David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

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15.2 Some facts Annual real output growth (%) I • uK • us I 5 -.----- 4 -+-----.-----1 3 -!--..---I 2 25 20 15 10 0 -1-----L....- ------..._--.._._.._ 1960-73 1974-81 1982-90 1991-08 -1 -+-------------- ----< -2 -+-----' -3 -'----' Annual inflation (%) l• UK • US I 5 0 -+----.--..-----.---.---.--..----.---. '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Figure 15.2 The inflation rate in the UK Source: ONS. 16 14+-----t 12 -+----t 10 -+----_____,, 8 -+----t 6 -+---- 4 2 0 -+----'.___,_--"---r---..___. 1960-73 1974-81 1982-90 1991-08 2009-1 0 Unemployment (%) l• UK • US I 4.0 2.0 Annual output growth (%) 1996-2010 I -+- UK ...,._ US ....- Euro area I 0.0 _,___ ___________,...., ...--
CHAPTER 15 Introduction to macroeconomics The recent recession has temporarily reduced inflationary pressures. But, as we will see in later chapters, the government's recent attempt to offset the recession and save the banking system has hugely increased both government debt and its budget deficit. People worry that, sooner or later, the government will resort to money creation in order to finance its deficit. In Part Four we will need to understand public finances, the role of money creation, and the prospects for future inflation. Figure 15.3 shows yearly fluctuations in output growth for the US, the UK and the eurozone. It confirms that output growth is rarely smooth, and that nobody escaped the crash of 2009 . ., An overview _ _ _ _ _ The economy comprises millions of individual economic units: households, firms and the departments of central and local government. Together, their individual decisions determine the economy's total spending, income and output. The circular flow Initially, we ignore the government and other countries. Table 15. l shows transactions between households and firms. Households own the factors of production (inputs to production). Households rent labour to firms in exchange for wages. Households are also the ultimate owners of firms and get their profits. Capital and land, even if held by firms, are ultimately owned by households. Table 1 S.1 Households Transactions by households and firms Firms Supply factor services to firms Receive factor incomes from firms Buy output of firms Use factors to make output Rent factor services from households Sell output to households The circular flow shows how real resources and financial payments flow between firms and households. Households supply factor services to firms, which use these inputs to make output. The second row shows the corresponding payments. Households earn factor incomes (wages, rents, profits), which are payments by firms for these factor services. The third row shows that households spend their incomes buying the output of firms, giving firms the money to pay for production inputs. Figure 15.4 shows this circular flow between firms and households. The inner loop shows flows of real resources between the two sectors. The outer loop shows the corresponding flows of money in a market economy. A centrally planned economy could arrange the resource transfers on the inner loop without using the outer loop. Figure 15.4 suggests three ways to measure economic activity in an economy: (a) the value of goods and services produced, (b) the level of factor earnings, which represent the value of factor services supplied, or (c) the value of spending on goods and services. All payments are the counterparts of real resources. For the moment, we assume all payments are spent buying real resources. Hence, we get the same estimate of total economic activity whether we use the value of production, the level of factor incomes or spending on goods and services. Factor incomes equal household spending if all income is spent. The value of output equals total spending on goods and services if all goods are sold. The value of output also equals the value of household incomes. 362
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• David Begg, Gianluigi Vernasca,
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Economics 10th Edition David Begg,
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Brief Table of Contents Preface xii
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5 Consumer choice and demand decisi
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PART FOUR Macroeconomics l 5 Introd
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PART FIVE The world economy 28 Inte
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Changes to the tenth edition After
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Guided tour In addition to illustra
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Aiding Understanding Hy the end of
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Rent ceiling in Sweden* More on pri
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13 General vs partial equilibrium:
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26 Growth and competition* Case Neo
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Cl INSTRUCTORS ... Would you like y
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Additional technology to enhance le
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Custom Publishing Solutions • cre
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Acknowledgements for the tenth edit
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Finally, special thanks to the foll
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---.. . - Introduction Economics is
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CHAPTER 1 Economics and the economy
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Learning Outcomes By the end of thi
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CHAPTER 2 Tools of economic analysi
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CHAPTER 3 Demand, supply and the ma
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4.1 The price responsiveness of dem
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4.2 Price, quantity demanded and to
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4.2 Price, quantity demanded and to
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4.4 Short run and long run simultan
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4.6 The effect of income on demand
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4.6 The effect of income on demand
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4.8 Elasticity of supply The elasti
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4.9 Who really pays the tax? S' - G
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Summary What are the effects of the
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Review questions 5 Common fallacies
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5.1 Demand by a single consumer is
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5.1 Demand by a single consumer Ill
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5.1 Demand by a single consumer QF
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5.1 Demand by a single consumer whe
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5.1 Demand by a single consumer How
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5.2 Adjustment to income changes ou
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5.3 Adjustment to price changes and
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5.3 Adjustment to price changes Thi
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5.3 Adjustment to price changes imp
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5.3 Adjustment to price changes Q '
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5.5 Complements and substitutes it
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5.6 Transfers in kind that to the s
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Review questions • The market dem
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Our theory of consumer choice assum
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APPENDIX Consumer choice with measu
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6.2 A firm's accounts A sole trader
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6.2 A firm's accounts Inventories I
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6.2 A firm's accounts Earnings When
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6.4 Corporate finance and corporate
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6.5 The firm's supply decision Tabl
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6.6 Marginal cost and marginal reve
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6. 7 Marginal cost and marginal rev
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Review questions in total cost when
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7.2 Production in the short run: di
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7.2 Production in the short run: di
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7.3 Short-run costs As you can see
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7.3 Short-run costs 60 50 SMC - 40
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7.3 Short-run costs down average co
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7.4 A firm's output decision in the
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7.6 Long-run total, marginal and av
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7. 7 Returns to scale - "O 0 DI ..
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7. 7 Returns to scale Scale economi
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7. 7 Returns to scale Table 7.10 Mi
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--1-----1 7.8 The firm's long-run o
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Summary Summary • This chapter di
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Review questions 8 Suppose that fir
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8.1 Perfect competition Perfect com
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8.2 A perfectly competitive firm's
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8.2 A perfectly competitive firm's
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8.3 Industry supply curves In the s
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8.4 Comparative statics for a compe
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.. 8.6 Profit-maximizing output for
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8.6 Profit-maximizing output for a
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8. 7 Output and price under monopol
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8. 7 Output and price under monopol
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8.8 A monopoly has no supply curve
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8.9 Monopoly and technical change f
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8.10 Natural monopoly 'ti QI 0 :I P
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Review questions • Adding at each
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9 .1 Why market structures differ D
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9 .1 Why market structures differ T
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9.3 Oligopoly and interdependence A
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9.3 Oligopoly and interdependence T
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9.4 Game theory and interdependent
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9.5 Reaction functions demand curve
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9.5 Reaction functions Deriving the
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9.5 Reaction functions Mergers and
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9.5 Reaction functions The Stackelb
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9.7 Strategic entry deterrence Inno
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9.8 Summing up Barriers at the chec
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Review questions Review questions c
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I 0.1 The firm's demand for factors
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10.2 The firm's demand for labour i
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10.3 The industry demand curve for
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10.4 The supply of labour Table 10.
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10.4 The supply of labour A reducti
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10.5 Industry labour market equilib
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10.5 Industry labour market equilib
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10.6 Transfer earnings and economic
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10. 7 Do labour markets clear? Mini
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10. 7 Do labour markets clear? How
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10.8 UK wages and employment Table
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Summary reducing demand for both fa
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Review questions In a graph with th
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APPENDIX Isoquants and the choice o
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11.2 Rentals, interest rates and as
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11.3 Saving, investment and the rea
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11. 5 The supply of capital service
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11.6 Equilibrium and adjustment in
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11.8 Land and rents supply of skill
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11.9 Income distribution in the UK
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Summary of average earnings. As liv
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Review questions the quantity of ca
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12.l Individual attitudes to risk S
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12.2 Insurance and risk Life assura
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12.3 Asymmetric information The uti
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12.3 Asymmetric information Executi
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12.4 Uncertainty and asset returns
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12.5 Portfolio selection We use the
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12.5 Portfolio selection Conversely
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12.6 Efficient asset markets Beta i
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12.6 Efficient asset markets II Beh
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12. 7 More on risk You own a copper
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12.8 E-products 100 80 60 - - - - -
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12.8 E-products If Britain had to s
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Summary Britannica shelved Serious
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Review questions 4 You set up a fir
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Welfa re economics Normative or wel
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CHAPTER 13 Welfare economics Welfar
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Page 373 and 374: CHAPTER 14 Government spending and
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Page 400 and 401: 15.3 An overview Since profits are
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17 .6 The national debt and the def
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17. 7 Foreign trade and income dete
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17. 7 Foreign trade and income dete
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Summary and employment. In Figure 1
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Review questions 2 The government s
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18. 1 Money and its functions The m
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18.2 Modern banking M_o_d_er_n_ha
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18.3 How banks create money How did
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18.4 Financial crises However, ther
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18.4 Financial crises UK bank inter
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18.5 The traditional theory of mone
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18.6 UK money supply after the 2006
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18. 7 The demand for money flow and
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18. 7 The demand for money Table 18
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Review questions • Financial dere
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19.2 Traditional means of monetary
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19 .3 Lender of last resort Second,
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19.4 Equilibrium in financial marke
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19.5 Monetary control However, more
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19.5 Monetary control UK quantitati
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19. 7 The transmission mechanism AD
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19. 7 The transmission mechanism Wh
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19. 7 The transmission mechanism In
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19. 7 The transmission mechanism He
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Review questions • A higher inter
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20.2 The IS-LM model T_he_IS_-_L_
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20.2 The IS-LM model Until 2008 mon
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20.3 The IS-LM model in action Fisc
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20.4 Shocks to money demand Hence,
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20.5 The policy mix IS schedule, IS
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20.6 The effect of future taxes Que
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Summary helped explain positive UK
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Review questions IS-LM diagram, rec
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21. l Inflation and aggregate deman
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21.2 Aggregate supply demand. The A
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21.3 Equilibrium inflation AS0 AS,
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21.3 Equilibrium inflation It was c
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21.4 The labour market and wage beh
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21.6 The adjustment process The eco
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21. 7 Sluggish adjustment to shocks
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21.8 Trade-offs in monetary objecti
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21.8 Trade-offs in monetary objecti
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Review questions • In practice, w
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22. l Money and inflation rises wit
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22.2 Inflation and interest rates N
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22.3 Inflation, money and deficits
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22.4 Inflation, unemployment and ou
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22.5 The costs of inflation find th
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22.5 The costs of inflation You los
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22.6 Controlling inflation Without
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22. 7 The Monetary Policy Committee
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Summary 18 16 14 12 10 8 6 4 2 0 He
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Review questions Money growth (%) I
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23. l The labour market may simply
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23.2 Analysing unemployment The fig
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23.2 Analysing unemployment of an h
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23.3 Explaining changes in unemploy
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23.4 Cyclical fluctuations in unemp
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23.5 The cost of unemployment Count
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23.5 The cost of unemployment in th
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Review questions • Most European
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24.1 The foreign exchange market do
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24.2 Exchange rate regimes ... ii)
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24.3 The balance of payments statis
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24.4 The real exchange rate In row
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24.6 The financial account Table 24
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24.6 The financial account This sec
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24. 7 Internal and external balance
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24.8 The long-run equilibrium real
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Summary This figure is helpful in t
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Review questions Review questions c
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25. l Fixed exchange rates So far,
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25. l Fixed exchange rates Gordon B
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25. l Fixed exchange rates A shock
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25.3 Devaluation 1 .., Devaluation
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25.3 Devaluation Table 25.1 The 196
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25.4 Floating exchange rates UK. Af
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25.5 Monetary and fiscal policy und
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25.5 Monetary and fiscal policy und
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Summary Summary • With a fixed ex
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Review questions 11 The following t
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26. 1 Economic growth Table 26.1 Re
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26.2 Growth: an overview In the lon
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26.3 Technical knowledge Learning b
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26.4 Growth and accumulation increa
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26.5 Growth through technical progr
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26.6 Growth in the OECD II : e!p ;:
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26.6 Growth in the OECD Within the
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26.6 Growth in the OECD Annual real
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26.8 The costs of growth rate g? If
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Review questions • Potential outp
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2 7 .1 Trend and cycle: statistics
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27.2 Theories of the business cycle
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27.2 Theories of the business cycle
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.. 27.2 Theories of the business cy
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27 .3 Real business cycles provides
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27.4 Towards a consensus: supply-si
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27.5 An international business cycl
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Review questions • Some swings in
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The world economy Part Five focuses
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CHAPTER 28 International trade Is t
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CHAPTER 28 International trade Tabl
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CHAPTER 28 International trade The
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CHAPTER 28 International trade Comp
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CHAPTER 28 International trade Conv
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CHAPTER 28 International trade Fanc
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CHAPTER 28 International trade The
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CHAPTER 28 International trade High
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CHAPTER 28 International trade thei
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CHAPTER 28 International trade Of c
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CHAPTER 28 International trade Conc
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CHAPTER 28 International trade SS
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CHAPTER 28 International trade 7 Wh
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CHAPTER 29 Exchange rate regimes Ta
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CHAPTER 29 Exchange rate regimes co
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CHAPTER 29 Exchange rate regimes re
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CHAPTER 29 Exchange rate regimes 0.
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CHAPTER 29 Exchange rate regimes It
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CHAPTER 29 Exchange rate regimes Ta
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CHAPTER 29 Exchange rate regimes 0
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CHAPTER 29 Exchange rate regimes th
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CHAPTER 29 Exchange rate regimes
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Activity 1.1 (a) (b) Activity 2.1 (
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Answers to activity questions Activ
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Answers to activity questions Activ
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Absolute advantage an individual, c
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Glossary Demand for money a demand
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Glossary Gross domestic product (GD
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Glossary Marginal product the margi
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Glossary Percentage change the abso
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Glossary Sole trader a business own
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A absolute advantage 11-12 internat
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Index commodity composition of trad
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Index elasticity of supply 82-4 ele
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Index happiness 594 new products 59
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Index Laffer curve supply-side econ
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Index exports 369 foreign countries
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Index reading diagrams 34-5 real bu
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Index future taxes effect 475-7 gov
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David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

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