World Bank “Merchandise trade (% of GDP).” Accessed January 4, 2014 http://data.worldbank.org/indicator/ TG.VAL.TOTL.GD.ZS World Trade Organization 2014 “Annual Report 2014.” Accessed April 1, 2015 https://www.wto.org/english/res_e/ booksp_e/anrep_e/anrep14_chap10_e.pdf This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 Index 595 INDEX Symbols 401(k), 221 A A.W Phillips, 294 Abhijit Bannerjee, 449 Abraham García, 169 absolute advantage, 465, 480 Adam Smith, 10, 37, 259 adaptive expectations, 310, 319 adjustable-rate mortgage (ARM), 224, 227 adverse selection of wage cuts argument, 191, 201 aggregate demand, 259, 287, 306, 310, 315, 357, 361, 382, 406, 451, 541 aggregate demand (AD), 129, 278 Aggregate demand (AD), 262 aggregate demand (AD) curve, 262, 278 aggregate demand/aggregate supply (AD/AS), 324 aggregate demand/aggregate supply model, 260, 278, 305 aggregate expenditure function, 542 aggregate expenditure line, 541 aggregate expenditure schedule, 534 aggregate expenditures, 541 aggregate production function, 160, 165, 174, 175 aggregate supply, 259, 306, 406 aggregate supply (AS), 129, 278 Aggregate supply (AS), 260 aggregate supply (AS) curve, 261, 278 aggregate supply curve, 315 Alexander Gerschenkron, 171 Alfred Marshall, 70 Allocative efficiency, 34 allocative efficiency, 40 American Recovery and Reinvestment Act of 2009, 293 Anti-dumping laws, 498 anti-dumping laws, 509 appreciating, 374, 392 arbitrage, 381, 392 Asian Financial Crisis, 455 asset, 330, 338 asset-liability time mismatch, 333 assets, 348 asset–liability time mismatch, 338 automatic stabilizers, 409, 417, 451 B balance of payments, 242 balance of trade, 234, 250, 390 balance of trade (trade balance), 252 balance sheet, 330, 338 balanced budget, 398, 415, 417 bank capital, 331, 338 Bank capital, 347 Bank regulation, 347 bank run, 348, 365 banking system, 328 bankrupt, 384 bar graph, 525 Barter, 324 barter, 338 base year, 209, 227 basic quantity equation of money, 360, 365 basket of goods and services, 207, 227 bonds, 225, 331, 351 budget constraint, 26, 40 budget deficit, 398, 417 budget surplus, 398, 417 Bureau of Economic Analysis (BEA), 235 Bureau of Labor Statistics, 148 business confidence, 268 business cycle, 143, 150 C capital deepening, 165, 175 central bank, 344, 358, 365, 382, 388 certificates of deposit (CDs), 327 ceteris paribus, 50, 62, 72, 82 circular flow diagram, 14, 21 coins and currency in circulation, 327, 338 command economy, 16, 21 commodity money, 325, 338 www.ebook3000.com Commodity-backed currencies, 325 commodity-backed currencies, 338 common market, 509 common markets, 504 comparative advantage, 11, 35, 40, 241, 465, 495 complements, 52, 72 compound growth rate, 164, 175 Constant unitary elasticity, 110 constant unitary elasticity, 122 consumer confidence, 269 Consumer Price Index (CPI), 210, 227 consumer surplus, 68, 72, 491 consumption budget constraint, 33 consumption demand, 131 consumption function, 534 contractionary fiscal policy, 297, 299, 406, 417 contractionary monetary policy, 353, 365, 387, 429 contractual rights, 158, 175 convergence, 169, 175 converging economy, 453, 458 coordination argument, 291, 299 core competency, 11 core inflation index, 213, 227 corporate income tax, 402, 417 cost, 33 cost of living, 211 cost-of-living adjustments (COLAs), 224, 227 countercyclical, 355, 365 credit card, 328, 338 credit union, 330 cross-price elasticity of demand, 119, 122 crowding out, 412, 417, 427 current account balance, 235, 252 cyclical unemployment, 190, 201, 314 Cyclical unemployment, 272 D David Ricardo, 464 deadweight loss, 69, 72 dealers, 374 debit card, 328, 338 596 deficit, 425 deflation, 215, 227 Deflation, 360 demand, 45, 72, 129, 259, 370 demand and supply diagram, 68 demand and supply models, 94 demand curve, 45, 50, 72, 107, 109, 379, 428, 489 demand deposit, 338 demand deposits, 327 demand schedule, 45, 72 deposit insurance, 349, 365 depository institution, 338 depository institutions, 329 depreciating, 374, 392 depreciation, 136, 150 depression, 143, 150, 185 direct investment, 388 discount rate, 353, 365 Discouraged workers, 183 discouraged workers, 201 discretionary fiscal policy, 409, 417, 451 disposable income, 287, 299 disruptive market change, 507, 509 diversify, 333, 338 division of labor, 10, 21, 475 dollarize, 370, 392 double coincidence of wants, 324, 338 double counting, 134, 150 Dow Jones, 362 dumping, 478, 509 Dumping, 498 durable good, 150 durable goods, 133 E East Asian Tigers, 447, 458 economic efficiency, 38 economic growth, 324 economic surplus, 69, 72 economic union, 509 economic unions, 504 Economics, economics, 21 economies of scale, 11, 21, 476 efficiency, 68 Efficiency wage theory, 191 efficiency wage theory, 201 elastic demand, 105, 122 elastic supply, 105, 122 Elasticity, 104 elasticity, 122 elasticity of savings, 120, 122 Index Employment Cost Index, 214, 227 equilibrium, 48, 68, 72, 82, 487, 542 equilibrium exchange rate, 379 equilibrium price, 48, 72 equilibrium quantity, 48, 64, 72 estate and gift tax, 402, 417 Esther Duflo, 449 European Union, 504 European Union (EU), 67 excess demand, 49, 72 excess reserves, 358, 365 excess supply, 49, 72 exchange rate, 144, 150, 370, 434 exchange rates, 364 excise tax, 402, 417 expansionary fiscal policy, 296, 299, 406, 417 expansionary monetary policy, 353, 365, 387, 429, 451 expected inflation, 311, 319 expenditure multiplier, 293, 299 expenditure-output model, 533 export, 472 Exports, 18 exports, 21, 235, 263, 289, 382 exports of goods and services as a percentage of GDP, 239, 252 F factors of production, 54, 72 Federal Deposit Insurance Corporation (FDIC), 349 federal funds rate, 354, 365 Federal Open Market Committee (FOMC), 350 Federal Reserve, 344, 347, 362, 429, 454 Federal Reserve Bank, 327 Federal Reserve Economic Data (FRED), 185, 375, 386 fiat money, 326, 338 final good and service, 150 final goods and services, 135 financial capital, 89, 240, 244, 252, 364, 424 financial capital market, 243 financial capital markets, 412, 424 financial intermediary, 329, 338 firm, 35, 56 firms, 372 Fiscal policy, 13 This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 fiscal policy, 21, 398, 451 floating exchange rate, 385, 392 Foreign direct investment (FDI), 372 foreign direct investment (FDI), 392 foreign exchange market, 370, 379, 392 foreign financial capital, 247 foreign investment capital, 384 free trade, 499 free trade agreement, 509 free trade agreements, 504 frictional unemployment, 194, 201 full-employment GDP, 262, 278 function, 515 G gain from trade, 468, 480 GDP, 371, 382 GDP deflator, 138, 214, 227 GDP per capita, 146, 148, 150, 165, 266, 443 General Agreement on Tariffs and Trade (GATT), 503, 509 globalization, 18, 21, 464, 495 good, 46 goods and services market, 14, 21 Great Depression, 143, 260, 304, 317, 464 Great Recession, 133, 143, 216, 304, 452 gross domestic product (GDP), 18, 21, 129, 150 gross national product (GNP), 136, 150 growth consensus, 446, 458 growth rate, 519 H hard peg, 386, 392 Head Start program, 431, 438 hedge, 373, 392 hidden unemployment, 183 High-income countries, 490 high-income countries, 499 high-income country, 458 Human capital, 159 human capital, 175, 305, 415, 431, 448 hyperinflation, 217, 227 Index I implementation lag, 413, 417 implicit contract, 191, 201 import quotas, 486, 509 Imports, 18 imports, 21, 235, 263, 289, 472 income elasticity of demand, 119 income payments, 236 index number, 209, 227 indexed, 224, 227 individual income tax, 401, 417 Industrial Revolution, 156, 175 inelastic demand, 105, 122 inelastic supply, 105, 122 infant industry argument, 454, 496 inferior good, 52, 72, 119 Infinite elasticity, 109 infinite elasticity, 122 Inflation, 206 inflation, 227, 258, 272, 296, 324, 344, 452 inflation rate, 356 inflation targeting, 362, 365 inflationary gap, 287, 299, 546 infrastructure, 165, 175, 415 innovation, 159, 175 inputs, 54, 72 insider-outsider model, 191, 201 interbank market, 374 interest rate, 90, 99, 288 interest rates, 344, 354 intermediate good, 150 Intermediate goods, 135 intermediate zone, 276, 278 international capital flows, 388, 392 international financial flows, 388 International Price Index, 214, 227 international trade, 385, 477, 507 intertemporal choices, 39 intertemporal decision making, 91 intra-industry trade, 475, 480 invention, 159, 175 inventories, 133 inventory, 150 Investment demand, 131 Investment expenditure, 131 investment expenditure, 288 investment function, 536 investment income, 242 597 invisible hand, 38, 40 involuntary unemployment, 190 J James Tobin, 388 Jan Luiten van Zanden, 156 Janet L Yellen, 345 Jean-Baptiste Say, 259 John Maynard Keynes, 13, 260, 309, 411 K key input, 113 Keynesian aggregate supply curve, 354 Keynesian cross diagram, 533 Keynesian economic model, 451 Keynesian economics, 305, 317 Keynesian macroeconomic policy, 415 Keynesian zone, 276, 278 Keynes’ law, 259, 275, 278 L labor force participation rate, 183, 201 labor market, 14, 21, 82, 190 labor markets, 224 Labor productivity, 159 labor productivity, 175 law of demand, 45, 72, 91 law of diminishing marginal utility, 30, 40 law of diminishing returns, 33, 40, 171 law of supply, 46, 72 legislative lag, 413, 417 lender of last resort, 349, 365 level of trade, 249 leverage cycle, 363 liability, 330, 338 line graphs, 520 Liquidity, 326 living wage, 87 loan market, 331 long run aggregate supply (LRAS) curve, 266, 278 loose monetary policy, 353, 365 low-income countries, 189, 490, 499 low-income country, 458 M M1, 359 www.ebook3000.com M1 money supply, 327, 338 M2, 361 M2 money supply, 327, 338 macro economy, 189 macroeconomic externality, 292, 299 Macroeconomics, 12 macroeconomics, 21 marginal analysis, 30, 40 marginal propensity to consume (MPC), 534 marginal propensity to import (MPI), 539 marginal propensity to save (MPS), 534 marginal tax rates, 402, 417 market, 16, 21 market economy, 16, 21, 35, 194, 222 median, 520 medium of exchange, 325, 338 menu costs, 291, 299 merchandise trade balance, 235, 252 merged currency, 389, 392 Microeconomics, 12 microeconomics, 21 middle-income country, 458 Midpoint Formula, 107 Midpoint Method, 105, 108 Milton Friedman, 314, 361, 386 minimum wage, 87, 99, 190, 220, 495 model, 14, 21 modern economic growth, 156, 175 Monetary policy, 13 monetary policy, 21, 344, 350, 387, 398 money, 325, 338 money market fund, 338 money market funds, 327 money multiplier, 363 money multiplier formula, 335, 339 multiplier effect, 547 N Nasdaq, 362 National Bureau of Economic Research, 454 National Bureau of Economic Research (NBER), 144 National Credit Union Administration (NCUA), 348 national debt, 404, 417 598 national income, 136, 150, 533 national interest argument, 502, 509 national saving and investment identity, 243 national savings and investment identity, 252 natural rate of unemployment, 193, 201, 273, 314 negative slope, 517 neoclassical determinants of growth, 446 neoclassical economists, 259, 278 neoclassical model, 361 neoclassical perspective, 305, 319 neoclassical zone, 276, 278 Net national product (NNP), 136 net national product (NNP), 150 net worth, 330, 339, 347 nominal GDP, 141, 360 nominal interest rate, 220, 360 nominal value, 137, 150 nondurable good, 150 nondurable goods, 133 Nontariff barriers, 487 nontariff barriers, 509 normal good, 52, 72 normal goods, 119 normative statement, 40 normative statements, 37 North American Free Trade Agreement (NAFTA), 453, 493, 504 O open market operations, 350, 365 opportunity cost, 27, 40, 180, 388, 465, 473, 493 opportunity set, 26, 40 out of the labor force, 181, 201 Oxfam International, 490 P payment system, 329, 339 payroll tax, 401, 417 peak, 143, 150 pensions, 221 per capita GDP, 207, 248 percentage change, 208 perfect elasticity, 109, 122 perfect inelasticity, 109, 122 Index Pew Research Center for People and the Press, 61 Phillips curve, 294, 299, 312 physical capital, 165, 175, 427, 448 Physical capital per person, 305 physical capital per person, 319 pie chart, 523 pie graph, 523 Pierre Mohnen, 169 portfolio investment, 372, 388, 392 positive slope, 517 positive statement, 40 positive statements, 37 potential GDP, 261, 278, 286, 297, 305, 354, 362, 533 price, 29, 45, 49, 72 price ceiling, 65, 70, 72 price control, 69, 72 Price controls, 65 price controls, 96 Price elasticity, 104 price elasticity, 122 price elasticity of demand, 104, 122 price elasticity of supply, 104, 122 price floor, 65, 70, 73 price level, 207 private enterprise, 16, 21 private markets, 224 Producer Price Index (PPI), 214, 227 producer surplus, 69, 73, 491 production function, 160, 175 production possibilities frontier (PPF), 31, 40 production possibility frontier (PPF), 466 Productive efficiency, 34 productive efficiency, 40 productivity, 470 Productivity growth, 162 productivity growth, 266 progressive tax, 402, 417 property rights, 158 proportional tax, 402, 417 protectionism, 486, 490, 509 Protectionism, 493 purchasing power parity, 443 purchasing power parity (PPP), 144, 381, 392 This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 Q quality/new goods bias, 212, 227 quantitative easing (QE), 357, 365 quantity demanded, 45, 73, 387 quantity supplied, 46, 73, 387 R race to the bottom, 499, 509 rational expectations, 309, 319 real GDP, 141, 234, 249, 287, 299, 305, 358, 360, 534 real interest rate, 220 real value, 137, 150 recession, 143, 150, 185, 259, 270, 290, 358, 435, 451 recessionary gap, 287, 299, 546 recognition lag, 412, 417 redistributions, 219, 223 regressive tax, 402, 417 relative wage coordination argument, 191, 201 reserve requirement, 352, 365 reserves, 331, 339, 347, 352, 388 revenue, 403 Ricardian equivalence, 432, 438 Richard Easterlin, 158 Robert Shiller, 219 Robert Solow, 317 rule of law, 158, 175 S salary, 80 savings deposit, 339 savings deposits, 327 Say’s law, 259, 275, 278 Scarcity, scarcity, 21, 37 Sebastian Edwards, 454 Securitization, 332 service, 46, 150 services, 133, 287 shift in demand, 53, 73 shift in supply, 54, 73 short run aggregate supply (SRAS) curve, 266, 278 shortage, 49, 73 shortages, 222 slope, 32, 516 smart card, 328, 339 Social Security Indexing Act of 1972, 224 Index social surplus, 69, 73 soft peg, 386, 392 special economic zone (SEZ), 175 special economic zones (SEZ), 169 specialization, 11, 21, 468 splitting up the value chain, 475, 480 stagflation, 267, 278, 296 standard of deferred payment, 325, 339 standard of living, 147, 150 standardized employment budget, 410, 417 standards of living, 445 sticky, 191 sticky wages and prices, 290, 299 store of value, 325, 339 straight-line demand curve, 107 structural unemployment, 194, 201 structure, 150 structures, 133 subprime loans, 333 subsidies, 490 substitute, 52, 73 substitution bias, 211, 227 sunk costs, 30, 40 supply, 46, 73, 259, 370 supply curve, 47, 50, 73, 379, 428, 489 supply schedule, 47, 73 surplus, 49, 73, 236, 425 surpluses, 222 T T-account, 331, 339 Tariffs, 478 tariffs, 480, 486 tax, 270 tax incidence, 116, 122 Technological change, 159 technological change, 175 technology, 165, 175, 448 The Land of Funny Money, 219 theory, 14, 21 tight monetary policy, 353, 365 time deposit, 339 time deposits, 327 time series, 523 Tobin taxes, 388, 392 total surplus, 69, 73 trade balance, 132, 150 trade deficit, 132, 150, 234, 454 599 trade surplus, 132, 150, 234, 454 tradeoffs, 37 traditional economy, 15, 21 Transaction costs, 329 transaction costs, 339 Treasury bills, 357 Treasury bonds, 357 trough, 143, 150 twin deficits, 433, 438 U U.S Census Bureau, 52 U.S Department of Commerce, 235 U.S Patent and Trademark Office, 167 underemployed, 183, 201 underground economies, 18 underground economy, 22 unemployment, 258, 272, 296, 324, 344, 451 unemployment rate, 181, 201, 356 unilateral transfers, 236, 252 unit of account, 325, 339 Unitary elasticities, 105 unitary elasticity, 122 usury laws, 94, 99 utility, 30, 40 V value chain, 475, 480 variable, 516 velocity, 359, 365 W wage, 80 wage elasticity of labor supply, 120, 122 Wages, 195 wages, 207, 219 World Trade Organization (WTO), 478, 487, 498, 503, 509 Z Zero elasticity, 109 zero inelasticity, 122 www.ebook3000.com 600 This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 Index ... print and e-book editions About Principles of Macroeconomics Principles of Macroeconomics has been developed to meet the scope and sequence of most introductory macroeconomics courses At the same... enjoyment of the topic at hand Questions for Each Level of Learning The OpenStax version of Principles of Macroeconomics further expands on Taylor’s original end of chapter materials by offering... develop Principles of Macroeconomics, we acquired the rights to Timothy Taylor’s second edition of 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