Is the tax system of America, a fair system? Should the rich pay more than they do now? How can increasing the tax rate on th
Is the tax system of America, a fair system? Should the rich pay more than they do now? How can increasing the tax rate on the rich hurt the economy?
5 REASONS to buy your textbooks
and course materials at
SAVINGS: Prices up to 75% off, daily coupons, and free shipping on orders over $25
CHOICE: Multiple format options including textbook, eBook and eChapter rentals
CONVENIENCE: Anytime, anywhere access of eBooks or eChapters via mobile devices
SERVICE: Free eBook access while your text ships, and instant access to online homework products
STUDY TOOLS: Study tools* for your text, plus writing, research, career and job search resources *availability varies
1
2
3
4
5
Find your course materials and start saving at: www.cengagebrain.com
Engaged with you. www.cengage.com
Source Code: 14M-AA0107
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
s e v e n t h e d i t i o n
E x p l o r i n g
Macroeconomics
RobeRt L. sexton Pepperdine University
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
s e v e n t h e d i t i o n
E x p l o r i n g
Macroeconomics
RobeRt L. sexton Pepperdine University
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest.
Important Notice: Media content referenced within the product description or the product text may not be available in the eBook version.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Exploring Macroeconomics, 7e
robert l. Sexton
Vice President, General Manager, Social Science & Qualitative Business: Erin Joyner
Product Director: Mike Worls
Product Manager: Michael Parthenakis
Content Developer: Daniel Noguera
Product Assistant: Mary Umbarger
Sr. Marketing Manager: John Carey
Sr. Content Project Manager: Colleen A. Farmer
Media Developer: Deepak Kumar
Manufacturing Planner: Kevin Kluck
Production Service: Laserwords Pvt. Ltd.
Sr. Art Director: Michelle Kunkler
Internal and Cover Designer: Lou Ann Thesing
Cover Image: technotr/Vetta/Getty Images
Intellectual Property
Analyst: Jen Nonemacher
Project Manager: Sarah Shainwald
Interior design element: Flying Colours Ltd/ Photodisc/Getty Images; © Robert Kneschke/ Shutterstock.com; © Zeed/Shutterstock.com
© 2016, 2013 Cengage Learning
ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher.
Unless otherwise noted, all items © Cengage Learning.
Library of Congress Control Number: 2014952100
ISBN: 978-1-285-85944-6
Cengage learning 20 Channel Center Street Boston, MA 02210 USA
Cengage Learning is a leading provider of customized learning solutions with office locations around the globe, including Singapore, the United Kingdom, Australia, Mexico, Brazil, and Japan. Locate your local office at: www.cengage.com/global
Cengage Learning products are represented in Canada by Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit www.cengage.com
Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com
Printed in the United States of America
Print Number: 01 Print Year: 2014
For product information and technology assistance, contact us at Cengage learning Customer & Sales Support, 1-800-354-9706
For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions
Further permissions questions can be emailed to [email protected]
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
WCN: 02-200-203
To Teachers of Economics Everywhere:
Opening Their Students’ Minds to the Wonders
of Economics
D E D I C A T I o N
v
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
B R I E F C o N T E N T S
1 Introduction ch 1 The Role and Method of Economics 2
ch 2 Economics: Eight Powerful Ideas 31
ch 3 Scarcity, Trade-offs, and Production Possibilities 70
2 Supply and Demand ch 4 Demand, Supply, and Market Equilibrium 96
ch 5 Markets in Motion and Price Controls 132
ch 6 Elasticities 155
3 Market Efficiency, Market Failure, and the Public System
ch 7 Market Efficiency and Welfare 186
ch 8 Market Failure 212
ch 9 Public Finance and Public Choice 238
4 Macroeconomic Foundations ch 10 Introduction to Macroeconomics:
Unemployment, Inflation, and Economic Fluctuations 258
ch 11 Measuring Economic Performance 301
ch 12 Economic Growth in the Global Economy 325
ch 13 Financial Markets, Saving, and Investment 347
5 The Macroeconomic Models ch 14 Aggregate Demand and Aggregate Supply 374
ch 15 The Aggregate Expenditure Model 411
6 Macroeconomic Policy ch 16 Fiscal Policy 438
ch 17 Money, Banking, and the Federal Reserve System 476
ch 18 Monetary Policy 516
ch 19 Issues in Macroeconomic Theory and Policy 546
7 The Global Economy ch 20 International Trade 578
ch 21 International Finance 611
vii
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
T A B L E o F C o N T E N T S
1 InTroDUcTIon C H A P T E R 1 The role and Method of Economics 2
1.1 Economics: A Brief introduction 3 Economics—A Word with Many
Different Meanings 3 Economics Is All Around Us 4
1.2 Economic Behavior 5 Self-Interest 5 What Is Rational Behavior? 6
1.3 Economic Theories and Models 9 Economic Theories and Models 9 Abstraction Is Important 9 Developing a Testable Proposition 9 Science and Stories 10 The Ceteris Paribus Assumption 10 Why Are Observation and Prediction Harder in the
Social Sciences? 11 Why Do Economists Predict on a Group Level? 11 The Two Branches of Economics: Microeconomics
and Macroeconomics 12
1.4 pitfalls to Avoid in Scientific Thinking 13 Confusing Correlation and Causation 13 The Fallacy of Composition 14
1.5 positive Statements and normative Statements 15 Positive Statement 15 Normative Statement 16 Positive versus Normative Analysis 16 Disagreement Is Common in Most Disciplines 16 Often Economists Do Agree 17
interactive Summary 19 Key Terms and Concepts 19 Section Quiz Answers 20 Problems 22 Appendix: Working with Graphs 24
C H A P T E R 2 Economics: Eight powerful ideas 31
2.1 iDEA 1: people Face Scarcity and Costly Trade-offs 32 Introduction 32 Human Wants Exceed Available Resources 32
Scarcity and Resources 33 What Are Goods and Services? 33 What Are Bads? 34 Does Everyone Face Scarcity? 34 Will Scarcity Ever Be Eradicated? 34 Wants versus Needs 34 Scarcity Forces Us to Choose 35 Trade-Offs 35 To Choose Is to Lose 35 Money Costs and Non-money Costs 36 The Opportunity Cost of Going to College or Having
a Child 37
2.2 iDEA 2: people Engage in rational Decision Making and Marginal Thinking 39 Do People Engage in Rational Decision Making? 39 Many Choices We Face Involve Marginal Thinking 39
2.3 iDEA 3: people respond predictably to Changes in incentives 43 Changes in Incentives Change Individual Behavior 43 Positive and Negative Incentives 43
2.4 iDEA 4: Specialization and Trade Can Make Everyone Better off 46 Why Do People Specialize? 46 Absolute versus Comparative Advantage 47 We All Specialize 47 The Advantages of Specialization 47 Specialization and Trade Lead to Greater Wealth
and Prosperity 48
2.5 iDEA 5: Markets Can improve Economic Efficiency 50 How Does the Market Work to Allocate
Resources? 51 Market Prices Provide Important Information 51 What Effect Do Price Controls Have on the Market
System? 52
2.6 iDEA 6: Appropriate government policies Can improve Market outcomes 53 Property Rights and the Legal System 53 Market Failure 53
2.7 iDEA 7: government policies May Help Stabilize the Economy 56 Inflation 57 Unemployment 57
2.8 iDEA 8: increasing productivity leads to Economic growth 59 Defining Economic Growth 59
ix
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4.3 Shifts in the Demand Curve 103 A Change in Demand versus a Change
in Quantity Demanded 103 Shifts in Demand (“PYNTE”) 103 Changes in the Prices of Related Goods and
Services (P) 103 Changes in Income (Y) 105 Changes in the Number of Buyers (N) 107 Changes in Tastes (T) 107 Changes in Expectations (E) 107 Changes in Demand versus Changes in Quantity
Demanded—Revisited 108
4.4 Supply 111 The Law of Supply 111 A Positive Relationship between Price and Quantity
Supplied 111 An Individual Supply Curve 112 The Market Supply Curve 112
4.5 Shifts in the Supply Curve 114 A Change in Quantity Supplied versus
a Change in Supply 114 Shifts in Supply (“SPENT”) 114 Change in Supply versus Change in Quantity
Supplied—Revisited 118
4.6 Market Equilibrium price and Quantity 120 The Critical Role of Price 120 Equilibrium Price and Quantity 120 Shortages and Surpluses 120 Don’t Confuse Scarcity and Shortages 122
interactive Summary 123 Key Terms and Concepts 124 Section Quiz Answers 124 Problems 126
C H A P T E R 5 Markets in Motion and price Controls 132
5.1 Changes in Market Equilibrium 133 The Effects of a Change in Demand 133 The Effects of a Change in Supply 134 The Effects of Changes in Both Supply
and Demand 135 The Combinations of Supply and Demand
Shifts 138 Supply, Demand, and the Market Economy 138
5.2 price Controls 144 Price Controls 144 Price Ceilings: Rent Controls 144 Price Floors: The Minimum Wage 145 Price Ceilings: Price Controls on Gasoline 147 Unintended Consequences 148
interactive Summary 151 Key Terms and Concepts 151 Section Quiz Answers 151 Problems 153
Economic Growth, Productivity, and the Standard of Living 60
What Factors Contribute to Increases in Productivity? 60
interactive Summary 62 Key Terms and Concepts 63 Section Quiz Answers 63 Problems 68
C H A P T E R 3 Scarcity, Trade-offs, and production possibilities 70
3.1 The Three Economic Questions Every Society Faces 71 The Three Economic Questions 71 What Goods and Services Will Be Produced? 72 How Will the Goods and Services Be Produced? 73 Who Will Get the Goods and Services Produced? 73
3.2 The Circular Flow Model 76 Product Markets 76 Factor Markets 76 The Simple Circular Flow Model 77
3.3 The production possibilities Curve 78 The Production Possibilities Curve 78 Inefficiency and Efficiency 80 The Law of Increasing Opportunity Cost 81
3.4 Economic growth and the production possibilities Curve 84 Generating Economic Growth 84 Growth Does Not Eliminate Scarcity 85 The Effects of a Technological Change on the
Production Possibilities Curve 86 Summing up the Production Possibilities Curve 86
interactive Summary 88 Key Terms and Concepts 89 Section Quiz Answers 89 Problems 91
2 SUPPly and DEMAnD C H A P T E R 4 Demand, Supply, and Market Equilibrium 96
4.1 Markets 97 Defining a Market 97 Buyers and Sellers 97
4.2 Demand 98 The Law of Demand 98 Individual Demand 99 What Is a Market Demand Curve? 99 Ceteris Paribus and the Law of Demand 100
x TABLE oF CoNTENTS
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Rent Controls—Short Run versus Long Run 201 Price Floors 202 The Welfare Effects of a Price Floor When the
Government Buys the Surplus 203 Deficiency Payment Program 204
interactive Summary 207 Key Terms and Concepts 207 Section Quiz Answers 208 Problems 210
C H A P T E R 8 Market Failure 212
8.1 Externalities 213 Negative Externalities in Production 213 What Can the Government Do to Correct
for Negative Externalities? 214 Positive Externalities in Consumption 215 What Can the Government Do to Correct for Positive
Externalities? 217 Nongovernmental Solutions to Externalities 217
8.2 public policy and the Environment 219 Why Is a Clean Environment Not Free? 219 The Costs and Benefits of Pollution Control 219 Command and Control Policies: Regulation 220 Pollution Taxes: A Market-Based Policy 221 Transferable Pollution Rights 221
8.3 property rights and the Environment 223 The Coase Theorem 223 Transaction Costs and the Coase Theorem 224
8.4 public goods 225 Private Goods versus Public Goods 225 Public Goods and the Free-Rider Problem 226 The Government and Benefit–Cost Analysis 226 Common Resources and the Tragedy of the
Commons 227
8.5 Asymmetric information 229 What Is Asymmetric Information? 229 What Is Moral Hazard? 231
interactive Summary 233 Key Terms and Concepts 234 Section Quiz Answers 234 Problems 236
C H A P T E R 9 public Finance and public Choice 238
9.1 public Finance: government Spending and Taxation 239 Growth in Government 239 State and Local Spending 241 Generating Government Revenue 241 Financing State and Local Government Activities 244 Should We Have a Flat Tax? 244 Taxes: Efficiency and Equity 245
C H A P T E R 6 Elasticities 155
6.1 price Elasticity of Demand 156 Is the Demand Curve Elastic or Inelastic? 156 Types of Demand Curves 157 Calculating the Price Elasticity of Demand: The
Midpoint Method 158 The Determinants of the Price Elasticity
of Demand 159
6.2 Total revenue and the price Elasticity of Demand 163 How Does the Price Elasticity of Demand Impact Total
Revenue? 163 Price Elasticity Changes along a Linear Demand
Curve 165
6.3 other Types of Demand Elasticities 169 The Cross-Price Elasticity of Demand 169 Cross-Price Elasticity and Sodas 169 The Income Elasticity of Demand 170
6.4 price Elasticity of Supply 171 What is the Price Elasticity of Supply? 171
interactive Summary 178 Key Terms and Concepts 179 Section Quiz Answers 179 Problems 181
3 MArKET EFFIcIEncy, MArKET FAIlUrE, AnD ThE PUBlIc SySTEM
C H A P T E R 7 Market Efficiency and Welfare 186
7.1 Consumer Surplus and producer Surplus 187 Consumer Surplus 187 Marginal Willingness to Pay Falls as More
Is Consumed 187 Price Changes and Changes in Consumer Surplus 188 Producer Surplus 189 Market Efficiency and Producer and Consumer
Surplus 190 Market Efficiency and Market Failure: A Caveat 192
7.2 The Welfare Effects of Taxes, Subsidies, and price Controls 195 Using Consumer and Producer Surplus to Find the
Welfare Effects of a Tax 195 Elasticity and the Size of the Deadweight Loss 197 The Welfare Effects of Subsidies 198 Price Controls and Welfare Effects 199 Price Ceilings 200 Rent Controls 201
TABLE oF CoNTENTS xi
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
10.5 inflation 278 Stable Price Level as a Desirable Goal 278 Measuring Inflation 279 The Consumer Price Index and the GDP
Deflator 280 How Is a Price Index Created? 280 Problems with the CPI 281 Producer Price Index 282 GDP Deflator Versus CPI 282 The Price Level over the Years 282 Who Loses with Inflation? 284 Unanticipated Inflation Distorts Price Signals 285 Other Costs of Anticipated
and Unanticipated Inflation 285 Inflation and Interest Rates 285 Do Creditors Always Lose During
Inflation? 286 Protecting Ourselves from Inflation 287
10.6 Economic Fluctuations 289 Short-Term Fluctuations in Economic
Growth 289 The Phases of a Business Cycle 289 How Long Does a Business Cycle Last? 290 Seasonal Fluctuations Affect Economic
Activity 290 Forecasting Cyclical Changes 291
interactive Summary 293 Key Terms and Concepts 295 Section Quiz Answers 295 Problems 298
C H A P T E R 1 1 Measuring Economic performance 301 11.1 national income Accounting: A Standardized
Way to Measure Economic performance 302 What Is Gross Domestic Product? 302 Production, Income, and the Circular Flow
Model 303
11.2 Measuring Total production 305 The Expenditure Approach to Measuring GDP 305 Consumption (C) 305 Investment (I) 306 Government Purchases (G) 307 Exports (X 2 M) 307 The Value-Added or Production Approach 307
11.3 other Measures of Total production and Total income 309
11.4 problems in Calculating an Accurate gDp 311 Problems in Calculating an Accurate GDP 311 How Do We Solve This Problem? 311 A Price-Level Index 311 Real GDP 311 Is Real GDP Always Less Than Nominal GDP? 312 Real GDP per Capita 312
9.2 public Choice 249 What Is Public Choice Theory? 249 Scarcity and the Public Sector 250 The Individual Consumption–Payment Link 250 Majority Rule and the Median Voters 250 Voters and Rational Ignorance 251 Special Interest Groups 252
interactive Summary 254 Key Terms and Concepts 255 Section Quiz Answers 255 Problems 256
4 MAcroEconoMIc FoUnDATIonS
C H A P T E R 1 0 introduction to Macroeconomics: Unemployment, inflation, and Economic Fluctuations 258 10.1 Macroeconomic goals 259
Three Major Macroeconomic Goals 259
10.2 Employment and Unemployment 260 The Consequences of High Unemployment 260 What Is the Unemployment Rate? 261 The Worst Case of U.S. Unemployment 261 Variations in the Unemployment Rate 262 Are Unemployment Statistics Accurate Reflections
of the Labor Market? 263 Who Are the Unemployed? 263 Categories of Unemployed Workers 264 How Much Unemployment? 264 How Long Are People Usually
Unemployed? 265 Labor Force Participation Rate 266
10.3 Types of Unemployment 268 Frictional Unemployment 268 Should We Worry about Frictional
Unemployment? 269 Structural Unemployment 269 Some Unemployment Is Unavoidable 270 Cyclical Unemployment 270 The Natural Rate of Unemployment 270
10.4 reasons for Unemployment 274 Why Does Unemployment Exist? 274 Minimum Wages and Unemployment 274 The Impact of Unions on the Unemployment
Rate 274 Efficiency Wage 275 Unemployment Insurance 275 Does New Technology Lead to Greater
Unemployment? 276
xii TABLE oF CoNTENTS
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
The Value of Securities 350 Reading Stock Tables 350 Financial Intermediaries 351
13.2 Saving, investment, and the Financial System 353 The Macroeconomics of Saving and
Investment 353 The Market for Loanable Funds 355 Analyzing the Market for Loanable Funds 356
13.3 The Financial Crisis of 2008 361 Low Interest Rates (2002–2004) Led to Aggressive
Borrowing 361 Deregulation in the Housing Market and Subprime
Mortgages 361 Who Bought These Risky Subprime
Mortgages? 363 The Fed Raises Interest Rates and the Housing
Bust 363
interactive Summary 366 Key Terms and Concepts 367 Section Quiz Answers 367 Problems 369 Appendix: Calculating Present Value 371
5 ThE MAcroEconoMIc MoDElS
C H A P T E R 1 4 Aggregate Demand and Aggregate Supply 374 14.1 The Determinants of Aggregate Demand 375
What Is Aggregate Demand? 375 Consumption (C) 375 Investment (I) 375 Government Purchases (G) 375 Net Exports (X 2 M) 375
14.2 The Aggregate Demand Curve 377 How Is the Quantity of Real GDP Demanded Affected
by the Price Level? 377 Why Is the Aggregate Demand Curve Negatively
Sloped? 378
14.3 Shifts in the Aggregate Demand Curve 380 Shifts versus Movements along the Aggregate Demand
Curve 380 Aggregate Demand Curve Shifters 381
14.4 The Aggregate Supply Curve 384 What Is the Aggregate Supply Curve? 384 Why Is the Short-Run Aggregate Supply Curve
Positively Sloped? 384 Why Is the Long-Run Aggregate Supply Curve
Vertical? 385
Why Is the Measure of per Capita Real GDP So Important? 313
11.5 problems with gDp as a Measure of Economic Welfare 315 Nonmarket Transactions 315 The Underground Economy 315 Measuring the Value of Leisure 315 GDP and Externalities 316 Quality of Goods 317 Other Measures of Economic Well-Being 317
interactive Summary 319 Key Terms and Concepts 320 Section Quiz Answers 320 Problems 322
C H A P T E R 1 2 Economic growth in the global Economy 325 12.1 Economic growth 326
Defining Economic Growth 326 The Rule of 70 326 Productivity: The Key to a Higher Standard
of Living 328
12.2 Determinants of Economic growth 330 Factors that Contribute to Productivity Growth 330 New Growth Theory 332
12.3 public policy and Economic growth 334 The Impact of Economic Growth 334 Saving Rates, Investment, Capital Stock,
and Economic Growth 334 Infrastructure 335 Research and Development 336 The Protection of Property Rights Impacts Economic
Growth 336 Free Trade and Economic Growth 336 Education 337
12.4 population and Economic growth 340 Population Growth and Economic Growth 340 The Malthusian Prediction 341
interactive Summary 343 Key Terms and Concepts 344 Section Quiz Answers 344 Problems 345
C H A P T E R 1 3 Financial Markets, Saving, and investment 347 13.1 Financial institutions and intermediaries 348
Bonds 349 Stocks 349 Retained Earnings 350
TABLE oF CoNTENTS xiii
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
6 MAcroEconoMIc PolIcy C H A P T E R 1 6 Fiscal policy 438 16.1 Fiscal policy 439
Fiscal Policy 439 The Government and Total Spending 439
16.2 Fiscal policy and the AD/AS Model 440 Fiscal Policy and the AD/AS Model 440
16.3 The Multiplier Effect 443 Government Purchases, Taxes, and Aggregate
Demand 443 The Multiplier Effect 444 The Multiplier Effect at Work 444 Changes in the MPC Affect the Multiplier
Process 445 The Multiplier and the Aggregate Demand
Curve 446 Tax Cuts and the Multiplier 446 Taxes and Investment Spending 446 A Reduction in Government Purchases and Tax
Increases 447 Time Lags, Saving, and Imports Reduce the Size of the
Multiplier 447 The 2008–2009 Recession 448 Were the Predictions of the Stimulus Programs
Accurate? 449
16.4 Supply-Side Effects of Tax Cuts 452 What Is Supply-Side Economics? 452 Impact of Supply-Side Policies 452 The Laffer Curve 452 Research and Development and the Supply Side of the
Economy 453 How Do Supply-Side Policies Affect Long-Run
Aggregate Supply? 453 Critics of Supply-Side Economics 453 The Supply-Side and Demand-Side Effects
of a Tax Cut 454 Fighting Recessions: Tax Cuts or Increasing
Government Purchases 455
16.5 possible obstacles to Effective Fiscal policy 456 The Crowding-Out Effect 456 Crowding Out in the Long Run 457 Fiscal Policy in an Open Economy 457 The Ricardian Equivalence Theorem 458 Time Lags in Fiscal Policy Implementation 458
16.6 Automatic Stabilizers 461 Automatic Stabilizers 461 How Do the Tax System and Transfer
Payments Stabilize the Economy? 461
16.7 The national Debt 463 How Government Finances the National Debt 463
14.5 Shifts in the Aggreg
Who We Are
We are a professional custom writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework.
Do you handle any type of coursework?
Yes. We have posted over our previous orders to display our experience. Since we have done this question before, we can also do it for you. To make sure we do it perfectly, please fill our Order Form. Filling the order form correctly will assist our team in referencing, specifications and future communication.
Is it hard to Place an Order?
1. Click on the “Place order tab at the top menu or “Order Now” icon at the bottom and a new page will appear with an order form to be filled.
2. Fill in your paper’s requirements in the "PAPER INFORMATION" section and click “PRICE CALCULATION” at the bottom to calculate your order price.
3. Fill in your paper’s academic level, deadline and the required number of pages from the drop-down menus.
4. Click “FINAL STEP” to enter your registration details and get an account with us for record keeping and then, click on “PROCEED TO CHECKOUT” at the bottom of the page.
5. From there, the payment sections will show, follow the guided payment process and your order will be available for our writing team to work on it.
Need help with this assignment?
Order it here claim 25% discount
Discount Code: SAVE25