Macroeconomics: Policy and Practice

✍ Scribed by Mishkin, Frederic S

• Publisher: Pearson
• Year: 2014
• Tongue: English
• Leaves: 809
• Category: Library

✦ Synopsis

"For courses in Intermediate Macroeconomics"
"Help students understand macroeconomics in theory as well as practice"
"Macroeconomics: Policy and Practice," Second Edition draws on the rich tapestry of recent economic events to help students understand the policy issues debated by the media and the public at large during these trying times. Building on his expertise in macroeconomic policy making at the Federal Reserve, author Frederic S. Mishkin provides detailed, step-by-step explanations of all models and highlights the techniques used by policy makers in practice. The Second Edition incorporates a wealth of new and updated content, as well as new tools and resources in MyEconLab that bring course material to life.
This text provides a better teaching and learning experience--for you and your students. It will help you to:
- Personalize learning with MyEconLab This online homework, tutorial, and assessment program engages students in learning and provides instructors tools to keep students on track.
- Enable students to connect theory to practice: An aggregate demand and supply model helps students understand theory, while numerous examples help them understand the applications of theory.
- Foster interest via engaging features and updated content Updates that reflect the latest happenings in the world of economics and student-friendly in-text tools capture student interest.
- Teach your course your way A flexible structure allows instructors to focus on the particular areas of macroeconomics that match their course goals.
Note: If you are purchasing the standalone text or electronic version, MyEconLab does not come automatically packaged with the text. To purchase MyEconLab please visitwww.myeconlab.comor you can purchase a package of the physical text + MyEconLab by searching for 0133578240 / 9780133578249. MyEconLab is not a self-paced technology and should only be purchased when required by an instructor.

✦ Table of Contents

Cover......Page 1
Title......Page 6
Copyright......Page 9
Brief Contents......Page 12
Contents......Page 14
Preface......Page 36
About the Author......Page 48
PART 1 Introduction......Page 50
The Process: Developing Macroeconomic Models......Page 52
The Purpose: Interpreting Macroeconomic Data......Page 54
How Can Poor Countries Get Rich?......Page 58
Is Saving Too Low?......Page 59
How Costly Is It to Reduce Inflation?......Page 60
How Active Should Stabilization Policy Be?......Page 61
Emphasis on Policy and Practice......Page 62
Concluding Remarks......Page 63
REVIEW QUESTIONS......Page 64
PROBLEMS......Page 65
DATA ANALYSIS PROBLEMS......Page 66
MEASURING ECONOMIC ACTIVITY: NATIONAL INCOME ACCOUNTING......Page 68
Market Value......Page 69
Final Goods and Services......Page 70
POLICY AND PRACTICE: Can GDP Buy Happiness?......Page 72
MEASURING GDP: THE EXPENDITURE APPROACH......Page 73
Consumption Expenditure......Page 74
Meaning of the Word Investment......Page 75
Changes in the Spending Components of GDP over Time......Page 76
Categories of Income......Page 77
An International Comparison of Expenditure Components......Page 78
Income Measures......Page 79
Nominal Variables......Page 80
Real Variables......Page 81
GDP Deflator......Page 82
Consumer Price Index......Page 83
Inflation Rate......Page 84
Percentage Change Method and the Inflation Rate......Page 85
MEASURING UNEMPLOYMENT......Page 86
MACROECONOMICS IN THE NEWS: Unemployment and Employment......Page 88
MACROECONOMICS IN THE NEWS: Interest Rates......Page 89
Real Versus Nominal Interest Rates......Page 90
The Important Distinction Between Real and Nominal Interest Rates......Page 91
KEY TERMS......Page 92
REVIEW QUESTIONS......Page 93
PROBLEMS......Page 94
DATA ANALYSIS PROBLEMS......Page 96
PART 2 Macroeconomic Basics......Page 97
Factors of Production......Page 99
Cobb-Douglas Production Function......Page 100
APPLICATION: Why Are Some Countries Rich and Others Poor?......Page 101
Cobb-Douglas Production Function Characteristics......Page 103
Changes in the Production Function: Supply Shocks......Page 106
DETERMINATION OF FACTOR PRICES......Page 108
Demand for Capital and Labor......Page 109
Factor Market Equilibrium......Page 111
DISTRIBUTION OF NATIONAL INCOME......Page 113
APPLICATION: Explaining Real Wage Growth......Page 114
APPLICATION: Oil Shocks, Real Wages, and the Stock Market......Page 115
Concluding Remarks......Page 117
REVIEW QUESTIONS......Page 118
PROBLEMS......Page 119
DATA ANALYSIS PROBLEMS......Page 121
RELATIONSHIP BETWEEN SAVING AND WEALTH......Page 122
Government Saving......Page 123
National Saving......Page 124
POLICY AND PRACTICE: Government Policies to Stimulate Saving......Page 125
Uses of Saving......Page 126
MACROECONOMICS IN THE NEWS: Balance of Payments Accounts......Page 127
APPLICATION: How the United States Became the Largest Net Debtor in the World......Page 128
Saving and Investment Equation......Page 130
Saving......Page 131
Investment......Page 132
RESPONSE TO CHANGES IN SAVING AND INVESTMENT IN A CLOSED ECONOMY......Page 133
Changes in Saving: Effects of Fiscal Policy......Page 134
POLICY AND PRACTICE: Crowding Out and the Debate over the 2009 Fiscal Stimulus Package......Page 136
Changes in Autonomous Investment......Page 137
Goods Market Equilibrium in an Open Economy......Page 138
Goods Market Equilibrium in a Small Open Economy......Page 139
Changes in Domestic Saving......Page 141
APPLICATION: The Twin Deficits......Page 142
Changes in Investment......Page 143
LARGE VERSUS SMALL OPEN ECONOMIES......Page 144
REVIEW QUESTIONS......Page 146
PROBLEMS......Page 147
DATA ANALYSIS PROBLEMS......Page 149
Chapter 4 Web Appendix SAVING AND INVESTMENT IN LARGE OPEN ECONOMIES......Page 150
PREVIEW......Page 157
Functions of Money......Page 158
Unusual Forms of Money......Page 159
Federal Reserve Banks......Page 160
The European Central Bank......Page 161
The Federal Reserve’s Monetary Aggregates......Page 162
Where Are All the U.S. Dollars and the Euros?......Page 163
The Fed’s Use of M1 Versus M2 in Practice......Page 164
Velocity of Money and the Equation of Exchange......Page 165
From the Equation of Exchange to the Quantity Theory of Money......Page 166
Quantity Theory and the Price Level......Page 167
APPLICATION: Testing the Quantity Theory of Money......Page 168
POLICY AND PRACTICE: The Zimbabwean Hyperinflation......Page 171
APPLICATION: Testing the Fisher Effect......Page 172
Costs of Anticipated Inflation......Page 174
Costs of Unanticipated Inflation......Page 175
KEY TERMS......Page 177
PROBLEMS......Page 178
DATA ANALYSIS PROBLEMS......Page 180
Liabilities......Page 181
CONTROL OF THE MONETARY BASE......Page 182
Shifts from Deposits into Currency......Page 183
Discount Loans......Page 184
Deposit Creation: The Single Bank......Page 185
Deposit Creation: The Banking System......Page 186
Critique of the Simple Model......Page 188
Changes in Currency Holdings......Page 189
Overview of the Money Supply Process......Page 190
Deriving the Money Multiplier......Page 191
Intuition Behind the Money Multiplier......Page 193
Money Supply Response to Changes in the Factors......Page 194
APPLICATION: Quantitative Easing and the Money Supply, 2007–2013......Page 195
KEY TERMS......Page 197
REVIEW QUESTIONS AND PROBLEMS......Page 198
DATA ANALYSIS PROBLEMS......Page 199
Chapter 5 Web Appendix APPLICATION: THE GREAT DEPRESSION BANK PANICS AND THE MONEY SUPPLY, 1930–1933......Page 200
PART 3 Long-Run Economic Growth......Page 202
PREVIEW......Page 204
ECONOMIC GROWTH AROUND THE WORLD......Page 205
Building Blocks of the Solow Growth Model......Page 206
Time Subscripts......Page 207
Dynamics of the Solow Growth Model......Page 210
The “Bathtub Model” of the Steady State......Page 211
APPLICATION: Evidence on Convergence, 1960–2012......Page 212
SAVING RATE CHANGES IN THE SOLOW MODEL......Page 214
Population Growth and the Steady State......Page 217
Population Growth and Real GDP Per Capita......Page 219
POLICY AND PRACTICE: China’s One-Child Policy and Other Policies to Limit Population Growth......Page 221
Solow Model: The Results......Page 222
Growth Accounting Equation......Page 224
Growth Accounting in Practice......Page 225
APPLICATION: U.S. Growth Rates in the Postwar Period......Page 226
CROSS-COUNTRY DIFFERENCES IN GROWTH ACCOUNTING RATES......Page 227
REVIEW QUESTIONS......Page 229
PROBLEMS......Page 230
DATA ANALYSIS PROBLEMS......Page 232
SOLVING FOR THE STEADY STATE......Page 234
REVIEW QUESTIONS AND PROBLEMS......Page 235
Chapter 6 Web Appendix THE GOLDEN RULE LEVEL OF THE CAPITAL-LABOR RATIO......Page 236
TECHNOLOGY AS A PRODUCTION INPUT......Page 241
Building Infrastructure......Page 242
POLICY AND PRACTICE: Government Measures to Increase Human Capital......Page 243
Encouraging Research and Development......Page 244
The Legal System and Property Rights......Page 246
Obstacles to Effective Property Rights......Page 248
POLICY AND PRACTICE: The World Bank’s Doing Business......Page 249
POLICY AND PRACTICE: Does Foreign Aid Work?......Page 251
Allocation of Labor......Page 252
Production of Technology......Page 253
Sustained Growth in the Romer Model......Page 254
Effects of an Increase in the Fraction of the Population Engaged in R&D, α......Page 255
Effect of Changes in the Productiveness of R&D, χ......Page 257
Response to an Increase in the Total Population, N......Page 258
APPLICATION: Does Population Growth Improve Living Standards?......Page 259
The Romer Model and Saving......Page 260
REVIEW QUESTIONS......Page 262
PROBLEMS......Page 263
DATA ANALYSIS PROBLEMS......Page 264
PART 4 Business Cycles: The Short Run......Page 267
BUSINESS CYCLE BASICS......Page 270
An Alternative View of the Business Cycle......Page 271
Dating Business Cycles......Page 272
MACROECONOMICS IN THE NEWS: Leading Economic Indicators......Page 274
Inflation......Page 275
Financial Variables......Page 278
International Business Cycles......Page 279
A BRIEF HISTORY OF U.S. BUSINESS CYCLES......Page 280
Pre–World War I......Page 281
The “Great Moderation”......Page 283
Keynesian and Classical Views on Economic Fluctuations......Page 284
The Short Run Versus the Long Run......Page 285
Sources of Price Stickiness......Page 286
Empirical Evidence for Price Stickiness......Page 287
ROAD MAP FOR OUR STUDY OF BUSINESS CYCLES......Page 288
KEY TERMS......Page 289
PROBLEMS......Page 290
DATA ANALYS IS PROBLEMS......Page 292
PLANNED EXPENDITURE......Page 294
Consumption Expenditure......Page 295
Planned Investment Spending......Page 296
Net Exports......Page 298
Government Purchases and Taxes......Page 299
Solving for Goods Market Equilibrium......Page 300
What the IS Curve Tells Us: Intuition......Page 301
Why the Economy Heads Toward Equilibrium......Page 302
Why the IS Curve Has Its Name and Its Relationship with the Saving-Investment Diagram......Page 303
FACTORS THAT SHIFT THE IS CURVE......Page 304
Changes in Government Purchases......Page 305
APPLICATION: The Vietnam War Buildup,1964–1969......Page 306
Changes in Taxes......Page 307
POLICY AND PRACTICE: The Fiscal Stimulus Package of 2009......Page 308
Summary of Factors That Shift the IS Curve......Page 309
REVIEW QUESTIONS......Page 310
PROBLEMS......Page 311
DATA ANALYSIS PROBLEMS......Page 312
THE FEDERAL RESERVE AND MONETARY POLICY......Page 314
THE MONETARY POLICY CURVE......Page 315
The Taylor Principle: Why the Monetary Policy Curve Has an Upward Slope......Page 316
Movements Along the MP Curve Versus Shifts in the Curve......Page 317
POLICY AND PRACTICE: Movements Along the MP Curve: The Rise in the Federal Funds Rate Target, 2004–2006......Page 318
POLICY AND PRACTICE: Shifts in the MP Curve: Autonomous Monetary Easing at the Onset of the 2007–2009 Financial Crisis......Page 319
Factors That Shift the Aggregate Demand Curve......Page 320
Deriving the Aggregate Demand Curve Algebraically......Page 322
Liquidity Preference and the Demand for Money......Page 326
Demand Curve for Money......Page 327
Equilibrium in the Money Market......Page 328
Changes in the Equilibrium Interest Rate......Page 329
REVIEW QUESTIONS......Page 332
PROBLEMS......Page 333
DATA ANALYSIS PROBLEMS......Page 334
Precautionary Motive......Page 336
Putting the Three Motives Together......Page 337
Portfolio Theory and Keynesian Liquidity Preference......Page 338
EMPIRICAL EVIDENCE ON THE DEMAND FOR MONEY......Page 339
Interest Rates and Money Demand......Page 340
Stability of Money Demand......Page 341
REVIEW QUESTIONS AND PROBLEMS......Page 342
THE PHILLIPS CURVE......Page 344
Phillips Curve Analysis in the 1960s......Page 345
The Friedman-Phelps Phillips Curve Analysis......Page 346
The Modern Phillips Curve......Page 348
The Modern Phillips Curve with Adaptive (Backward-Looking) Expectations......Page 349
Long-Run Aggregate Supply Curve......Page 350
Short-Run Aggregate Supply Curve......Page 351
Shifts in the Long-Run Aggregate Supply Curve......Page 354
Shifts in the Short-Run Aggregate Supply Curve......Page 355
REVIEW QUESTIONS......Page 358
PROBLEMS......Page 359
DATA ANALYSIS PROBLEMS......Page 360
The Aggregate Demand Curve......Page 362
Factors That Shift the Aggregate Demand Curve......Page 363
What Does Autonomous Mean?......Page 364
Factors that Shift the Short-Run Aggregate Supply Curve......Page 365
Short-Run Equilibrium......Page 366
Algebraic Determination of the Equilibrium Output and Inflation Rate......Page 367
Short-Run Equilibrium over Time......Page 368
CHANGES IN EQUILIBRIUM: AGGREGATE DEMAND SHOCKS......Page 370
Algebraic Determination of the Response to a Rightward Shift of the Aggregate Demand Curve......Page 371
APPLICATION: The Volcker Disinflation, 1980–1986......Page 372
APPLICATION: Negative Demand Shocks, 2001–2004......Page 373
Temporary Supply Shocks......Page 374
APPLICATION: Negative Supply Shocks, 1973–1975 and 1978–1980......Page 376
Permanent Supply Shocks......Page 377
Conclusions......Page 379
APPLICATION: Negative Supply and Demand Shocks and the 2007–2009 Financial Crisis......Page 381
APPLICATION: The United Kingdom and the 2007–2009 Financial Crisis......Page 382
APPLICATION: China and the 2007–2009 Financial Crisis......Page 383
REVIEW QUESTIONS......Page 386
PROBLEMS......Page 387
DATA ANALYSIS PROBLEMS......Page 388
Chapter 12 Web Appendix A THE TAYLOR PRINCIPLE AND INFLATION STABILITY......Page 390
Chapter 12 Web Appendix B THE EFFECTS OF MACROECONOMIC SHOCKS ON ASSET PRICES......Page 393
Chapter 12 Web Appendix C THE ALGEBRA OF THE AGGREGATE DEMAND AND SUPPLY MODEL......Page 403
THE OBJECTIVES OF MACROECONOMIC POLICY......Page 408
Stabilizing Economic Activity......Page 409
Establishing Hierarchical Versus Dual Mandates......Page 410
Monetary Policy and the Equilibrium Real Interest Rate......Page 411
Response to an Aggregate Demand Shock......Page 413
Response to a Permanent Supply Shock......Page 417
Response to a Temporary Supply Shock......Page 418
The Bottom Line: The Relationship Between Stabilizing Inflation and Stabilizing Economic Activity......Page 422
Lags and Policy Implementation......Page 424
POLICY AND PRACTICE: The Activist/Nonactivist Debate Over the Obama Fiscal Stimulus Package......Page 425
The Taylor Rule Equation......Page 426
The Taylor Rule Versus the Monetary Policy Curve......Page 427
POLICY AND PRACTICE: The Fed’s Use of the Taylor Rule......Page 428
INFLATION: ALWAYS AND EVERYWHERE A MONETARY PHENOMENON......Page 429
High Employment Targets and Inflation......Page 431
APPLICATION: The Great Inflation......Page 435
Deriving the Aggregate Demand Curve with the Zero Lower Bound......Page 436
The Disappearance of the Self-Correcting Mechanism at the Zero Lower Bound......Page 438
APPLICATION: Nonconventional Monetary Policy and Quantitative Easing......Page 439
Asset Purchases......Page 440
Quantitative Easing Versus Credit Easing......Page 441
Management of Expectations......Page 442
POLICY AND PRACTICE: Abenomics and the Shift in Japanese Monetary Policy in 2013......Page 443
KEY TERMS......Page 445
REVIEW QUESTIONS......Page 446
PROBLEMS......Page 447
DATA ANALYSIS PROBLEMS......Page 449
PART 5 Finance and the Macroeconomy......Page 451
THE ROLE OF THE FINANCIAL SYSTEM......Page 453
Direct Finance......Page 454
Asymmetric Information......Page 455
Financial Intermediaries......Page 456
Free-Rider Problem......Page 457
Financial Intermediaries Address Asymmetric Information Problems......Page 458
APPLICATION: The Tyranny of Collateral......Page 461
Government Regulation to Promote Transparency......Page 462
Government Safety Net......Page 463
The Enron Implosion......Page 464
FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: THE EVIDENCE......Page 465
APPLICATION: Is China a Counter-Example to the Importance of Financial Development to Economic Growth?......Page 467
REVIEW QUESTIONS......Page 468
PROBLEMS......Page 469
DATA ANALYSIS PROBLEMS......Page 470
Chapter 14 Web Appendix FREE TRADE, FINANCIAL GLOBALIZATION, AND GROWTH......Page 472
PREVIEW......Page 477
DYNAMICS OF FINANCIAL CRISES......Page 478
Stage One: Initiation of Financial Crisis......Page 479
Stage Two: Banking Crisis......Page 482
APPLICATION: The Mother of All Financial Crises: The Great Depression......Page 483
Adverse Selection and Moral Hazard Worsen......Page 484
Debt Deflation......Page 485
Causes of the 2007–2009 Financial Crisis......Page 486
Collateralized Debt Obligations (CDOs)......Page 487
Residential Housing Prices: Boom and Bust......Page 488
POLICY AND PRACTICE: Was the Fed to Blame for the Housing Price Bubble?......Page 489
Ireland and the 2007–2009 Financial Crisis......Page 492
Height of the 2007–2009 Financial Crisis......Page 493
Aggressive Federal Reserve Actions......Page 494
Liquidity Provision......Page 495
Asset Purchases (Quantitative Easing)......Page 496
Management of Expectations: Commitment to Future Policy Actions......Page 497
Aggressive Fiscal Policy......Page 499
POLICY AND PRACTICE: Japan’s Lost Decade, 1992–2002......Page 500
Types of Asset-Price Bubbles......Page 501
POLICY AND PRACTICE: Debate Over Central Bank Response to Bubbles......Page 502
Regulatory Policy Responses to Asset Bubbles......Page 504
KEY TERMS......Page 505
PROBLEMS......Page 506
DATA ANALYSIS PROBLEMS......Page 509
PART 6 Macroeconomic Policy......Page 511
Government Spending......Page 513
Budget Deficits and Surpluses......Page 516
Growth of U.S. Government Debt over Time......Page 517
POLICY AND PRACTICE: The Entitlements Debate: Social Security and Medicare/Medicaid......Page 519
SOVEREIGN DEBT CRISES......Page 521
POLICY AND PRACTICE: The European Sovereign Debt Crisis......Page 522
Why High Government Debt Is a Burden......Page 523
POLICY AND PRACTICE: Tax Smoothing......Page 525
Expenditure and Tax Multipliers......Page 526
POLICY AND PRACTICE: The 2009 Debate Over Tax-Based Versus Spending-Based Fiscal Stimulus......Page 528
Fiscal Multipliers at the Zero Lower Bound......Page 529
Aggregate Supply and Fiscal Policy......Page 530
Supply-Side Economics and Fiscal Policy......Page 531
Balancing the Budget: Expansionary or Contractionary?......Page 532
POLICY AND PRACTICE: Two Expansionary Fiscal Contractions: Denmark and Ireland......Page 533
POLICY AND PRACTICE: The Debate Over Fiscal Austerity in Europe......Page 534
Government-Issued Money......Page 535
BUDGET DEFICITS AND RICARDIAN EQUIVALENCE......Page 536
Implications of Ricardian Equivalence......Page 537
Bottom Line on Ricardian Equivalence......Page 538
POLICY AND PRACTICE: The Bush Tax Cuts and Ricardian Equivalence......Page 539
SUMMARY......Page 540
REVIEW QUESTIONS......Page 541
PROBLEMS......Page 542
DATA ANALYSIS PROBLEMS......Page 543
Chapter 16 Web Appendix OTHER MEASURES OF THE GOVERNMENT BUDGET DEFICIT......Page 545
Foreign Exchange Rates......Page 549
The Distinction Between Real and Nominal Exchange Rates......Page 550
The Importance of Exchange Rates......Page 551
Law of One Price......Page 553
Big Macs and PPP......Page 554
Demand Curve for Domestic Assets......Page 556
Equilibrium in the Foreign Exchange Market......Page 557
Changes in the Demand for Domestic Assets......Page 558
APPLICATION: The Global Financial Crisis and the Dollar......Page 561
EXCHANGE RATES AND AGGREGATE DEMAND AND SUPPLY ANALYSIS......Page 563
Foreign Exchange Intervention......Page 565
Intervention and the Exchange Rate......Page 566
Fixed Exchange Rate Regime Dynamics......Page 567
The Policy Trilemma......Page 569
Monetary Unions......Page 570
APPLICATION: How Did China Accumulate Over $3 Trillion of International Reserves?......Page 571
Advantages of Exchange-Rate Pegging......Page 572
Disadvantages of Exchange-Rate Pegging......Page 573
POLICY AND PRACTICE: The Collapse of the Argentine Currency Board......Page 575
KEY TERMS......Page 576
REVIEW QUESTIONS......Page 577
PROBLEMS......Page 578
DATA ANALYSIS PROBLEMS......Page 580
Chapter 17 Web Appendix A THE INTEREST PARITY CONDITION......Page 582
Chapter 17 Web Appendix B SPECULATIVE ATTACKS AND FOREIGN EXCHANGE CRISES......Page 587
PART 7 Microeconomic Foundations of Macroeconomics......Page 592
THE RELATIONSHIP BETWEEN CONSUMPTION AND SAVING......Page 594
The Intertemporal Budget Constraint......Page 595
The Intertemporal Budget Constraint in Terms of Present Discounted Value......Page 597
Preferences......Page 598
Optimization......Page 599
THE INTERTEMPORAL CHOICE MODEL IN PRACTICE: INCOME AND WEALTH......Page 600
Response of Consumption to Income......Page 601
The Optimal Level of Consumption and the Intertemporal Budget Line......Page 602
Borrowing Constraints......Page 604
The Keynesian Consumption Function: Building Blocks......Page 606
The Relationship of the Keynesian Consumption Function to Intertemporal Choice......Page 607
The Permanent Income Consumption Function......Page 608
Relationship of the Permanent Income Hypothesis and Intertemporal Choice......Page 609
POLICY AND PRACTICE: The 2008 Tax Rebate......Page 610
Life-Cycle Consumption Function......Page 611
Saving and Wealth Over the Life Cycle......Page 613
The Random Walk Hypothesis......Page 615
Behavioral Economics and Consumption......Page 616
POLICY AND PRACTICE: Behavioral Policies to Increase Saving......Page 617
KEY TERMS......Page 618
REVIEW QUESTIONS......Page 619
PROBLEMS......Page 620
DATA ANALYSIS PROBLEMS......Page 621
Chapter 18 Web Appendix INCOME AND SUBSTITUTION EFFECTS: A GRAPHICAL ANALYSIS......Page 623
DATA ON INVESTMENT SPENDING......Page 627
Determining the Level of Capital Stock......Page 628
User Cost of Capital......Page 629
Determining the Desired Level of Capital......Page 630
From the Desired Level of Capital to Investment......Page 631
Changes in the Desired Level of the Capital Stock......Page 633
Summary: Neoclassical Theory of Investment......Page 636
Motivation for Holding Inventories......Page 638
The Theory of Inventory Investment......Page 639
Tobin’s q Versus Neoclassical Theory......Page 640
RESIDENTIAL INVESTMENT......Page 641
POLICY AND PRACTICE: U.S. Government Policies and the Housing Market......Page 642
REVIEW QUESTIONS......Page 644
PROBLEMS......Page 645
DATA ANALYSIS PROBLEMS......Page 646
Chapter 19 Web Appendix A MODEL OF HOUSING PRICES AND RESIDENTIAL INVESTMENT......Page 648
Employment Ratio......Page 658
Real Wages......Page 660
SUPPLY AND DEMAND IN THE LABOR MARKET......Page 661
The Demand Curve for Labor......Page 662
Changes in Labor Demand......Page 663
Changes in Labor Supply......Page 664
APPLICATION: Why Has Labor Force Participation ofWomen Increased?......Page 665
APPLICATION: Why Are Income Inequality and Returns to Education Increasing?......Page 666
DYNAMICS OF UNEMPLOYMENT......Page 668
Flows Into and Out of Employment Status......Page 669
Frictional Unemployment......Page 670
POLICY AND PRACTICE: Unemployment Insurance and Unemployment......Page 671
Wage Rigidity......Page 672
POLICY AND PRACTICE: Minimum Wage Laws......Page 673
NATURAL RATE OF UNEMPLOYMENT......Page 675
Sources of Changes in the Natural Rate of Unemployment......Page 676
APPLICATION: Why Are European Unemployment Rates Generally Much Higher Than U.S. Unemployment Rates?......Page 678
KEY TERMS......Page 681
PROBLEMS......Page 682
DATA ANALYSIS PROBLEMS......Page 684
PART 8 Modern Business Cycle Analysis and Macroeconomic Policy......Page 685
Adaptive Expectations......Page 687
Rational Expectations......Page 688
Rational Expectations Theory and Macroeconomic Analysis......Page 689
Econometric Policy Evaluation......Page 690
Discretion and the Time-Inconsistency Problem......Page 691
Types of Rules......Page 692
POLICY AND PRACTICE: The Political Business Cycle and Richard Nixon......Page 693
The Case for Discretion......Page 694
Constrained Discretion......Page 695
Credibility and Aggregate Demand Shocks......Page 696
Credibility and Aggregate Supply Shocks......Page 698
APPLICATION: A Tale of Three Oil Price Shocks......Page 699
Inflation Targeting......Page 701
POLICY AND PRACTICE: Ben Bernanke and the Federal Reserve Adoption of Inflation Targeting......Page 702
Appoint “Conservative” Central Bankers......Page 703
Increase Central Bank Independence......Page 704
KEY TERMS......Page 707
PROBLEMS......Page 708
DATA ANALYSIS PROBLEMS......Page 710
REAL BUSINESS CYCLE MODEL......Page 711
Productivity Shocks and Business Cycle Fluctuations......Page 712
Employment and Unemployment in the Real Business Cycle Model......Page 713
Objections to the Real Business Cycle Model......Page 714
NEW KEYNESIAN MODEL......Page 715
Building Blocks of the New Keynesian Model......Page 716
Business Cycle Fluctuations in the New Keynesian Model......Page 719
Objections to the New Keynesian Model......Page 720
How Do the Models Differ?......Page 721
Short-Run Output and Price Responses: Implications for Stabilization Policy......Page 722
Anti-Inflation Policy......Page 726
REVIEW QUESTIONS......Page 729
PROBLEMS......Page 730
DATA ANALYSIS PROBLEMS......Page 732
Chapter 22 Web Appendix THE NEW CLASSICAL MODEL......Page 733
WHERE MACROECONOMISTS AGREE......Page 742
No Long-Run Trade-off Between Unemployment and Inflation......Page 743
The Crucial Role of Expectations......Page 744
The Time-Inconsistency Problem......Page 745
Credibility......Page 746
How Much Time It Takes to Get to the Long Run......Page 747
Sources of Business Cycle Fluctuations......Page 748
Cost of Reducing Inflation......Page 749
The Dangers of Budget Deficits......Page 750
THE FUTURE OF BUSINESS CYCLE THEORY......Page 751
KEY TERMS......Page 752
DYNAMICS OF FINANCIAL CRISES IN EMERGING MARKET ECONOMIES......Page 753
Stage One: Initiation of Financial Crisis......Page 754
Stage Two: Currency Crisis......Page 757
Stage Three: Full-Fledged Financial Crisis......Page 758
Financial Liberalization/Globalization Mismanagement......Page 759
Perversion of the Financial Liberalization/Globalization Process: Chaebols and the South Korean Crisis......Page 761
Aggregate Selection and Moral Hazard Problems Worsen, and Aggregate Demand Falls......Page 762
Currency Crisis Ensues......Page 763
Final Stage: Currency Crisis Triggers Full-Fledged Financial Crisis......Page 764
Recovery Commences......Page 765
Adverse Selection and Moral Hazard Problems Worsen......Page 766
Currency Crisis Ensues......Page 767
Currency Crisis Triggers Full-Fledged Financial Crisis......Page 769
When an Advanced Economy Is Like an Emerging Market Economy: The Icelandic Financial Crisis of 2008......Page 771
Beef Up Prudential Regulation and Supervision of Banks......Page 772
Limit Currency Mismatch......Page 773
Sequence Financial Liberalization......Page 774
REVIEW QUESTIONS AND PROBLEMS......Page 775
Glossary......Page 777
Index......Page 790

✦ Subjects

Economics