Additional Information
Book Details
Abstract
Think like an economist!
Economics touches almost every aspect of life, from climate change to terrorism, taxes to house prices, wages, to how much time to spend studying! Thinking like an economist will enable you to evaluate economic policies, understand human behaviour, and make more informed decisions.
This comprehensive revision retains the hallmarks of previous editions, with a thorough and detailed presentation of the principles of economics and on the development of your critical thinking skills. With the addition of new features, such as At Issue and Economics in the News, this new edition uses real-world examples and applications to incorporate the latest developments in the Eurozone and UK policy.
The leading economists in the news today started out like you, as students taking a course in the principles of economics. Like them, you can learn to think like an economist, and this book will show you how.
New to this edition:
*New feature* End-of-chapter worked problem supports Ôlearning by doingÕ and offers an active review of the chapter
*New feature* Each chapter starts with a real problem or question which is then developed through the Economics in the News section and additional end-of-chapter questions, supporting critical thinking development
*Reimagined feature* All Economics in the News sections have been updated and emphasise solid coverage of real news
*Updated coverage* EU membership, healthcare, externalities, immigration, financial markets, bank regulation, the exchange rate, cycles, inflation, and deflation
Michael Parkin is Professor Emeritus of the University of Western Ontario. His books are used by over a million students across the world.
Melanie Powell is Reader in Economics at Derby University Business School.
Kent Matthews is the Sir Julian Hodge Professor of Banking and Finance at the Cardiff Business School.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover\r | Cover | ||
| Title page | iii | ||
| Copyright page | iv | ||
| About the Authors | vi | ||
| Brief Contents | vii | ||
| Contents | x | ||
| Guided Tour for Students | xx | ||
| Preface | xxiv | ||
| Publisher’sAcknowledgments | xxxi | ||
| Part 1 The Scope of Economics | 1 | ||
| Chapter 1 What Is Economics? | 1 | ||
| A Definition of Economics\r | 2 | ||
| Two Big Economic Questions | 3 | ||
| What, How and For Whom? | 3 | ||
| Does the Pursuit of Self-Interest Unintentionally Promote the Social Interest? | 5 | ||
| The Economic Way of Thinking | 9 | ||
| A Choice Is a Trade-Off | 9 | ||
| Making a Rational Choice | 9 | ||
| Benefi t: What You Gain | 9 | ||
| Cost: What You Must Give Up | 9 | ||
| How Much? Choosing at the Margin | 10 | ||
| Choices Respond to Incentives | 10 | ||
| Economics as a Social Science and Policy Tool | 11 | ||
| Economist as Social Scientist | 11 | ||
| Economist as Policy Adviser | 11 | ||
| Chapter 1 Appendix: Graphs in Economics | 15 | ||
| Graphing Data | 15 | ||
| Scatter Diagrams | 16 | ||
| Breaks in the Axes | 18 | ||
| Misleading Graphs | 18 | ||
| Correlation and Causation | 18 | ||
| Graphs Used in Economic Models | 18 | ||
| Variables That Move in the Same Direction | 18 | ||
| Variables That Move in Opposite Directions | 19 | ||
| Variables That Have a Maximum or a Minimum | 20 | ||
| Variables That Are Unrelated | 21 | ||
| The Slope of a Relationship | 22 | ||
| The Slope of a Straight Line | 22 | ||
| The Slope of a Curved Line | 23 | ||
| Graphing Relationships Among More Than Two Variables | 24 | ||
| Ceteris Paribus | 24 | ||
| When Other Things Change | 25 | ||
| Mathematical Note Equations of Straight Lines | 26 | ||
| Chapter 2 The Economic Problem | 31 | ||
| Production Possibilities and Opportunity Cost | 32 | ||
| Production Possibilities Frontier | 32 | ||
| Production Efficiency | 33 | ||
| Trade-Off Along the PPF | 33 | ||
| Opportunity Cost | 33 | ||
| Using Resources Effi ciently | 35 | ||
| The PPF and Marginal Cost | 35 | ||
| Preferences and Marginal Benefit | 36 | ||
| Effi cient Use of Resources | 37 | ||
| Economic Growth | 38 | ||
| The Cost of Economic Growth | 38 | ||
| Gains from Trade | 40 | ||
| Comparative Advantage and Absolute Advantage | 40 | ||
| Achieving the Gains from Trade | 42 | ||
| Economic Coordination | 44 | ||
| Firms | 44 | ||
| Markets | 44 | ||
| Property Rights | 44 | ||
| Money | 44 | ||
| Circular Flows Through Markets | 44 | ||
| Coordinating Decisions | 45 | ||
| Economics in the News Expanding Production Possibilities | 46 | ||
| Part 2 How Markets Work | 53 | ||
| Chapter 3 Demand and Supply | 53 | ||
| Markets and Prices | 54 | ||
| A Competitive Market | 54 | ||
| Demand | 55 | ||
| The Law of Demand | 55 | ||
| Demand Curve and Demand Schedule | 55 | ||
| A Change in Demand | 56 | ||
| A Change in the Quantity Demanded versus a Change in Demand | 58 | ||
| Supply | 60 | ||
| The Law of Supply | 60 | ||
| Supply Curve and Supply Schedule | 60 | ||
| A Change in Supply | 61 | ||
| A Change in the Quantity Supplied versus a Change in Supply | 62 | ||
| Market Equilibrium | 64 | ||
| Price as a Regulator | 64 | ||
| Price Adjustments | 65 | ||
| Predicting Changes in Price and Quantity | 66 | ||
| An Increase in Demand | 66 | ||
| A Decrease in Demand | 66 | ||
| An Increase in Supply | 68 | ||
| A Decrease in Supply | 68 | ||
| Changes in Both Demand and Supply | 70 | ||
| Economics in the News Demand and Supply: The Market for Bananas | 72 | ||
| Mathematical Note Demand, Supply and Equilibrium | 74 | ||
| Price Elasticity of Demand | 82 | ||
| Calculating Price Elasticity of Demand | 82 | ||
| Inelastic and Elastic Demand | 83 | ||
| The Factors That Influence the Elasticity of Demand | 84 | ||
| Total Revenue and Elasticity | 86 | ||
| Your Expenditure and Your Elasticity | 88 | ||
| More Elasticities of Demand | 89 | ||
| Income Elasticity of Demand | 89 | ||
| Cross Elasticity of Demand | 90 | ||
| Elasticity of Supply | 92 | ||
| Calculating the Elasticity of Supply | 92 | ||
| The Factors That Influence the Elasticity of Supply | 93 | ||
| Economics in the News The Elasticity of Demand for Oil | 96 | ||
| Chapter 5 Efficiency and Equity | 103 | ||
| Resource Allocation Methods | 104 | ||
| Market Price | 104 | ||
| Command | 104 | ||
| Majority Rule | 104 | ||
| Contest | 104 | ||
| First-Come, First-Served | 105 | ||
| Lottery | 105 | ||
| Personal Characteristics | 105 | ||
| Force | 105 | ||
| Benefit, Cost and Surplus | 106 | ||
| Demand, Willingness to Pay and Value | 106 | ||
| Individual Demand and Market Demand | 106 | ||
| Consumer Surplus | 107 | ||
| Supply and Marginal Cost | 107 | ||
| Supply, Cost and Minimum Supply-Price | 108 | ||
| Individual Supply and Market Supply | 108 | ||
| Producer Surplus | 109 | ||
| Is the Competitive Market Efficient? | 110 | ||
| Efficiency of Competitive Equilibrium | 110 | ||
| Market Failure | 111 | ||
| Sources of Market Failure | 112 | ||
| Alternatives to the Market | 113 | ||
| Is the Competitive Market Fair? | 114 | ||
| It’s Not Fair if the Result Isn’t Fair | 114 | ||
| It’s Not Fair if the Rules Aren’t Fair | 116 | ||
| Case Study: A Shortage of Hotel Rooms in a Natural Disaster | 116 | ||
| Economics in the News Making Traffic Flow Efficiently | 118 | ||
| Chapter 6 Government Actions in Markets | 125 | ||
| A Housing Market with a Rent Ceiling | 126 | ||
| A Housing Shortage | 126 | ||
| Increased Search Activity | 126 | ||
| Black Market | 126 | ||
| Inefficiency of Rent Ceilings | 127 | ||
| Are Rent Ceilings Fair? | 128 | ||
| Allocating Housing Among Demanders | 128 | ||
| A Labour Market with a Minimum Wage | 129 | ||
| Minimum Wage Brings Unemployment | 129 | ||
| Is the Minimum Wage Fair? | 129 | ||
| Inefficiency of a Minimum Wage | 130 | ||
| Taxes | 131 | ||
| Tax Incidence | 131 | ||
| A Tax on Sellers | 131 | ||
| A Tax on Buyers | 132 | ||
| Equivalence of Tax on Buyers and Sellers | 132 | ||
| Tax Incidence and Elasticity of Demand | 133 | ||
| Tax Incidence and Elasticity of Supply | 134 | ||
| Taxes and Efficiency | 135 | ||
| Taxes and Fairness | 136 | ||
| Production Quotas and Subsidies and Price Supports | 137 | ||
| Production Quotas | 137 | ||
| Production Subsidies | 138 | ||
| Price Supports | 139 | ||
| Markets for Illegal Goods | 140 | ||
| Economics in the News Inefficient Rent Ceilings | 142 | ||
| Chapter 7 Global Markets in Action | 149 | ||
| How Global Markets Work | 150 | ||
| International Trade Today | 150 | ||
| What Drives International Trade? | 150 | ||
| Why the UK Imports Cars | 151 | ||
| Why the UK Exports Chemicals | 152 | ||
| Winners, Losers and the Net Gain from Trade | 153 | ||
| Gains and Losses from Imports | 153 | ||
| Gains and Losses from Exports | 154 | ||
| Gains for All | 154 | ||
| International Trade Restrictions | 155 | ||
| Tariffs | 155 | ||
| Import Quotas | 158 | ||
| Export Subsidies | 161 | ||
| Other Import Barriers | 161 | ||
| The Case Against Protection | 162 | ||
| Helps an Infant Industry Grow | 162 | ||
| Counteracts Dumping | 162 | ||
| Saves Domestic Jobs | 162 | ||
| Allows Us to Compete with Cheap Foreign Labour | 162 | ||
| Penalises Lax Environmental Standards | 163 | ||
| Prevents Rich Countries from Exploiting Developing Countries | 163 | ||
| Reduces Offshore Outsourcing that Sends Good UK Jobs Abroad | 163 | ||
| Avoiding Trade Wars | 164 | ||
| Why Is International Trade Restricted? | 164 | ||
| Compensating Losers | 165 | ||
| Economics in the News Brexit: Free Trade in Raw Sugar | 166 | ||
| Part 3 Households, Firms and Markets | 173 | ||
| Chapter 8 Households’ Choices | 173 | ||
| Consumption Possibilities | 174 | ||
| The Budget Line | 174 | ||
| The Budget Equation | 175 | ||
| Preferences and Indifference Curves | 177 | ||
| Marginal Rate of Substitution | 178 | ||
| Degree of Substitutability | 179 | ||
| Predicting Consumer Behaviour | 180 | ||
| Best Affordable Choice | 180 | ||
| A Change in Price | 181 | ||
| A Change in Income | 183 | ||
| Substitution Effect and Income Effect | 184 | ||
| New Ways of Explaining Households’ Choices | 186 | ||
| Behavioural Economics | 186 | ||
| Neuroeconomics | 187 | ||
| Controversy | 187 | ||
| Economics in the News Sugary Drinks Tax to Cut Harm | 188 | ||
| Chapter 9 Organising Production | 195 | ||
| The Firm and Its Economic Problem | 196 | ||
| The Firm’s Goal | 196 | ||
| Accounting Profit | 196 | ||
| Economic Accounting | 196 | ||
| Opportunity Cost of Production | 196 | ||
| Economic Accounting: A Summary | 197 | ||
| The Firm’s Decisions | 197 | ||
| The Firm’s Constraints | 198 | ||
| Technological and Economic Efficiency | 199 | ||
| Technological Efficiency | 199 | ||
| Economic Efficiency | 199 | ||
| Information and Organisation | 201 | ||
| Command Systems | 201 | ||
| Incentive Systems | 201 | ||
| The Principal–Agent Problem | 201 | ||
| Coping with the Principal–Agent Problem | 201 | ||
| Types of Business Organisations | 202 | ||
| Pros and Cons of Different Types of Firms | 203 | ||
| Markets and the Competitive Environment | 205 | ||
| Identifying a Market Structure | 206 | ||
| UK Market Structures | 209 | ||
| Produce or Outsource? Firms and Markets | 210 | ||
| Firm Coordination | 210 | ||
| Market Coordination | 210 | ||
| Why Firms? | 210 | ||
| Economics in the News Competition in Markets for Internet Advertising | 212 | ||
| Chapter 10 Output and Costs\r | 220 | ||
| Time Frames for Decisions | 220 | ||
| The Long Run | 220 | ||
| Short-Run Technology Constraint | 221 | ||
| Product Schedules | 221 | ||
| Product Curves | 221 | ||
| Total Product Curve | 222 | ||
| Marginal Product Curve | 222 | ||
| Average Product Curve | 224 | ||
| Short-Run Cost | 225 | ||
| Total Cost | 225 | ||
| Marginal Cost | 226 | ||
| Average Cost | 226 | ||
| Marginal Cost and Average Cost | 226 | ||
| Why the Average Total Cost Curve Is U-Shaped | 226 | ||
| Cost Curves and Product Curves | 228 | ||
| Shifts in the Cost Curves | 230 | ||
| Long-Run Cost | 232 | ||
| The Production Function | 232 | ||
| Short-Run Cost and Long-Run Cost | 232 | ||
| The Long-Run Average Cost Curve | 234 | ||
| Economies and Diseconomies of Scale | 234 | ||
| Economics in the News Expanding Capacity at Costa Coffee | 236 | ||
| Chapter 10 Appendix: Producing at Least Cost | 243 | ||
| Isoquants and Factor Substitution | 243 | ||
| An Isoquant Map | 243 | ||
| The Marginal Rate of Substitution | 243 | ||
| Isocost Lines | 245 | ||
| The Isocost Equation | 245 | ||
| The Isocost Map | 245 | ||
| The Effect of Factor Prices | 245 | ||
| The Least-Cost Technique | 246 | ||
| Marginal Rate of Substitution and Marginal Products | 247 | ||
| Marginal Cost | 248 | ||
| Making Connections | 248 | ||
| Chapter 11 Perfect Competition | 249 | ||
| What Is Perfect Competition? | 250 | ||
| How Perfect Competition Arises | 250 | ||
| Price Takers | 250 | ||
| Economic Profit and Revenue | 250 | ||
| The Firm’s Decisions | 251 | ||
| The Firm’s Output Decision | 252 | ||
| Marginal Analysis | 253 | ||
| Temporary Shutdown Decision | 254 | ||
| The Firm’s Short-Run Supply Curve | 255 | ||
| Output, Price and Profit in the Short Run | 256 | ||
| Market Supply in the Short Run | 256 | ||
| Short-Run Equilibrium | 257 | ||
| A Change in Demand | 257 | ||
| Profits and Losses in the Short Run | 257 | ||
| Output, Price and Profit in the Long Run | 259 | ||
| Entry and Exit | 259 | ||
| A Closer Look at Entry | 260 | ||
| A Closer Look at Exit | 260 | ||
| Long-Run Equilibrium | 261 | ||
| Changes in Demand and Supply as Technology Advances | 262 | ||
| An Increase in Demand | 262 | ||
| A Decrease in Demand | 263 | ||
| Technological Advances Change Supply | 264 | ||
| Competition and Efficiency | 266 | ||
| Efficient Use of Resources | 266 | ||
| Choices, Equilibrium and Efficiency | 266 | ||
| Economics in the News Perfect Competition in Steel | 268 | ||
| Chapter 12 Monopoly | 275 | ||
| Monopoly and How It Arises | 276 | ||
| How Monopoly Arises | 276 | ||
| Monopoly Price-Setting Strategies | 277 | ||
| A Single-Price Monopoly’s Output and Price Decision | 278 | ||
| Price and Marginal Revenue | 278 | ||
| Marginal Revenue and Elasticity | 279 | ||
| Price and Output Decision | 280 | ||
| Single-Price Monopoly and Competition Compared | 282 | ||
| Comparing Price and Output | 282 | ||
| Efficiency Comparison | 283 | ||
| Redistribution of Surpluses | 284 | ||
| Rent Seeking | 284 | ||
| Rent-Seeking Equilibrium | 284 | ||
| Price Discrimination | 285 | ||
| Two Ways of Price Discriminating | 285 | ||
| Increase Profit and Producer Surplus | 286 | ||
| Profiting by Price Discriminating | 286 | ||
| Perfect Price Discrimination | 288 | ||
| Efficiency and Rent Seeking with Price Discrimination | 289 | ||
| Monopoly Regulation | 291 | ||
| Efficient Regulation of a Natural Monopoly | 291 | ||
| Second-Best Regulation of a Natural Monopoly | 292 | ||
| Economics in the News Is Google Misusing Monopoly Power? | 294 | ||
| Chapter 13 Monopolistic Competition | 301 | ||
| What Is Monopolistic Competition? | 302 | ||
| Large Number of Firms | 302 | ||
| Product Differentiation | 302 | ||
| Competing on Quality, Price and Marketing | 302 | ||
| Entry and Exit | 303 | ||
| Examples of Monopolistic Competition | 303 | ||
| Price and Output in Monopolistic Competition | 304 | ||
| The Firm’s Short-Run Output and Price Decision | 304 | ||
| Profit Maximising Might Be Loss Minimising | 304 | ||
| Long Run: Zero Economic Profit | 305 | ||
| Monopolistic Competition and Perfect Competition | 306 | ||
| Is Monopolistic Competition Efficient? | 307 | ||
| Product Development and Marketing | 308 | ||
| Innovation and Product Development | 308 | ||
| Advertising | 308 | ||
| Using Advertising to Signal Quality | 310 | ||
| Brand Names | 311 | ||
| Efficiency of Advertising and Brand Names | 311 | ||
| Economics in the News Product Differentiation in Sports Turf | 312 | ||
| Chapter 14 Oligopoly | 319 | ||
| What Is Oligopoly? | 320 | ||
| Barriers to Entry | 320 | ||
| Small Number of Firms | 321 | ||
| Examples of Oligopoly | 321 | ||
| Oligopoly Games | 322 | ||
| What Is a Game? | 322 | ||
| The Prisoners’ Dilemma | 322 | ||
| An Oligopoly Price-Fixing Game | 324 | ||
| A Game of Chicken | 329 | ||
| Repeated Games and Sequential Games | 330 | ||
| A Repeated Duopoly Game | 330 | ||
| Antitrust Law | 334 | ||
| UK and EU Antitrust Laws | 334 | ||
| Price Fixing Always Illegal | 334 | ||
| Three Antitrust Policy Debates | 335 | ||
| Mergers and Acquisitions | 337 | ||
| Economics in the News Collusion in Trucks | 338 | ||
| Part 4 Coping With Market Failure | 345 | ||
| Chapter 15 Public Choices and Public Goods | 345 | ||
| Public Choices | 346 | ||
| Why Governments | 346 | ||
| Political Equilibrium | 347 | ||
| What is a Public Good? | 348 | ||
| A Fourfold Classification | 348 | ||
| Mixed Goods | 348 | ||
| Inefficiencies that Require Public Choices | 350 | ||
| Providing Public Goods | 351 | ||
| The Free-Rider Problem | 351 | ||
| Marginal Social Benefit from a Public Good | 351 | ||
| Marginal Social Cost of a Public Good | 352 | ||
| Efficient Quantity of a Public Good | 352 | ||
| Inefficient Private Provision | 352 | ||
| Efficient Public Provision | 352 | ||
| The Principle of Minimum Differentiation | 353 | ||
| Inefficient Public Overprovision | 354 | ||
| Positive Externalities: Education and Healthcare | 355 | ||
| Positive Externalities | 355 | ||
| Public Choices in Education | 356 | ||
| Healthcare Services | 358 | ||
| Economics in the News Underprovision of UK Road Maintenance | 360 | ||
| Chapter 16 Economics of the Environment | 367 | ||
| Negative Externalities: Pollution | 368 | ||
| Negative Externalities | 369 | ||
| Establish Property Rights | 371 | ||
| Mandate Clean Technology | 372 | ||
| Tax or Cap and Price Pollution | 372 | ||
| Coping with Global Emissions | 374 | ||
| The Tragedy of the Commons | 376 | ||
| Unsustainable Use of a Common Resource | 376 | ||
| Inefficient Use of a Common Resource | 378 | ||
| Achieving an Efficient Outcome | 379 | ||
| Economics in the News Switching to Low Carbon Electricity Production | 382 | ||
| Part 5 Factor Markets, Inequality and Uncertainty | 389 | ||
| Chapter 17 The Markets for Factors of Production | 389 | ||
| The Anatomy of Factor Markets | 390 | ||
| Markets for Labour Services | 390 | ||
| Markets for Capital Services | 390 | ||
| Markets for Land Services and Natural Resources | 390 | ||
| Entrepreneurship | 390 | ||
| The Demand for a Factor of Production | 391 | ||
| Value of Marginal Product | 391 | ||
| A Firm’s Demand for Labour | 391 | ||
| A Firm’s Demand for Labour Curve | 392 | ||
| Changes in the Demand for Labour | 393 | ||
| Labour Markets | 394 | ||
| A Competitive Labour Market | 394 | ||
| Differences and Trends in Wage Rates | 396 | ||
| Immigration and the Labour Market | 398 | ||
| A Labour Market with a Union | 400 | ||
| Capital and Natural Resource Markets | 404 | ||
| Capital Rental Markets | 404 | ||
| Land Rental Markets | 404 | ||
| Non-Renewable Natural Resource Markets | 405 | ||
| Economics in the News The IT Job Market in Action | 408 | ||
| Mathematical Note Present Value and Discounting | 410 | ||
| Chapter 18 Economic Inequality and Redistribution | 417 | ||
| Economic Inequality in the UK | 418 | ||
| The Distribution of Income | 418 | ||
| The Income Lorenz Curve | 419 | ||
| The Distribution of Wealth | 420 | ||
| Wealth or Income? | 420 | ||
| Annual or Lifetime Income and Wealth? | 421 | ||
| Trends in Inequality | 421 | ||
| Poverty | 423 | ||
| Inequality in the World Economy | 424 | ||
| Income Distributions in Selected Countries | 424 | ||
| Global Inequality and Its Trends | 425 | ||
| The Sources of Economic Inequality | 426 | ||
| Human Capital | 426 | ||
| Discrimination | 428 | ||
| Contests Among Superstars | 429 | ||
| Unequal Wealth | 430 | ||
| Income Redistribution | 431 | ||
| Income Taxes | 431 | ||
| Benefit Payments | 431 | ||
| Subsidised Welfare Services | 431 | ||
| The Big Trade-Off | 433 | ||
| Economics in the News Wealth: Rising Inequality in the UK | 434 | ||
| Chapter 19 Uncertainty and Information | 441 | ||
| Decisions in the Face of Uncertainty | 442 | ||
| Expected Wealth | 442 | ||
| Risk Aversion | 442 | ||
| Utility of Wealth | 442 | ||
| Expected Utility | 443 | ||
| Making a Choice with Uncertainty | 444 | ||
| Buying and Selling Risk | 445 | ||
| Insurance Markets | 445 | ||
| A Graphical Analysis of Insurance | 446 | ||
| Risk That Can’t Be Insured | 447 | ||
| Private Information | 448 | ||
| Asymmetric Information: Examples and Problems | 448 | ||
| The Market for Used Cars | 448 | ||
| The Market for Loans | 451 | ||
| The Market for Insurance | 452 | ||
| Uncertainty, Information and the Invisible Hand | 453 | ||
| Information as a Good | 453 | ||
| Monopoly in Markets that Cope with Uncertainty | 453 | ||
| Economics in the News Grades as Signals | 454 | ||
| Part 6 Monitoring Macroeconomic Performance | 461 | ||
| Chapter 20 Measuring GDP and Economic Growth | 461 | ||
| Gross Domestic Product | 462 | ||
| GDP Defined | 462 | ||
| The Circular Flow of Expenditure and Income | 462 | ||
| Taxes, Market Price and Factor Cost | 464 | ||
| Gross and Net | 464 | ||
| Measuring UK GDP | 465 | ||
| The Expenditure Approach | 465 | ||
| The Income Approach | 465 | ||
| Nominal GDP and Real GDP | 467 | ||
| Calculating Real GDP | 467 | ||
| The Uses and Limitations of Real GDP | 468 | ||
| The Standard of Living Over Time | 468 | ||
| The Standard of Living Across Countries | 470 | ||
| Limitations of Real GDP | 471 | ||
| Economics in the News Alternative Measures of the State of the UK Economy | 474 | ||
| Chapter 20 Appendix: Graphs in Macroeconomics | 476 | ||
| The Time-series Graph | 476 | ||
| Making a Time-series Graph | 476 | ||
| Reading a Time-series Graph | 476 | ||
| Ratio Scale Reveals Trend | 477 | ||
| A Time-series with a Trend | 477 | ||
| Using a Ratio Scale | 477 | ||
| Mathematical Note Chain Volume Measure of Real GDP | 478 | ||
| Chapter 21 Monitoring Jobs and Inflation | 485 | ||
| Employment and Unemployment | 486 | ||
| Why Unemployment is a Problem | 486 | ||
| Labour Force Survey | 487 | ||
| Three Labour Market Indicators | 487 | ||
| Other Definitions of Economic Inactivity and Unemployment | 489 | ||
| Most Costly Unemployment | 490 | ||
| Other Measures of Unemployment | 490 | ||
| Unemployment and Full Employment | 491 | ||
| Frictional Unemployment | 491 | ||
| Structural Unemployment | 491 | ||
| Cyclical Unemployment | 491 | ||
| ‘Natural’ Unemployment | 491 | ||
| Real GDP and Unemployment Over the Business Cycle | 492 | ||
| The Price Level, Inflation and Deflation | 494 | ||
| Why Inflation and Deflation are Problems | 494 | ||
| The Consumer Price Index | 495 | ||
| Reading the CPI Numbers | 495 | ||
| Constructing the CPI | 495 | ||
| Older Price Indexes | 497 | ||
| Measuring the Inflation Rate | 497 | ||
| Distinguishing High Inflation from a High Price Level | 497 | ||
| Biased Price Indexes | 498 | ||
| Some Consequences of Bias in the CPI | 498 | ||
| A Broader Price Index: The GDP Deflator | 498 | ||
| The Alternatives Compared | 499 | ||
| Real Variables in Macroeconomics | 499 | ||
| Economics in the News Euro Area Unemployment | 500 | ||
| Part 7 Macroeconomic Trends | 507 | ||
| Chapter 22 Economic Growth | 507 | ||
| The Basics of Economic Growth | 508 | ||
| Calculating Growth Rates | 508 | ||
| Economic Growth versus Business Cycle Expansion | 508 | ||
| The Magic of Sustained Growth | 509 | ||
| Applying the Rule of 70 | 510 | ||
| Long-Term Growth Trends | 511 | ||
| Long-Term Growth in the UK Economy | 511 | ||
| Real GDP Growth in the World Economy | 512 | ||
| How Potential GDP Grows | 514 | ||
| What Determines Potential GDP? | 514 | ||
| What Makes Potential GDP Grow? | 516 | ||
| Why Labour Productivity Grows | 519 | ||
| Preconditions for Labour Productivity Growth | 519 | ||
| Physical Capital Growth | 519 | ||
| Human Capital Growth | 520 | ||
| Technological Advances | 520 | ||
| Growth Theories, Evidence and Policies | 523 | ||
| Classical Growth Theory | 523 | ||
| Neoclassical Growth Theory | 523 | ||
| New Growth Theory | 524 | ||
| New Growth Theory versus Malthusian Theory | 526 | ||
| Sorting Out the Theories | 526 | ||
| The Empirical Evidence on the Causes of Economic Growth | 526 | ||
| Policies for Achieving Faster Growth | 526 | ||
| Economics in the News Brexit and UK Growth | 528 | ||
| Chapter 23 Finance, Saving and Investment | 535 | ||
| Financial Institutions and Financial Markets | 536 | ||
| Finance and Money | 536 | ||
| Physical Capital and Financial Capital | 536 | ||
| Capital and Investment | 536 | ||
| Wealth and Saving | 536 | ||
| Financial Capital Markets | 537 | ||
| Financial Institutions | 538 | ||
| Insolvency and Illiquidity | 540 | ||
| Interest Rates and Asset Prices | 540 | ||
| The Loanable Funds Market | 541 | ||
| Funds that Finance Investment | 541 | ||
| The Real Interest Rate | 542 | ||
| The Demand for Loanable Funds | 543 | ||
| The Supply of Loanable Funds | 544 | ||
| Equilibrium in the Loanable Funds Market | 545 | ||
| Changes in Demand and Supply | 545 | ||
| Government in the Loanable Funds Market | 548 | ||
| A Government Budget Surplus | 548 | ||
| A Government Budget Deficit | 548 | ||
| Economics in the News Falling Real Interest Rate | 550 | ||
| Chapter 24 Money, the Price Level and Inflation | 557 | ||
| What Is Money? | 558 | ||
| Medium of Exchange | 558 | ||
| Unit of Account | 558 | ||
| Store of Value | 559 | ||
| Money in the UK Today | 559 | ||
| Monetary Financial Institutions | 561 | ||
| Types of Monetary Financial Institutions | 561 | ||
| What Monetary Financial Institutions Do | 561 | ||
| Economic Benefits Provided by Monetary Financial Institutions | 562 | ||
| How Monetary Financial Institutions Are Regulated | 562 | ||
| Financial Innovation | 564 | ||
| Central Banking | 565 | ||
| The European Central Bank | 565 | ||
| The Bank of England | 565 | ||
| The Bank of England’s Balance Sheet | 565 | ||
| The Bank of England’s Policy Tools | 566 | ||
| How Banks Create Money | 568 | ||
| Creating Deposits by Making Loans | 568 | ||
| The Money Creation Process | 569 | ||
| The Money Multiplier | 571 | ||
| The Money Market | 572 | ||
| The Influences on Money Holding | 572 | ||
| The Demand for Money Curve | 573 | ||
| Shifts in the Demand for Money Curve | 573 | ||
| Money Market Equilibrium | 574 | ||
| The Quantity Theory of Money | 576 | ||
| Economics in the News Brexit Interest Rate Cut | 578 | ||
| Mathematical Note The Money Multiplier | 580 | ||
| Chapter 25 International Finance | 587 | ||
| The Foreign Exchange Market | 588 | ||
| Foreign Currencies | 588 | ||
| Trading Currencies | 588 | ||
| Exchange Rates | 588 | ||
| An Exchange Rate is a Price | 588 | ||
| The Demand for One Money Is the Supply of Another Money | 588 | ||
| Demand in the Foreign Exchange Market | 589 | ||
| Law of Demand for Foreign Exchange | 590 | ||
| Demand Curve for Pounds Sterling | 590 | ||
| Supply in the Foreign Exchange Market | 591 | ||
| Law of Supply of Foreign Exchange | 591 | ||
| Supply Curve of Pounds Sterling | 591 | ||
| Market Equilibrium | 592 | ||
| Changes in the Demand for Pounds | 592 | ||
| Changes in the Supply of Pounds | 593 | ||
| Changes in the Exchange Rate | 594 | ||
| Arbitrage, Speculation and Market Fundamentals | 596 | ||
| Arbitrage | 596 | ||
| Speculation | 597 | ||
| Market Fundamentals | 598 | ||
| Exchange Rate Policy | 599 | ||
| Flexible Exchange Rate | 599 | ||
| Fixed Exchange Rate | 599 | ||
| Crawling Peg | 600 | ||
| European Monetary Union | 602 | ||
| The Benefits of the Euro | 602 | ||
| The Economic Costs of the Euro | 602 | ||
| The Optimum Currency Area | 603 | ||
| Financing International Trade | 604 | ||
| Balance of Payments Accounts | 604 | ||
| Borrowers and Lenders | 606 | ||
| The Global Loanable Funds Market | 606 | ||
| Debtors and Creditors | 607 | ||
| Is Borrowing and Debt a Problem? | 607 | ||
| Current Account Balance | 608 | ||
| Where Is the Exchange Rate? | 609 | ||
| Economics in the News A Plunging Pound | 610 | ||
| Part 8 Macroeconomic Fluctuations | 617 | ||
| Chapter 26 Aggregate Supply and Aggregate Demand | 617 | ||
| Aggregate Supply | 618 | ||
| Quantity Supplied and Supply | 618 | ||
| Aggregate Supply Time Frames | 618 | ||
| Long-Run Aggregate Supply | 618 | ||
| Short-Run Aggregate Supply | 619 | ||
| Changes in Aggregate Supply | 620 | ||
| Aggregate Demand | 622 | ||
| The Aggregate Demand Curve | 622 | ||
| Changes in Aggregate Demand | 623 | ||
| Explaining Macroeconomic Trends and Fluctuations | 626 | ||
| Short-Run Macroeconomic Equilibrium | 626 | ||
| Long-Run Macroeconomic Equilibrium | 626 | ||
| Economic Growth and Inflation in the AS–AD Model | 627 | ||
| The Business Cycle in the AS–AD Model | 628 | ||
| Fluctuations in Aggregate Demand | 630 | ||
| Fluctuations in Aggregate Supply | 631 | ||
| Macroeconomic Schools of Thought | 632 | ||
| The Classical View | 632 | ||
| The Keynesian View | 632 | ||
| The Monetarist View | 633 | ||
| The Way Ahead | 633 | ||
| Economics in the News Aggregate Supply and Aggregate Demand in Action | 634 | ||
| Chapter 27 Expenditure Multipliers | 641 | ||
| Fixed Prices and Expenditure Plans | 642 | ||
| Expenditure Plans | 642 | ||
| Consumption and Saving Plans | 642 | ||
| Marginal Propensities | 644 | ||
| Slopes and Marginal Propensities | 644 | ||
| Consumption and Real GDP | 645 | ||
| Import Function | 645 | ||
| Real GDP with a Fixed Price Level | 646 | ||
| Aggregate Planned Expenditure | 646 | ||
| Actual Expenditure, Planned Expenditure and Real GDP | 647 | ||
| Equilibrium Expenditure | 648 | ||
| Convergence to Equilibrium | 649 | ||
| The Multiplier | 650 | ||
| The Basic Idea of the Multiplier | 650 | ||
| The Multiplier Effect | 650 | ||
| Why Is the Multiplier Greater Than 1? | 651 | ||
| The Size of the Multiplier | 651 | ||
| The Multiplier and the Slope of the AE Curve | 652 | ||
| Imports and Income Taxes | 653 | ||
| The Multiplier Process | 653 | ||
| Business Cycle Turning Points | 654 | ||
| The Multiplier and the Price Level | 655 | ||
| Adjusting Quantities and Prices | 655 | ||
| Aggregate Expenditure and Aggregate Demand | 655 | ||
| Deriving the Aggregate Demand Curve | 655 | ||
| Changes in Aggregate Expenditure and Aggregate Demand | 656 | ||
| Equilibrium Real GDP and the Price Level | 657 | ||
| Economics in the News The Keynesian Model in Action | 660 | ||
| Mathematical Note The Algebra of the Multiplier | 662 | ||
| Chapter 28 The Business Cycle, Inflation and Deflation | 671 | ||
| The Business Cycle | 672 | ||
| Mainstream Business Cycle Theory | 672 | ||
| Real Business Cycle Theory | 673 | ||
| Inflation Cycles | 677 | ||
| Demand-Pull Inflation | 677 | ||
| Cost-Push Inflation | 679 | ||
| Expected Inflation | 681 | ||
| Forecasting Inflation | 682 | ||
| Inflation and the Business Cycle | 682 | ||
| Deflation | 683 | ||
| What Causes Deflation? | 683 | ||
| What are the Consequences of Deflation? | 685 | ||
| How Can Deflation be Ended? | 685 | ||
| The Phillips Curve | 686 | ||
| The Short-Run Phillips Curve | 686 | ||
| The Long-Run Phillips Curve | 686 | ||
| Economics in the News The Eurozone Inflation–Unemployment Trade-Off | 688 | ||
| Part 9 Macroeconomic Policy | 695 | ||
| Chapter 29 Fiscal Policy | 695 | ||
| Government Budgets | 696 | ||
| Highlights of the UK Budget in 2016/17 | 696 | ||
| The Budget in Historical Perspective | 697 | ||
| UK and EU Budget Balances and Debt in a Global Perspective | 701 | ||
| Supply-Side Effects of Fiscal Policy | 702 | ||
| Full Employment and Potential GDP | 702 | ||
| The Effects of the Income Tax | 702 | ||
| Taxes on Expenditure and the Tax Wedge | 703 | ||
| Taxes and the Incentive to Save and Invest | 704 | ||
| Tax Revenues and the Laffer Curve | 707 | ||
| The Supply-Side Debate | 707 | ||
| Generational Effects of Fiscal Policy | 708 | ||
| Generational Accounting and Present Value | 708 | ||
| The UK Welfare State and the Pensions Time Bomb | 708 | ||
| Generational Imbalance | 709 | ||
| International Debt | 710 | ||
| Fiscal Stimulus | 710 | ||
| Automatic Fiscal Policy and Cyclical and Structural Budget Balances | 710 | ||
| Discretionary Fiscal Stimulus | 713 | ||
| Economics in the News Fiscal Policy in the UK | 716 | ||
| Chapter 30 Monetary Policy | 723 | ||
| Monetary Policy Objectives and Framework | 724 | ||
| Monetary Policy Objectives | 724 | ||
| Remit for the Monetary Policy Committee | 724 | ||
| Actual Inflation and the Inflation Target | 725 | ||
| The Conduct of Monetary Policy | 726 | ||
| The Monetary Policy Instrument | 726 | ||
| The Bank Rate Decision | 727 | ||
| Implementing the Policy Decision | 727 | ||
| Monetary Policy Transmission | 729 | ||
| Quick Overview | 729 | ||
| Interest Rate Changes | 729 | ||
| Exchange Rate Fluctuations | 730 | ||
| Money and Bank Loans | 731 | ||
| The Long-Term Real Interest Rate | 731 | ||
| Expenditure Plans | 731 | ||
| Change in Aggregate Demand, Real GDP and the Price Level | 732 | ||
| The Bank Fights Recession | 732 | ||
| The Bank Fights Inflation | 734 | ||
| Loose Links and Long and Variable Lags | 735 | ||
| Extraordinary Monetary Stimulus | 738 | ||
| The Key Elements of the Crisis | 738 | ||
| The Policy Actions | 739 | ||
| Economics in the News ECB Monetary Policy | 742 | ||
| Glossary | 749 | ||
| Index | 761 |