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PART Ⅰ INTRODUCTION
CHAPTER 1 TEN PRINCIPLES OF ECONOMICS
How People Make Decisions
Principle #1：People Face Tradeoffs
Principle #2：The Cost of Something Is What You Give Up to Get It
Principle #3：Rational People Think at the Margin
Principle #4：People Respond to Incentives
How People Interact
Principle #5：Trade Can Make Everyone Better Off
Principle #6：Markets Are Usually a Good Way to Organize Economic Activity
Principle #7：Governments Can Sometimes Improve Market Outcomes
How the Economy as a Whole Works
Principle #8：A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services
Principle #9：Prices Rise When the Government Prints Too Much Money
Principle #10：Society Faces a Short-Run Tradeoff between Inflation and Unemployment
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 2 THINKING LIKE AN ECONOMIST
The Economist as Scientist
The Scientific Method：Observation，Theory，and More Observation
The Role of Assumptions
Economic Models
Our First Model：The Circular-Flow Diagram
Our Second Model：The Production Possibilities Frontier
Microeconomics and Macroeconomics
The Economist as Policymaker
Positive versus Normative Analysis
Economists in Washington
Why Economists Disagree
Differences in Scientific Judgments
Differences in Values
Charlatans and Cranks
Perception versus Reality
Let’s Get Going
Summary
Key Concepts
Questions for Review
Problems and Applications
Appendix：Graphing——A Brief Review
Graphs of a Single Variable
Graphs of Two Variables：The Coordinate System
Curves in the Coordinate System
Slope and Elasticity
Cause and Effect
Omitted Variables
Reverse Causality
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE
A Parable for the Modern Economy
Production Possibilities
Specialization and Trade
The Principle of Comparative Advantage
Absolute Advantage
Opportunity Cost and Comparative Advantage
Comparative Advantage and Trade
Applications of Comparative Advantage
Should Michael Jordan Mow His Own Lawn？
Should the United States Trade with Other Countries？
FYI：The Legacy of Adam Smith and David Ricardo
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅱ SUPPLY AND DEMAND Ⅰ：HOW MARKETS WORK
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND
Markets and Competition
Competitive Markets
Competition：Perfect and Otherwise
Demand
The Determinants of Individual Demand
Price
Income
Prices of Related Goods
Tastes
Expectations
The Demand Schedule and the Demand Curve
Ceteris Paribus
Market Demand versus Individual Demand
Shifts in the Demand Curve
CASE STUDY：Two Ways to Reduce the Quantity of Smoking Demanded
Supply
The Determinants of Individual Supply
Price
Input Prices
Technology
Expectations
The Supply Schedule and the Supply Curve
Market Supply versus Individual Supply
Shifts in the Supply Curve
Supply and Demand Together
Equilibrium
Three Steps to Analyzing Changes in Equilibrium
Example：A Change in Demand
Shifts in Curves versus Movements along Curves
Example：A Change in Supply
Example：A Change in Both Supply and Demand
Conclusion：How Prices Allocate Resources
IN THE NEWS：Supply，Demand，and the Price of Paper——Pulp Reality
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 5 ELASTICITY AND ITS APPLICATION
The Elasticity of Demand
The Price Elasticity of Demand and Its Determinants
Necessities versus Luxuries
Availability of Close Substitutes
Definition of the Market
Time Horizon
Computing the Price Elasticity of Demand
FYI：Calculating Elasticities Using the Midpoint Method
The Variety of Demand Curves
Total Revenue and the Price Elasticity of Demand
CASE STUDY：Pricing Admission to a Museum
The Income Elasticity of Demand
FYI：Elasticity and Total Revenue along a Linear Demand Curve
IN THE NEWS：On the Road with Elasticity——For Whom the Booth Tolls，Price Really Does Matter
The Elasticity of Supply
The Price Elasticity of Supply and Its Determinants
Computing the Price Elasticity of Supply
The Variety of Supply Curves
Three Applications of Supply，Demand，and Elasticity
Can Good News for Farming Be Bad News for Farmers？
Why Did OPEC Fail to Keep the Price of Oil High？
Does Drug Interdiction Increase or Decrease Drug-Related Crime？
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 6 SUPPLY，DEMAND，AND GOVERNMENT POLICIES
Controls on Prices
How Price Ceilings Affect Market Outcomes
CASE STUDY：Lines at the Gas Pump
CASE STUDY：Rent Control in the Short Run and Long Run
IN THE NEWS：Rent Control in New York City——Home Free：Some Rich and Famous of New York City Bask in Shelter of Rent Law
How Price Floors Affect Market Outcomes
CASE STUDY：The Minimum Wage
Evaluating Price Controls
Taxes
How Taxes on Buyers Affect Market Outcomes
How Taxes on Sellers Affect Market Outcomes
CASE STUDY：Can Congress Distribute the Burden of a Payroll Tax？
Elasticity and Tax Incidence
CASE STUDY：Who Pays the Luxury Tax？
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅲ SUPPLY AND DEMAND Ⅱ：MARKETS AND WELFARE
CHAPTER 7 CONSUMERS，PRODUCERS，AND THE EFFICIENCY OF MARKETS
Consumer Surplus
Willingness to Pay
Using the Demand Curve to Measure Consumer Surplus
How a Lower Price Raises Consumer Surplus
What Does Consumer Surplus Measure？
Producer Surplus
Cost and the Willingness to Sell
Using the Supply Curve to Measure Producer Surplus
How a Higher Price Raises Producer Surplus
Market Efficiency
The Benevolent Social Planner
FYI：The Invisible Hand of the Marketplace
Evaluating the Market Equilibrium
IN THE NEWS：Ticket Scalping——Tickets？Supply Meets Demand on Sidewalk
Conclusion：Market Efficiency and Market Failure
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 8 APPLICATION：THE COSTS OF TAXATION
The Deadweight Loss of Taxation
How a Tax Affects Market Participants
Welfare without a Tax
Welfare with a Tax
Changes in Welfare
Deadweight Losses and the Gains from Trade
The Determinants of the Deadweight Loss
CASE STUDY：The Deadweight Loss of Taxes on Labor
CASE STUDY：Henry George and the Tax on Land
Deadweight Loss and Tax Revenue as Taxes Vary
CASE STUDY：The Laffer Curve and Supply-Side Economics
Conclusion
IN THE NEWS：Should Ukraine Cut Tax Rates to Raise Tax Revenue？——A Big Tax Cut to Lift the Economy——Not Here，in Ukraine
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 9 APPLICATION：INTERNATIONAL TRADE
The Determinants of Trade
The Equilibrium without Trade
The World Price and Comparative Advantage
FYI：Comparing Prices and Comparative Advantage
The Winners and Losers from Trade
The Gains and Losses of an Exporting Country
The Gains and Losses of an Importing Country
The Effects of a Tariff
The Effects of an Import Quota
The Lessons for Trade Policy
The Arguments for Restricting Trade
The Jobs Argument
The National-Security Argument
The Infant-Industry Argument
IN THE NEWS：NAFTA and Mexican Tomatoes——President Wins Tomato Accord for Floridians：Mexico Agrees to End Low-Price Shipments
The Unfair-Competition Argument
The Protection-as-a-Bargaining-Chip Argument
CASE STUDY：GATT and the Multilateral Approach to Free Trade
IN THE NEWS：A Chicken Invasion——U.S.Chicken in Every Pot？Nyet！ Russians Cry Foul
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅳ THE ECONOMICS OF THE PUBLIC SECTOR
CHAPTER 10 EXTERNALITIES
Externalities and Market Inefficiency
Welfare Economics：A Recap
Negative Externalities in Production
Positive Externalities in Production
CASE STUDY：The Debate over Technology Policy
Externalities in Consumption
Private Solutions to Externalities
The Types of Private Solutions
IN THE NEWS：An Outraged Citizen Speaks Out——Smnokers，Pick Up Your Butts
The Coase Theorem
Why Private Solutions Do Not Always Work
Public Policies toward Externalities
Regulation
Pigovian Taxes and Subsidies
Tradable Pollution Permits
IN THE NEWS：Pollution Permits in Action——Smog Swapping：New Rules Harness Power of Free Markets to Curb Air Pollution
Objections to the Economic Analysis of Pollution
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 11 PUBLIC GOODS AND COMMON RESOURCES
The Different Kinds of Goods
Public Goods
The Free-Rider Problem
Some Important Public Goods
National Defense
Basic Research
Programs to Fight Poverty
CASE STUDY：Are Lighthouses Public Goods？
The Difficult Job of Cost-Benefit Analysis
CASE STUDY：How Much Is a Life Worth？
Common Resources
The Tragedy of the Commons
CASE STUDY：Capitalism，Communism，and Collective Resources
Some Important Common Resources
Clean Air and Water
Oil Pools
Congested Roads
IN THE NEWS：The Singapore Solution——Economics of Road Pricing
Fish，Whales，and Other Wildlife
CASE STUDY：Why the Cow Is Not Extinct
IN THE NEWS：Should Yellowstone Charge as Much as Disney World？——Save the Parks，and Make a Profit
Conclusion：The Importance of Property Rights
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 12 THE DESIGN OF THE TAX SYSTEM
A Financial Overview of the U.S.Government
The Federal Government
Receipts
Spending
State and Local Government
Receipts
Spending
Taxes and Efficiency
Deadweight Losses
CASE STUDY：Should Income or Consumption Be Taxed？
Administrative Burden
IN THE NEWS：Small Business and the Tax Laws——Obeying the Tax Laws：Small Business’s Burden
Marginal Tax Rates versus Average Tax Rates
Lump-Sum Taxes
Taxes and Equity
The Benefits Principle
The Ability-to-Pay Principle
Vertical Equity
CASE STUDY：How the Burden of Taxes Is Distributed
Horizontal Equity
CASE STUDY：Horizontal Equity and the Marriage Tax
Tax Incidence and Tax Equity
CASE STUDY：Who Pays the Corporate Income Tax？
CASE STUDY：The Flat Tax
Conclusion：The Tradeoff between Equity and Efficiency
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅴ FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY
CHAPTER 13 THE COSTS OF PRODUCTION
What Are Costs？
Total Revenue，Total Cost，and Profit
Costs as Opportunity Costs
The Cost of Capital as an Opportunity Cost
Economic Profit versus Accounting Profit
Production and Costs
The Production Function
From the Production Function to the Total-Cost Curve
The Various Measures of Cost
Fixed and Variable Costs
Average and Marginal Cost
Cost Curves and Their Shapes
Rising Marginal Cost
U-Shaped Average Total Cost
The Relationship between Marginal Cost and Average Total Cost
Typical Cost Curves
Costs in the Short Run and in the Long Run
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 14 FIRMS IN COMPETITIVE MARKETS
What Is a Competitive Market？
The Meaning of Competition
The Revenue of a Competitive Firm
Profit Maximization and the Competitive Firm’s Supply Curve
A Simple Example of Profit Maximization
The Marginal-Cost Curve and the Firm’s Supply Decision
The Firm’s Short-Run Decision to Shut Down
CASE STUDY：Near-Empty Restaurants and Off-Season Miniature Golf
FYI：Spilt Milk and Sunk Costs
The Firm’s Long-Run Decision to Exit or Enter an Industry
Measuring Profit in Our Graph for the Competitive Firm
The Supply Curve in a Competitive Market
Market Supply with a Fixed Number of Firms
Market Supply with Entry and Exit
FYI：Why Do Competitive Firms Stay in Business If They Make Zero Profit？
A Shift in Demand in the Short Run and Long Run
Why the Long-Run Supply Curve Might Slope Upward
Conclusion：Behind the Supply Curve
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 15 MONOPOLY
Why Monopolies Arise
Monopoly Resources
CASE STUDY：The DeBeers Diamond Monopoly
Government-Created Monopolies
Natural Monopolies
How Monopolies Make Production and Pricing Decisions
Monopoly versus Competition
A Monopoly’s Revenue
Profit Maximization
FYI：Why a Monopoly Does Not Have a Supply Curve
A Monopoly’s Profit
CASE STUDY：Monopoly Drugs versus Generic Drugs
The Welfare Cost of Monopoly
The Deadweight Loss
The Monopoly’s Profit：A Social Cost？
Public Policy toward Monopolies
Increasing Competition with Antitrust Laws
Regulation
IN THE NEWS：Boeing’s Market Power——Many Airlines Not Worried by Boeing-McDonnell Deal
Public Ownership
Doing Nothing
Price Discrimination
A Parable about Pricing
IN THE NEWS：The Future of Electricity——The End of the Last Great Monopoly
The Moral of the Story
The Analytics of Price Discrimination
Examples of Price Discrimination
Movie Tickets
Airline Prices
Discount Coupons
Financial Aid
Quantity Discounts
IN THE NEWS：Competing to Be the Best Monopolist——Let’s Play Monopoly
Conclusion：The Prevalence of Monopoly
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 16 OLIGOPOLY
Between Monopoly and Perfect Competition
Markets with Only a Few Sellers
A Duopoly Example
Competition，Monopolies，and Cartels
The Equilibrium for an Oligopoly
How the Size of an Oligopoly Affects the Market Outcome
CASE STUDY：OPEC and the World Oil Market
IN THE NEWS：Squabbling in OPEC——OPEC Is Expected to Delay Action on New Oil Output by Iraq
Game Theory and the Economies of Cooperation
The Prisoners’ Dilemma
Oligopolies as a Prisoners’ Dilemma
Other Examples of the Prisoners’ Dilemma
Arms Races
IN THE NEWS：Modern Pirates——Ocean Shippers Break Ranks on Pricing
Advertising
Common Resources
The Prisoners’ Dilemma and the Welfare of Society
Why People Sometimes Cooperate
CASE STUDY：The Prisoners’ Dilemma Tournament
Public Policy toward Oligopolies
Restraint of Trade and the Antitrust Laws
CASE STUDY：An Illegal Phone Call
Controversies over Antitrust Policy
Resale Price Maintenance
IN THE NEWS：Anticompetitive “R” Us？——Toys “R” Us Is Expecting U.S.Charges of Antitrust
Tying
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 17 MONOPOLISTIC COMPETITION
Competition with Differentiated Products
The Monopolistically Competitive Firm in the Short Run
The Long-Run Equilibrium
Monopolistic versus Perfect Competition
Excess Capacity
Markup over Marginal Cost
Monopolistic Competition and the Welfare of Society
FYI：Is Excess Capacity a Social Problem？
Advertising
The Debate over Advertising
The Critique of Advertising
The Defense of Advertising
CASE STUDY：Advertising and the Price of Eyeglasses
Advertising as a Signal of Quality
Brand Names
CASE STUDY：Brand Names under Communism
IN THE NEWS：TV Networks as Brand Names——A TV Season When Image Is Everything
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅵ THE ECONOMICS OF LABOR MARKETS
CHAPTER 18 THE MARKETS FOR THE FACTORS OF PRODUCTION
A Firm’s Demand for Labor
The Competitive Profit-Maximizing Firm
The Production Function and the Marginal Product of Labor
The Value of the Marginal Product and the Demand for Labor
FYI：Input Demand and Output Supply：Two Sides of the Same Coin
Labor-Market Equilibrium
Marginal Productivity in Equilibrium
Shifts in Labor Supply
Shifts in Labor Demand
CASE STUDY：Productivity and Wages
The Other Factors of Production：Land and Capital
Equilibrium in the Markets for Land and Capital
FYI：The Various Forms of Capital Income
Linkages among the Factors of Production
CASE STUDY：The Economics of the Black Death
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 19 EARNINGS AND DISCRIMINATION
Some Determinants of Equilibrium Wages
Compensating Differentials
Human Capital
CASE STUDY：The Increasing Value of Skills
Ability，Effort，and Chance
CASE STUDY：The Benefits of Beauty
An Alternative View of Education：Signaling
CASE STUDY：Human Capital，Natural Ability，and Compulsory School Attendance
The Superstar Phenomenon
The Economics of Discrimination
Measuring Labor-Market Discrimination
Discrimination by Employers
CASE STUDY：Segregated Streetcars and the Profit Motive
Discrimination by Customers and Governments
CASE STUDY：Discrimination in Sports
IN THE NEWS：Men，Women，and Wages——The Shrinking Pay Gap
The Debate over Comparable Worth
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 20 THE DISTRIBUTION OF INCOME
The Measurement of Inequality
U.S.Income Inequality
CASE STUDY：The Women’s Movement and the Income Distribution
CASE STUDY：Income Inequality around the World
The Poverty Rate
Problems in Measuring Inequality
In-Kind Transfers
The Economic Life Cycle
Transitory versus Permanent Income
IN THE NEWS：Is the Poverty Rate Correctly Measured？——Old Flaws Undermine New Poverty-Level Data
Economic Mobility
The Political Philosophy of Redistributing Income
Utilitarianism
Liberalism
Libertarianism
Policies to Reduce Poverty
Minimum-Wage Laws
Welfare
IN THE NEWS：The 1996 Welfare Reform——What Makes the Welfare Bill a Winner
Negative Income Tax
In-Kind Transfers
Antipoverty Programs and Work Incentives
IN THE NEWS：Saving and Welfare——For Welfare Parents，Scrimping Is Legal，but Saving Is Out
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅶ ADVANCED TOPIC
CHAPTER 21 THE THEORY OF CONSUMER CHOICE
The Budget Constraint：What the Consumer Can Afford
Preferences：What the Consumer Wants
Representing Preferences with Indifference Curves
Four Properties of Indifference Curves
Two Extreme Examples of Indifference Curves
Perfect Substitutes
Perfect Complements
FYI：Utility：An Alternative Way to Represent a Consumer’s Preferences
Optimization：What the Consumer Chooses
The Consumer’s Optimal Choices
How Changes in Income Affect the Consumer’s Choices
How Changes in Prices Affect the Consumer’s Choices
Income and Substitution Effects
Deriving the Demand Curve
Four Applications
Do All Demand Curves Slope Downward？
How Do Wages Affect Labor Supply？
CASE STUDY：Income Effects on Labor Supply：Historical Trends，Lottery Winners，and the Carnegie Conjecture
How Do Interest Rates Affect Household Saving？
Do the Poor Prefer to Receive Cash or In-Kind Transfers？
Conclusion：Do People Really Think This Way？
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅷ THE DATA OF MACROECONOMICS
CHAPTER 22 MEASURING A NATION’S INCOME
The Economy’s Income and Expenditure
The Measurement of Gross Domestic Product
“GDP Is the Market Value…”
“…Of All…”
“…Final…”
“…Goods and Services…”
“…Produced…”
“…Within a Country…”
“…In a Given Period of Time.”
FYI：Three Other Measures of Income
The Components of GDP
Real versus Nominal GDP
A Numerical Example
The GDP Deflator
CASE STUDY：Real GDP over Recent History
GDP and Economic Well-Being
CASE STUDY：International Differences in GDP and the Quality of Life
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 23 MEASURING THE COST OF LIVING
The Consumer Price Index
How the Consumer Price Index Is Calculated
FYI：What Is in the CPI’s Basket？
Problems in Measuring the Cost of Living
IN THE NEWS：Shopping for the CPI——Is the CPI Accurate？Ask the Federal Sleuths Who Get the Numbers
IN THE NEWS：The CPI Commission——Prisoners of Faulty Statistics
The GDP Deflator versus the Consumer Price Index
Correcting Economic Variables for the Effects of Inflation
Dollar Figures from Different Times
IN THE NEWS：Mr.Index Goes to Hollywood——Winner and Still Champ
Indexation
Real and Nominal Interest Rates
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅸ THE REAL ECONOMY IN THE LONG RUN
CHAPTER 24 PRODUCTION AND GROWTH
Economic Growth around the World
FYI：The Magic of Compounding and the Rule of 70
Productivity：Its Role and Determinants
Why Productivity Is So Important
How Productivity Is Determined
Physical Capital
Human Capital
Natural Resources
CASE STUDY：Are Natural Resources a Limit to Growth？
IN THE NEWS：Computers and Productivity——What Has the Computer Done for Us Lately？
Technological Knowledge
The Production Function
Economic Growth and Public Policy
The Importance of Saving and Investment
Diminishing Returns and the Catch-Up Effect
Investment from Abroad
Education
IN THE NEWS：The World Bank——World Bank Focusing on Areas Shunned by Western Business
Property Rights and Political Stability
CASE STUDY：What Causes Famine？
Free Trade
IN THE NEWS：The Sachs Solution to the African Problem——Growth in Africa：It Can Be Done
The Control of Population Growth
Research and Development
CASE STUDY：The Productivity Slowdown
Conclusion：The Importance of Long-Run Growth
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 25 SAVING，INVESTMENT，AND THE FINANCIAL SYSTEM
Financial Institutions in the U.S.Economy
Financial Markets
The Bond Market
The Stock Market
Financial Intermediaries
Banks
FYI：How to Read the Newspaper’s Stock Tables
Mutual Funds
Summing Up
Saving and Investment in the National Income Accounts
Some Important Identities
The Meaning of Saving and Investment
The Market for Loanable Funds
Supply and Demand for Loanable Funds
Policy 1：Taxes and Saving
Policy 2：Taxes and Investment
Policy 3：Government Budget Deficits
FYI：Ricardian Equivalence：An Alternative View of Government Budget Deficits
CASE STUDY：Government Debt and Deficits in the United States
Conclusion
IN THE NEWS：The Balanced Budget Amendment—Balanced Budget：Bad Economics
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 26 THE NATURAL RATE OF UNEMPLOYMENT
Identifying Unemployment
How Is Unemployment Measured？
CASE STUDY：Labor-Force Participation of Men and Women in the U.S.Economy
Is Unemployment Measured Correctly？
How Long Are the Unemployed without Work？
Why Is There Unemployment？
Minimum-Wage Laws
IN THE NEWS：The Minimum-Wage Debate——Thesis：Rise in Wages Will Hurt Teenage Group
Unions and Collective Bargaining
The Economics of Unions
Are Unions Good or Bad for the Economy？
IN THE NEWS：The UAW’s Tradeoff——New Approach for Auto Union in Ford Accord——The Deal：No Job Cuts but Less Pay for Some
The Theory of Efficiency Wages
Worker Health
Worker Turnover
Worker Effort
Worker Quality
FYI：The Economics of Asymmetric Information
CASE STUDY：Henry Ford and the Very Generous $5-a-Day Wage
Job Search
The Inevitability of Search Unemployment
Public Policy and Job Search
Unemployment Insurance
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅹ MONEY AND PRICES IN THE LONG RUN
CHAPTER 27 THE MONETARY SYSTEM
The Meaning of Money
The Functions of Money
The Kinds of Money
IN THE NEWS：Money on the Island of Yap——Fixed Assets，or Why a Loan in Yap Is Hard to Roll Over
Money in the U.S.Economy
CASE STUDY：Where Is All the Currency？
FYI：Credit Cards，Debit Cards，and Money
The Federal Reserve
The Fed’s Organization
The Federal Open Market Committee
Banks and the Money Supply
The Simple Case of 100-Percent-Reserve Banking
Money Creation with Fractional-Reserve Banking
The Money Multiplier
The Fed’s Tools of Monetary Control
Open-Market Operations
Reserve Requirements
The Discount Rate
Problems in Controlling the Money Supply
CASE STUDY：Bank Runs and the Money Supply
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 28 INFLATION：ITS CAUSES AND COSTS
The Causes of Inflation
The Level of Prices and the Value of Money
Money Supply，Money Demand，and Monetary Equilibrium
The Effects of a Monetary Injection
A Brief Look at the Adjustment Process
The Classical Dichotomy and Monetary Neutrality
Velocity and the Quantity Equation
CASE STUDY：Money and Prices during Four Hyperinflations
The Inflation Tax
IN THE NEWS：The Hyperinflation in Serbia——Special，Today Only：6 Million Dinars for a Snickers Bar
The Fisher Effect
The Costs of Inflation
A Fall in Purchasing Power？The Inflation Fallacy
Shoeleather Costs
Menu Costs
Relative-Price Variability and the Misallocation of Resources
Inflation-Induced Tax Distortions
Confusion and Inconvenience
A Special Cost of Unexpected Inflation：Arbitrary Redistributions of Wealth
IN THE NEWS：How to Protect Your Savings from Inflation——Inflation Fighters for the Long Term
CASE STUDY：The Wizard of Oz and the Free-Silver Debate
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅺ THE MACROECONOMICS OF OPEN ECONOMIES
CHAPTER 29 OPEN-ECONOMY MACROECONOMICS：BASIC CONCEPTS
The International Flows of Goods and Capital
The Flow of Goods：Exports，Imports，and Net Exports
CASE STUDY：The Increasing Openness of the U.S.Economy
The Flow of Capital：Net Foreign Investment
IN THE NEWS：Capital Flows to Russia——Foreign Buyers Look to Russia：Despite Risks，Investors Coming Up with the Cash
The Equality of Net Exports and Net Foreign Investment
Saving，Investment，and Their Relationship to the International Flows
IN THE NEWS：Flows between the Developing South and the Industrial North——Fantasy Economics
CASE STUDY：Saving，Investment，and Net Foreign Investment of the United States
The Prices for International Transactions：Real and Nominal Exchange Rates
Nominal Exchange Rates
Real Exchange Rates
IN THE NEWS：A Dollar Depreciation and an Export Boom——Weak Dollar Makes U.S.World’s Bargain Bazaar
A First Theory of Exchange-Rate Determination：Purchasing-Power Parity
The Basic Logic of Purchasing-Power Parity
Implications of Purchasing-Power Parity
CASE STUDY：The Nominal Exchange Rate during a Hyperinflation
Limitations of Purchasing-Power Parity
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 30 A MACROECONOMIC THEORY OF THE OPEN ECONOMY
Supply and Demand for Loanable Funds and for Foreign-Currency Exchange
The Market for Loanable Funds
The Market for Foreign-Currency Exchange
FYI：Purchasing-Power Parity as a Special Case
Equilibrium in the Open Economy
Net Foreign Investment：The Link between the Two Markets
Simultaneous Equilibrium in Two Markets
FYI：The Classical Dichotomy Once Again
How Policies and Events Affect an Open Economy
Government Budget Deficits
CASE STUDY：The Twin Deficits in the United States
Trade Policy
Political Instability and Capital Flight
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART Ⅻ SHORT-RUN ECONOMIC FLUCTUATIONS
CHAPTER 31 AGGREGATE DEMAND AND AGGREGATE SUPPLY
Three Key Facts about Economic Fluctuations
Fact 1：Economic Fluctuations Are Irregular and Unpredictable
Fact 2：Most Macroeconomic Quantities Fluctuate Together
Fact 3：As Output Falls，Unemployment Rises
FYI：Okun’s Law
Explaining Short-Run Economic Fluctuations
How the Short Run Differs from the Long Run
The Basic Model of Economic Fluctuations
The Aggregate-Demand Curve
Why the Aggregate-Demand Curve Is Downward Sloping
Pigou’s Wealth Effect
Keynes’s Interest-Rate Effect
Mundell-Fleming’s Exchange-Rate Effect
Summary
Why the Aggregate-Demand Curve Might Shift
The Aggregate-Supply Curve
Why the Aggregate-Supply Curve Is Vertical in the Long Run
Why the Long-Run Aggregate-Supply Curve Might Shift
Why the Aggregate-Supply Curve Is Upward Sloping in the Short Run
The New Classical Misperceptions Theory
The Keynesian Sticky-Wage Theory
The New Keynesian Sticky-Price Theory
Summary
Why the Short-Run Aggregate-Supply Curve Might Shift
Two Causes of Recession
The Effects of a Shift in Aggregate Demand
IN THE NEWS：How Consumers Shift Aggregate Demand——Consumers Get the Credit for Expanding Economy
The Effects of a Shift in Aggregate Supply
CASE STUDY：Oil and the Economy
Conclusion：The Origins of Aggregate Demand and Aggregate Supply
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 32 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
How Monetary Policy Influences Aggregate Demand
The Theory of Liquidity Preference
Money Supply
Money Demand
Equilibrium in the Money Market
The Downward Slope of the Aggregate-Demand Curve
Changes in the Money Supply
Interest-Rate Targets and Fed Policy
How Fiscal Policy Influences Aggregate Demand
Changes in Government Purchases
The Multiplier Effect
FYI：A Formula for the Government-Purchases Multiplier
The Crowding-Out Effect
Changes in Taxes
FYI：How Fiscal Policy Might Affect Aggregate Supply
Using Policy to Stabilize the Economy
The Case for Active Stabilization Policy
CASE STUDY：Keynesians in the White House
The Case against Active Stabilization Policy
IN THE NEWS：The Independence of the Federal Reserve——Don’t Tread on the Fed
Automatic Stabilizers
The Economy in the Long Run and the Short Run
FYI：The Long Run and the Short Run：An Algebraic Explanation
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
CHAPTER 33 THE SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT
The Phillips Curve
Origins of the Phillips Curve
Aggregate Demand，Aggregate Supply，and the Phillips Curve
IN THE NEWS：The Effects of Low Unemployment——Tighter Labor Market Widens Inflation Fears
Shifts in the Phillips Curve：The Role of Expectations
The Long-Run Phillips Curve
Expectations and the Short-Run Phillips Curve
The Natural Experiment for the Natural-Rate Hypothesis
Shifts in the Phillips Curve：The Role of Supply Shocks
The Cost of Reducing Inflation
The Sacrifice Ratio
Rational Expectations and the Possibility of Costless Disinflation
The Volcker Disinflation
The Greenspan Era
IN THE NEWS：Unemployment and Its Natural Rate——Trying to Figure Out How Low Unemployment Can Go
Conclusion
Summary
Key Concepts
Questions for Review
Problems and Applications
PART ⅩⅢ FINAL THOUGHTS
CHAPTER 34 FIVE DEBATES OVER MACROECONOMIC POLICY
Resolved：Monetary and Fiscal Policymakers Should Try to Stabilize the Economy
Pro：Policymakers Should Try to Stabilize the Economy
Con：Policymakers Should Not Try to Stabilize the Economy
Resolved：Monetary Policy Should Be Made by Rule Rather Than by Discretion
Pro：Monetary Policy Should Be Made by Rule
Con：Monetary Policy Should Not Be Made by Rule
Resolved：The Central Bank Should Aim for Zero Inflation
Pro：The Central Bank Should Aim for Zero Inflation
Con：The Central Bank Should Not Aim for Zero Inflation
Resolved：The Government Should Balance Its Budget
Pro：The Government Should Balance Its Budget
Con：The Government Should Not Balance Its Budget
Resolved：The Tax Laws Should Be Reformed to Encourage Saving
Pro：The Tax Laws Should Be Reformed to Encourage Saving
Con：The Tax Laws Should Not Be Reformed to Encourage Saving
Conclusion
Summary
Questions for Review
Problems and Applications
Glossary
Credits
Index
