Macroeconomics (1)

Recommendations

Info

EU17:FranceGermanyItalySpainEuro area, 2010Output: $12.2 trillionPopulation: 331.3 millionOutput per person: $36,800Share of world output: 19.6%2010Output Population($ trillions) (millions)2.53.32.01.462.081.060.046.0Outputper Person$41,000$40,600$34,058$30,600FinlandEstoniaIrelandTheNetherlandsBelgiumGermanyLuxembourgFranceItalyAustriaSlovakiaPortugalSpainSloveniaGreeceMaltaCyprusFigure 1-5The Euro areaChapter 1 A Tour of the World 11
Most economists believe, however, that the source of the problem is not macroeconomicpolicy, but labor market institutions. Too tight a monetary policy, they concede,can indeed lead to high unemployment for some time, but surely not for 20 years. Thefact that unemployment has been so high for so long points to problems in the labormarket. The challenge is then to identify exactly what these problems are.Some economists believe the main problem is that European states protect workerstoo much. To prevent workers from losing their jobs, they make it expensive for firms to layoff workers. One of the unintended results of this policy is to deter firms from hiring workersin the first place, and this increases unemployment. To protect workers who becomeunemployed, European governments provide generous unemployment insurance. But,by doing so, they decrease the incentives for the unemployed to look for jobs; this alsoincreases unemployment. The solution, they argue, is to be less protective, to eliminatethese labor market rigidities, and to adopt U.S.-style labor-market institutions. This is whatthe United Kingdom has largely done, and, until the crisis, its unemployment rate was low.Others are more skeptical. They point to the fact that, before the crisis, unemploymentwas not high everywhere in Europe. It was low in a number of smaller countries—forexample, the Netherlands or Denmark, where the unemployment rate was under 4%. Yetthese countries are very different from the United States and provide generous social insuranceto workers. This suggests that the problem may lie not so much with the degree ofprotection but with the way it is implemented. The challenge, these economists argue, is tounderstand what the Netherlands or Denmark have done right. Resolving these questionsis one of the major tasks facing European macroeconomists and policy makers today.What Has the Euro Done for Its Members?Supporters of the euro point first to its enormous symbolic importance. In light of themany past wars among European countries, what better proof of the permanent end tomilitary conflict than the adoption of a common currency? They also point to the economicadvantages of having a common currency: no more changes in the relative priceof currencies for European firms to worry about, no more need to change currencieswhen crossing borders. Together with the removal of other obstacles to trade amongEuropean countries, the euro contributes, they argue, to the creation of a large economicpower in the world. There is little question that the move to the euro was indeedone of the main economic events of the start of the twenty-first century.Others worry, however, that the symbolism of the euro may come with substantialeconomic costs. They point out that a common currency means a common monetarypolicy, which means the same interest rate across the euro countries. What if, they argue,one country plunges into recession while another is in the middle of an economicboom? The first country needs lower interest rates to increase spending and output;the second country needs higher interest rates to slow down its economy. If interestrates have to be the same in both countries, what will happen? Isn’t there the risk thatone country will remain in recession for a long time or that the other will not be able toslow down its booming economy?Until recently, the debate was somewhat abstract. It no longer is. A number of euromembers, from Ireland, to Portugal, to Greece, are going through deep recessions. Ifthey had their own currency, they likely would have decreased their interest rate or depreciatedtheir currency vis à vis other euro members to increase the demand for theirexports. Because they share a currency with their neighbors, this is not possible. Thus,some economists argue that they should drop out of the euro. Others argue that suchan exit would be both unwise, as it would give up on the other advantages of being inthe euro, and extremely disruptive, leading to even deeper problems for the countrythat has exited. This issue is likely to remain a hot one for some time to come.12 Introduction The Core
Page 2 and 3: Flexible OrganizationMacroeconomics
Page 4 and 5: Sixth EditionMACROECONOMICSOlivier
Page 6 and 7: To Noelle and Susan
Page 8 and 9: Brief ContentsTHE COREIntroduction
Page 10 and 11: Chapter 5Goods and Financial Market
Page 12 and 13: EXTENSIONSExpectations 289Chapter 1
Page 14 and 15: Uncertainty Lead Policy Makers to D
Page 16 and 17: PrefaceWe had two main goals in wri
Page 18 and 19: We have also removed Chapter 9 of t
Page 20 and 21: Krugman, Antoine Magnier, Peter Mon
Page 22 and 23: ■ Monica Robayo, University of No
Page 24 and 25: IntroductionThe first two chapters
Page 26 and 27: A Tour of the WorldWhat is macroeco
Page 28 and 29: 1.6Figure 1-1Index, equal to 1.0 in
Page 30 and 31: Figure 1-3The United StatesThe Unit
Page 32 and 33: for most of the decade led to stron
Page 36 and 37: 1-4 ChinaChina is in the news every
Page 38 and 39: countries, widespread corruption an
Page 40 and 41: data series on the unemployment rat
Page 42 and 43: A Tour of the BookThe words output,
Page 44 and 45: production of cars, we do not want
Page 46 and 47: ■The problem in constructing real
Page 48 and 49: Real GDP, Technological Progress, a
Page 50 and 51: Percent1098765Figure 2-3U.S. unempl
Page 52 and 53: 2-3 The Inflation RateInflation is
Page 54 and 55: Take, for example, the workers’ r
Page 56 and 57: Change in inflation rate (percentag
Page 58 and 59: IntroductionA tour of the world (Ch
Page 60 and 61: Key Termsnational income and produc
Page 62 and 63: b. The unemployment rate is series
Page 64 and 65: The Short RunIn the short run, dema
Page 66 and 67: The Goods MarketWhen economists thi
Page 68 and 69: Table 3-1 The Composition of U.S. G
Page 70 and 71: It is often useful to be more speci
Page 72 and 73: what would happen.” The approach
Page 74 and 75: Using a GraphLet’s characterize t
Page 76 and 77: ■ This first-round increase in de
Page 78 and 79: The Lehman Bankruptcy, Fears of Ano
Page 80 and 81: Let’s start by looking at saving.
Page 82 and 83: The Paradox of SavingAs we grow up,
Page 84 and 85:
Questions and ProblemsQUICK CHECKAl
Page 86 and 87:
Financial MarketsBarely a day goes
Page 88 and 89:
Semantic Traps: Money, Income, and
Page 90 and 91:
Who Holds U.S. Currency?According t
Page 92 and 93:
Figure 4-3The Effects of an Increas
Page 94 and 95:
AssetsBondsBalance SheetLiabilities
Page 96 and 97:
bank. In the real world, money incl
Page 98 and 99:
Bank Runs, Deposit Insurance, and W
Page 100 and 101:
Equation (4.4) shows the first comp
Page 102 and 103:
nominal income. A higher interest r
Page 104 and 105:
The purpose of what follows is to h
Page 106 and 107:
d. Suppose that the interest rate i
Page 108 and 109:
Goods and FinancialMarkets: The IS-
Page 110 and 111:
Equation (5.1) states that investme
Page 112 and 113:
Equilibrium in the goods market is
Page 114 and 115:
The notion of a “real” demand f
Page 116 and 117:
5-3 Putting the IS and the LM Relat
Page 118 and 119:
Figure 5-7The Effects of an Increas
Page 120 and 121:
Deficit Reduction: Good or Bad for
Page 122 and 123:
Focus: The U.S. Recession of 2001In
Page 124 and 125:
point A, at the intersection of the
Page 126 and 127:
Percentage change in retail sales1.
Page 128 and 129:
contraction and monetary expansion
Page 130 and 131:
quarterly versions of Table 1.1.1,
Page 132 and 133:
The Medium RunIn the medium run, th
Page 134 and 135:
The Labor MarketThink about what ha
Page 136 and 137:
In the same way, a given unemployme
Page 138 and 139:
Some of the people classified as
Page 140 and 141:
Unemployment rate (percent)10.09.08
Page 142 and 143:
Henry Ford and Efficiency WagesIn 1
Page 144 and 145:
For example, in some union contract
Page 146 and 147:
assumption, wage setting and price
Page 148 and 149:
Figure 6-7Unemployment Benefitsand
Page 150 and 151:
Using equation (6.7) and the relati
Page 152 and 153:
Page 154 and 155:
b. Explain the pattern of the unemp
Page 156 and 157:
Putting All MarketsTogether: The AS
Page 158 and 159:
The price level P depends on the ex
Page 160 and 161:
Equilibrium in the goods market req
Page 162 and 163:
Output Y is an increasing function
Page 164 and 165:
AS0Figure 7-6AS9The Adjustment of O
Page 166 and 167:
We can actually pin down the exact
Page 168 and 169:
How Long Lasting Are the Real Effec
Page 170 and 171:
Deficit Reduction, Output, and the
Page 172 and 173:
Disagreements among economists abou
Page 174 and 175:
real wage is lower. The natural une
Page 176 and 177:
Oil Price Increases: Why Were the 2
Page 178 and 179:
Table 7-1 Short-Run Effects and Med
Page 180 and 181:
believe the economy adjusts quickly
Page 182 and 183:
c. Graph the AS relation from part
Page 184 and 185:
The Phillips Curve,the Natural Rate
Page 186 and 187:
This captures the notion that the h
Page 188 and 189:
8Figure 8-2Inflation rate (percent)
Page 190 and 191:
Let’s look at the argument in the
Page 192 and 193:
The Phillips Curve and the Natural
Page 194 and 195:
The Neutrality of Money, RevisitedI
Page 196 and 197:
What Explains European Unemployment
Page 198 and 199:
Changes in the U.S. Natural Rate of
Page 200 and 201:
peaking at 10.8% in the month of De
Page 202 and 203:
relation between the change in infl
Page 204 and 205:
e. Compute the values of the unempl
Page 206 and 207:
The CrisisWhen, in late 2006, U.S.
Page 208 and 209:
for borrowers. Judging from the pas
Page 210 and 211:
kept them on their own balance shee
Page 212 and 213:
Percent5432Figure 9-3The Ted Spread
Page 214 and 215:
Initial Policy ResponsesThe high co
Page 216 and 217:
Figure 9-7M d M SM S 9 M S 0Money D
Page 218 and 219:
Figure 9-9ISThe IS-LM Model and the
Page 220 and 221:
Japan, the Liquidity Trap, and Fisc
Page 222 and 223:
Price level, PADABASAS9AS0Figure 9-
Page 224 and 225:
Summary■ The trigger of the crisi
Page 226 and 227:
and 45. Call the securitized assets
Page 228 and 229:
The Long RunThe next four chapters
Page 230 and 231:
The Facts of GrowthOur perceptions
Page 232 and 233:
© 1988 by Dana Fradon/The New York
Page 234 and 235:
in the United States is in fact equ
Page 236 and 237:
The figure contains a lot of inform
Page 238 and 239:
precisely why they made it to the c
Page 240 and 241:
standard of living between 1960 and
Page 242 and 243:
computers, production will further
Page 244 and 245:
■level of output. Let me state th
Page 246 and 247:
5. Between 1950 and 1973, France, G
Page 248 and 249:
SSaving, CapitalAccumulation,and Ou
Page 250 and 251:
■— The labor force is equal to
Page 252 and 253:
Expanding the term 11 - d2K t >N to
Page 254 and 255:
Characterizing the evolution of cap
Page 256 and 257:
Output per worker, Y/NY 1/NY 0/NDep
Page 258 and 259:
saving rate, s 0 , the economy move
Page 260 and 261:
Social Security, Saving, and Capita
Page 262 and 263:
Start with equation (11.7). In stea
Page 264 and 265:
per worker is highest at the beginn
Page 266 and 267:
countries, however, primary educati
Page 268 and 269:
■ The steady-state level of capit
Page 270 and 271:
APPENDIX: The Cobb-Douglas Producti
Page 272 and 273:
Technological Progressand GrowthThe
Page 274 and 275:
■ Technological progress increase
Page 276 and 277:
■Replacing output per effective w
Page 278 and 279:
Table 12-1 The Characteristics of B
Page 280 and 281:
activities. Industrial R&D expendit
Page 282 and 283:
The nature of the research process
Page 284 and 285:
and 12-2: As suggested by the theor
Page 286 and 287:
Summary■ When we think about the
Page 288 and 289:
a. What does the quantity g Y - g N
Page 290 and 291:
Technological Progress:The Short, t
Page 292 and 293:
decrease in the demand for output.
Page 294 and 295:
Annual growth rate (percent)86420Ou
Page 296 and 297:
The only difference between this eq
Page 298 and 299:
3.6Figure 13-5Average annual labor
Page 300 and 301:
are introduced, requiring new skill
Page 302 and 303:
The Increase in Wage InequalityFor
Page 304 and 305:
low-wage workers does not further d
Page 306 and 307:
What is behind Chinese Growth?From
Page 308 and 309:
Summary■ People often fear that t
Page 310 and 311:
do your answers suggest about the s
Page 312 and 313:
ExpectationsThe next four chapters
Page 314 and 315:
Expectations:The Basic ToolsThe con
Page 316 and 317:
Definition ofthe real rate:Thisyear
Page 318 and 319:
Percent14121086420Nominal rateReal
Page 320 and 321:
14-2 Nominal and Real Interest Rate
Page 322 and 323:
Figure 14-3LMEquilibrium Output and
Page 324 and 325:
Now, because inflation is equal to
Page 326 and 327:
Nominal Interest Rates and Inflatio
Page 328 and 329:
machine involves a cost today. On t
Page 330 and 331:
Using Present Values: ExamplesEquat
Page 332 and 333:
case: namely interest rates in term
Page 334 and 335:
withdrawn at retirement. (In the Un
Page 336 and 337:
Financial Marketsand ExpectationsOu
Page 338 and 339:
The Vocabulary of Bond MarketsUnder
Page 340 and 341:
Year t1-year bonds $12-year bonds $
Page 342 and 343:
Interpreting the Yield CurveThe rel
Page 344 and 345:
expansion, leading to a downward sh
Page 346 and 347:
Index (1970 5 1.0)4.54.03.53.02.52.
Page 348 and 349:
The stock price is the present valu
Page 350 and 351:
The answer depends on what particip
Page 352 and 353:
Making (Some) Sense of (Apparent) N
Page 354 and 355:
Famous Bubbles: From Tulipmania in
Page 356 and 357:
factors led to an increase in deman
Page 358 and 359:
b. Show the yield curve just after
Page 360 and 361:
Expectations,Consumption,and Invest
Page 362 and 363:
Up Close and Personal: Learning fro
Page 364 and 365:
Your second reaction may be that wh
Page 366 and 367:
Retirement?”) But some consumers,
Page 368 and 369:
DepreciationTo compute the present
Page 370 and 371:
Investment and the Stock MarketSupp
Page 372 and 373:
Change in the ratio of investment t
Page 374 and 375:
Let’s write this more formally. I
Page 376 and 377:
We can tell the same story in terms
Page 378 and 379:
depreciate by 8% per year. It will
Page 380 and 381:
IExpectations, Output,and Policyn C
Page 382 and 383:
To do so, let’s make a major simp
Page 384 and 385:
increase consumption, but by much l
Page 386 and 387:
ISFigure 17-3The New IS-LMCurrent i
Page 388 and 389:
The Liquidity Trap, Quantitative Ea
Page 390 and 391:
Rational ExpectationsMost macroecon
Page 392 and 393:
be in equilibrium in a closed econo
Page 394 and 395:
Now turn to the period 1986 to 1989
Page 396 and 397:
Summary■ Spending in the goods ma
Page 398 and 399:
The following table provides budget
Page 400 and 401:
The Open EconomyThe next four chapt
Page 402 and 403:
Openness in Goods andFinancial Mark
Page 404 and 405:
20Figure 18-216Imports/GDPU.S. Expo
Page 406 and 407:
■As the price of the foreign curr
Page 408 and 409:
Price of U.S.goods indollars: PPric
Page 410 and 411:
■The large fluctuations in the no
Page 412 and 413:
exporters selling their foreign cur
Page 414 and 415:
deficits of all the countries in th
Page 416 and 417:
the same expected rate of return. I
Page 418 and 419:
Percent2016128U.K. interest rateFig
Page 420 and 421:
foreign exchange, 388balance of pay
Page 422 and 423:
The Goods Marketin an Open EconomyI
Page 424 and 425:
affect spending. We want to take th
Page 426 and 427:
imports, IM>P. Because the quantity
Page 428 and 429:
A9ZZ9Figure 19-3The Effects of an I
Page 430 and 431:
Figure 19-4(a). The equilibrium is
Page 432 and 433:
The G20 and the 2009 Fiscal Stimulu
Page 434 and 435:
and output increases from Y to Y. B
Page 436 and 437:
19-5 Looking at Dynamics: The J-Cur
Page 438 and 439:
19-6 Saving, Investment, and theCur
Page 440 and 441:
These tax cuts, initially aimed at
Page 442 and 443:
Summary■ In an open economy, the
Page 444 and 445:
spending by the same amount. What i
Page 446 and 447:
Output, the Interest Rate,and the E
Page 448 and 449:
■to a decrease in the real exchan
Page 450 and 451:
Sudden Stops, Safe Havens, and the
Page 452 and 453:
At an unchanged current exchange ra
Page 454 and 455:
Interest rate, ii(a) (b)Figure 20-2
Page 456 and 457:
(a)LM9(b)Figure 20-4The Effects of
Page 458 and 459:
growth of spending in the 1980s was
Page 460 and 461:
This condition has one further impo
Page 462 and 463:
However, under fixed exchange rates
Page 464 and 465:
c. Using your answers to parts (a)
Page 466 and 467:
rate. The central bank holds more d
Page 468 and 469:
Exchange Rate RegimesIn July 1944,
Page 470 and 471:
the medium run, the economy reaches
Page 472 and 473:
The price level, P, depends on the
Page 474 and 475:
That the devaluation of the “righ
Page 476 and 477:
In Chapter 18, we interpreted this
Page 478 and 479:
United Kingdom suspended their part
Page 480 and 481:
the relation between real interest
Page 482 and 483:
21-4 Choosing between Exchange Rate
Page 484 and 485:
The Euro: A Short History■ As the
Page 486 and 487:
Lessons from Argentina’s Currency
Page 488 and 489:
Page 490 and 491:
interest rate, as compared to your
Page 492 and 493:
Reorganizing terms:E t P* t + e1 P
Page 494 and 495:
Back to PolicyNearly every chapter
Page 496 and 497:
Should Policy MakersBe Restrained?A
Page 498 and 499:
lead to a decrease in unemployment
Page 500 and 501:
Should Uncertainty Lead Policy Make
Page 502 and 503:
Hostage Takings and NegotiationsMos
Page 504 and 505:
Average annual inflation rate (perc
Page 506 and 507:
Games between Policy Makers and Vot
Page 508 and 509:
through an increase in taxes; the o
Page 510 and 511:
7Ratio of budget deficit to GDP (pe
Page 512 and 513:
Summary■ The effects of macroecon
Page 514 and 515:
c. What will the Republicans do? Wh
Page 516 and 517:
Fiscal Policy:A Summing UpAt the ti
Page 518 and 519:
In deriving these conclusions, we d
Page 520 and 521:
Using the definition of the deficit
Page 522 and 523:
Reorganizing and bringing 1G t - T
Page 524 and 525:
How Countries Decreased Their Debt
Page 526 and 527:
offsetting increase in taxes next y
Page 528 and 529:
Deficits, Consumption, and Investme
Page 530 and 531:
The U.S. Budget Deficit ChallengeSo
Page 532 and 533:
500Figure 23-2Yield spread over Ger
Page 534 and 535:
In words: We can think of seignorag
Page 536 and 537:
Summary■ The government budget co
Page 538 and 539:
a. Using your favorite spreadsheet
Page 540 and 541:
Monetary Policy:A Summing UpThe cri
Page 542 and 543:
■ In Chapter 5 we looked at the s
Page 544 and 545:
■ Because you are selling your ho
Page 546 and 547:
proceeds. But if the bonds are boug
Page 548 and 549:
this approach and raises the questi
Page 550 and 551:
The Unsuccessful Search for the Rig
Page 552 and 553:
2. Like all other macroeconomic rel
Page 554 and 555:
whether economies can avoid falling
Page 556 and 557:
the loan borrowers can take relativ
Page 558 and 559:
At this stage, some countries have
Page 560 and 561:
a. Define the variable r* as r* = i
Page 562 and 563:
Epilogue: The Story ofMacroeconomic
Page 564 and 565:
The neoclassical synthesis was to r
Page 566 and 567:
part of the neoclassical synthesis.
Page 568 and 569:
likely to be much faster. Changes i
Page 570 and 571:
25-4 Developments in Macroeconomics
Page 572 and 573:
New Growth TheoryAfter being one of
Page 574 and 575:
price below its fundamental value,
Page 576 and 577:
Measurement,” Federal Reserve Ban
Page 578 and 579:
AppendicesAPPENDIX 1 An Introductio
Page 580 and 581:
Table A1-2 From National Income to
Page 582 and 583:
The reason for using the fiscal yea
Page 584 and 585:
APPENDIX 2 A Math RefresherThis app
Page 586 and 587:
where the first equality follows fr
Page 588 and 589:
growth rate may be higher in some d
Page 590 and 591:
Figure A3-2Changes in Consumptionan
Page 592 and 593:
income may reflect the effect of di
Page 594 and 595:
GlossaryAAA, BBB Different credit r
Page 596 and 597:
discount rate (i) The interest rate
Page 598 and 599:
imports (Q) The purchases of foreig
Page 600 and 601:
nonhuman wealth The financial andho
Page 602 and 603:
short run A period of time extendin
Page 604 and 605:
IndexAAAA (triple A) rating, 189Abo
Page 606 and 607:
Endogenous growth, 244Endogenous va
Page 608 and 609:
equilibrium, 73-81exchange rates an
Page 610 and 611:
Paradox of saving, 59Parameters, 47
Page 612 and 613:
United Kingdomdebt ratios after WWI
Page 614 and 615:
CreditsChapter 2p. 23: Data Source:
Page 616 and 617:
University of Chicago Press. Reprin
Page 618 and 619:
The Pearson Series in EconomicsAbel
Page 620 and 621:
This page intentionally left blank
Page 622:
Symbol Term Introduced in ChapterL
show all

Macroeconomics (1)

Create successful ePaper yourself

Delete template?

Save as template?