Campbell R McConnell,
University of Nebraska, Emeritus Stanley L Brue,
Pacific Lutheran University
ISBN: 0072875577 Copyright year: 2005
Table of Contents
PART ONE An Introduction to Economics and the Economy
To the Student
CHAPTER 1: The Nature and Method of Economics The Economic Perspective Scarcity and Choice / Rational Behavior / Marginalism: Benefits and Costs Consider This: Free for All? Why Study Economics? Economics for Citizenship / Professional and Personal Applications Economic Methodology Theoretical Economics / Policy Economics Macroeconomics and Microeconomics Macroeconomics / Microeconomics / Positive and Normative Economics Pitfalls to Sound Reasoning Biases / Loaded Terminology / Definitions / Fallacy of Composition / Causation Fallacies A Look Ahead Last Word: Fast-Food Lines: An Economic Perspective Appendix Chapter 1: Graphs and Their Meaning Construction of a Graph / Direct and Inverse Relationships / Dependent and Independent Variables / Other Things Equal / Slope of a Line / Vertical Intercept / Equation of a Linear Relationship / Slope of a Nonlinear Curve
CHAPTER 2: The Economizing Problem The Foundation of Economics Unlimited Wants / Scarce Resources Economics: Employment and Efficiency Full Employment: Using Available Resources / Full Production: Using Resources Efficiently / Production Possibilities Table / Production Possibilities Curve / Law of Increasing Opportunity Cost / Allocative Efficiency Revisited Unemployment, Growth, and the Future Unemployment and Productive Inefficiency / A Growing Economy / A Qualification: International Trade / Examples and Applications Consider This: A Matter of Degrees: Is College Worth the Cost? Economic Systems The Market System / The Command System The Circular Flow Model Last Word: September 11, 2001, and the War on Terrorism
CHAPTER 3: Individual Markets: Demand and Supply Markets Demand Law of Demand / The Demand Curve / Market Demand / Change in Demand / Changes in Quantity Demanded Supply Law of Supply / The Supply Curve / Determinants of Supply / Changes in Supply / Changes in Quantity Supplied Supply and Demand: Market Equilibrium Surpluses / Shortages / Equilibrium Price and Quantity / Rationing Function of Prices / Changes in Supply, Demand, and Equilibrium / A Reminder: "Other Things Equal" Consider This: The Cutting Edge Application: Government-Set Prices Price Ceilings and Shortages / Price Floors and Surpluses Last Word: Ticket Scalping: A Bum Rap?
CHAPTER 3Web: Applications and Extensions of Supply and Demand Analysis
(Web Chapter, www.mcconnell16.com) Changes in Supply and Demand Lettuce / American Flags / Pink Salmon / Gasoline / Sushi Preset Prices Olympic Figure Skating Finals / Olympic Curling Preliminaries Consider This: Taking Back a "Gift" Nonpriced Goods:The American Bison Consumer and Producer Surplus Consumer Surplus / Producer Surplus / Efficiency Revisited / Efficiency Losses Last Word: Efficiency Gains from Generic Drugs
CHAPTER 4: The Market System Characteristics of the Market System Private Property / Freedom of Enterprise and Choice / Self- Interest / Competition / Markets and Prices / Reliance on Technology and Capital Goods / Specialization / Use of Money / Active, but Limited, Government The Market System at Work What Will Be Produced? / How Will the Goods and Services Be Produced? / Who Will Get the Goods and Services? / How Will the System Accommodate Change? Consider This: McHits and McMisses Competition and the "Invisible Hand" Last Word: Shuffling the Deck
CHAPTER 5: The U.S. Economy: Private and Public Sectors Households as Income Receivers The Functional Distribution of Income / The Personal Distribution of Income Households as Spenders Personal Taxes / Personal Saving / Personal Consumption Expenditures The Business Population Legal Forms of Businesses Advantages and Disadvantages / The Principal-Agent Problem The Public Sector: Government's Role Providing the Legal Structure / Maintaining Competition / Redistributing Income / Reallocating Resources / Promoting Stability / Government's Role: A Qualification Consider This: Street Entertainers The Circular Flow Revisited Government Finance Government Purchases and Transfers Federal Finance Federal Expenditures / Federal Tax Revenues State and Local Finance State Finances / Local Finances / Fiscal Federalism Last Word: The Financing of Corporations
CHAPTER 6: The United States in the Global Economy International Linkages The United States and World Trade Volume and Pattern / Rapid Trade Growth / Participants in International Trade Specialization and Comparative Advantage
Basic Principle / Comparative Costs / Terms of Trade / Gains from Specialization and Trade The Foreign Exchange Market Dollar-Yen Market / Changing Rates: Depreciation and Appreciation Consider This: A Ticket to Ride Government and Trade Trade Impediments and Subsidies / Why Government Trade Interventions? / Costs to Society Multilateral Trade Agreements and Free-Trade Zones Reciprocal Trade Agreements Act / General Agreement on Tariffs and Trade / World Trade Organization / The European Union / North American Free Trade Agreement Global Competition Last Word: Petition of the Candlemakers, 1845
PART TWO Macroeconomic Measurement and Basic Concepts
CHAPTER 7: Measuring Domestic Output and National Income Assessing the Economy's Performance Gross Domestic Product A Monetary Measure / Avoiding Multiple Counting / GDP Excludes Nonproduction Transactions / Two Ways of Looking at GDP: Spending and Income The Expenditures Approach Personal Consumption Expenditures (C) / Gross Private Domestic Investment (Ig) / Government Purchases (G) / Net Exports (Xn) / Putting It All Together:GDP = C + Ig + G + Xn Consider This: Stock Answers about Flows The Income Approach Compensation of Employees / Rents / Interest / Proprietors' Income / Corporate Profits / From National Income to GDP Other National Accounts Net Domestic Product / National Income / Personal Income / Disposable Income / The Circular Flow Revisited Nominal GDP versus Real GDP Adjustment Process in a One-Product Economy / An Alternative Method / Real-World Considerations and Data Shortcomings of GDP Nonmarket Activities / Leisure / Improved Product Quality / The Underground Economy / GDP and the Environment / Composition and Distribution of Output / Noneconomic Sources of Well-Being Last Word: Feeding the GDP Accounts
CHAPTER 8: Introduction to Economic Growth and Instability Economic Growth Growth as a Goal / Arithmetic of Growth / Main Sources of Growth / Growth in the United States / Relative Growth Rates The Business Cycle Phases of the Business Cycle / Causation: A First Glance / Cyclical Impact: Durables and Nondurables Unemployment Measurement of Unemployment / Types of Unemployment / Definition of Full Employment / Economic Cost of Unemployment / Noneconomic Costs / International Comparisons Inflation Meaning of Inflation / Measurement of Inflation / Facts of Inflation / Types of Inflation / Complexities Consider This: Clipping Coins Redistribution Effects of Inflation Who Is Hurt by Inflation? / Who Is Unaffected or Helped by Inflation? / Anticipated Inflation / Addenda Effects of Inflation on Output Cost-Push Inflation and Real Output / Demand-Pull Inflation and Real Output / Hyperinflation and Breakdown Last Word: The Stock Market and the Economy
CHAPTER 9: Basic Macroeconomic Relationships The Income-Consumption and Income-Saving Relationships The Consumption Schedule / The Saving Schedule / Average and Marginal Propensities / Nonincome Determinants of Consumption and Saving / Terminology, Shifts, and Stability Consider This: What Wealth Effect? The Interest-Rate–Investment Relationship Expected Rate of Return / The Real Interest Rate / Investment Demand Curve / Shifts of the Investment Demand Curve / Instability of Investment The Multiplier Effect Rationale / The Multiplier and the Marginal Propensities / How Large Is the Actual Multiplier Effect? Last Word: Squaring the Economic Circle
PART THREE Macroeconomic Models and Fiscal Policy
CHAPTER 10: The Aggregate Expenditures Model Simplifications Consumption and Investment Schedules Equilibrium GDP: C + Ig = GDP Tabular Analysis / Graphical Analysis Other Features of Equilibrium GDP Saving Equals Planned Investment / No Unplanned Changes in Inventories Changes in Equilibrium GDP and the Multiplier Adding International Trade Net Exports and Aggregate Expenditures / The Net Export Schedule / Net Exports and Equilibrium GDP / International Economic Linkages Adding the Public Sector Government Purchases and Equilibrium GDP / Taxation and Equilibrium GDP Equilibrium versus Full-Employment GDP Recessionary Gap / Application:The U.S. Recession of 2001 / Inflationary Gap / Application: U.S. Inflation in the Late 1980s Limitations of the Model Last Word: Say's Law, the Great Depression, and Keynes
CHAPTER 11: Aggregate Demand and Aggregate Supply Aggregate Demand Aggregate Demand Curve / Determinants of Aggregate Demand Aggregate Supply Aggregate Supply in the Long Run / Aggregate Supply in the Short Run / Determinants of Aggregate Supply Equilibrium and Changes in Equilibrium Increases in AD: Demand-Pull Inflation / Decreases in AD: Recession and Cyclical Unemployment / Decreases in AS: Cost-Push Inflation / Increases in AS: Full Employment with Price-Level Stability Consider This: Ratchet Effect Last Word: Why Is Unemployment in Europe So High? Appendix Chapter 11: The Relationship of the Aggregate Demand Curve to the Aggregate Expenditures Model Deriving the Aggregate Demand Curve from the Aggregate Expenditures Model / Aggregate Demand Shifts and the Aggregate Expenditures Model
CHAPTER 12: Fiscal Policy Legislative Mandates Fiscal Policy and the AD-AS Model Expansionary Fiscal Policy / Contractionary Fiscal Policy / Financing of Deficits and Disposing of Surpluses / Policy Options: G or T Built-In Stability Automatic or Built-In Stabilizers Evaluating Fiscal Policy Full-Employment Budget / Recent U.S. Fiscal Policy Problems, Criticisms, and Complications Problems of Timing / Political Considerations / Future Policy Reversals / Offsetting State and Local Finance / Crowding-Out Effect / Fiscal Policy in the Open Economy Last Word: The Leading Indicators Current Thinking on Fiscal Policy
PART FOUR Money, Banking, and Monetary Policy
CHAPTER 13: Money and Banking The Functions of Money The Supply of Money Money Definition M1 / Money Definition M2 / Money Definition M3 Consider This: Are Credit Cards Money? What "Backs" the Money Supply? Money as Debt / Value of Money / Money and Prices / Stabilization of Money's Value The Demand for Money Transactions Demand, Dt / Asset Demand, Da / Total Money Demand, Dm The Money Market Adjustment to a Decline in the Money Supply / Adjustment to an Increase in the Money Supply The Federal Reserve and the Banking System Historical Background / Board of Governors / FOMC / The 12 Federal Reserve Banks / Commercial Banks and Thrifts / Fed Functions and the Money Supply / Federal Reserve Independence Recent Developments in Money and Banking The Relative Decline of Banks and Thrifts / Consolidation among Banks and Thrifts / Convergence of Services Provided by Financial Institutions / Globalization of Financial Markets / Electronic Transactions Last Word: The Global Greenback
CHAPTER 14: How Banks and Thrifts Create Money The Balance Sheet of a Commercial Bank Prologue:The Goldsmiths A Single Commercial Bank Formation of a Commercial Bank / Money-Creating Transactions of a Commercial Bank / Profits, Liquidity, and the Federal Funds Market The Banking System: Multiple-Deposit Expansion The Banking System's Lending Potential / The Monetary Multiplier / Some Modifications / Need for Monetary Control Last Word: The Bank Panics of 1930 to 1933
CHAPTER 15: Monetary Policy Consolidated Balance Sheet of the Federal Reserve Banks Assets / Liabilities Tools of Monetary Policy Open-Market Operations / The Reserve Ratio / The Discount Rate / Easy Money and Tight Money / Relative Importance Monetary Policy, Real GDP, and the Price Level Cause-Effect Chain / Effects of an Easy Money Policy / Effects of a Tight Money Policy Monetary Policy in Action The Focus on the Federal Funds Rate / Recent Monetary Policy / Problems and Complications / "Artful Management" or "Inflation Targeting"? / Monetary Policy and the International Economy Consider This: Pushing on a String The "Big Picture" Last Word: For the Fed, Life Is a Metaphor
PART FIVE Long-Run Perspectives and Macroeconomic Debates
CHAPTER 16: Extending the Analysis of Aggregate Supply From Short Run to Long Run Short-Run Aggregate Supply / Long-Run Aggregate Supply / Equilibrium in the Extended AD-AS Model Applying the Extended AD-AS Model Demand-Pull Inflation in the Extended AD-AS Model / Cost- Push Inflation in the Extended AD-AS Model / Recession and the Extended AD-AS Model The Inflation-Unemployment Relationship The Phillips Curve / Aggregate Supply Shocks and the Phillips Curve The Long-Run Phillips Curve Short-Run Phillips Curve / Long-Run Vertical Phillips Curve / Disinflation Taxation and Aggregate Supply Taxes and Incentives to Work / Incentives to Save and Invest / The Laffer Curve / Criticisms of the Laffer Curve / Rebuttal and Evaluation Consider This: Sherwood Forest Last Word: Has the Impact of Oil Prices Diminished?
CHAPTER 17: Economic Growth Ingredients of Growth Supply Factors / Demand Factor / Efficiency Factor Production Possibilities Analysis Growth and Production Possibilities / Labor and Productivity / Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Labor Inputs versus Productivity / Technological Advance / Quantity of Capital / Education and Training / Economies of Scale and Resource Allocation / Other Factors Consider This: Economic Growth Rates Matter! The Productivity Acceleration: A New Economy? Reasons for the Productivity Acceleration / Macroeconomic Implications / Skepticism about Permanence / What Can We Conclude? Is Growth Desirable and Sustainable? The Antigrowth View / In Defense of Economic Growth Last Word: Women and Economic Growth
CHAPTER 18: Deficits, Surpluses, and the Public Debt Deficits, Surpluses, and Debt: Definitions Budget Philosophies Annually Balanced Budget / Cyclically Balanced Budget / Functional Finance The Public Debt: Facts and Figures Causes / Quantitative Aspects / Social Security Considerations False Concerns Bankruptcy / Burdening Future Generations Substantive Issues Income Distribution / Incentives / Foreign-Owned Public Debt/ Crowding Out and the Stock of Capital Deficits and Surpluses: 1992–2012 From Deficits to Surpluses / What to Do with the Surpluses? / Back to Deficits in 2002 / The Tax Cuts of 2003 Last Word: The Long-Run Fiscal Imbalance: Social Security
CHAPTER 19: Disputes over Macro Theory and Policy Some History: Classical Economics and Keynes The Classical View / The Keynesian View What Causes Macro Instability? Mainstream View / Monetarist View / Real-Business-Cycle View / Coordination Failures Does the Economy "Self-Correct"? New Classical View of Self-Correction / Mainstream View of Self-Correction Rules or Discretion? In Support of Policy Rules / In Defense of Discretionary Stabilization Policy / Increased Macro Stability Consider This: On the Road Again Summary of Alternative Views Last Word: The Taylor Rule: Could a Robot Replace Alan Greenspan?
PART SIX International Economics and the World Economy
CHAPTER 20: International Trade Some Key Facts The Economic Basis for Trade Comparative Advantage: Graphical Analysis Two Isolated Nations / Specializing Based on Comparative Advantage / Terms of Trade / Gains from Trade / Trade with Increasing Costs / The Case for Free Trade Supply and Demand Analysis of Exports and Imports Supply and Demand in the United States / Supply and Demand in Canada / Equilibrium World Price, Exports, and Imports Trade Barriers Economic Impact of Tariffs / Economic Impact of Quotas / Net Costs of Tariffs and Quotas / Impact on Income Distribution The Case for Protection: A Critical Review Military Self-Sufficiency Argument / Increased Domestic Employment Argument / Diversification-for-Stability Argument / Infant Industry Argument / Protection-against-Dumping Argument / Cheap Foreign Labor Argument / A Summing Up Consider This: Shooting Yourself in the Foot Last Word: The WTO Protests The World Trade Organization
CHAPTER 21: Exchange Rates, the Balance of Payments, and Trade Deficits Financing International Trade U.S. Export Transaction / U.S. Import Transaction The Balance of Payments Current Account / Capital Account / Official Reserves Account / Payments, Deficits, and Surpluses Flexible Exchange Rates Depreciation and Appreciation / Determinants of Exchange Rates / Flexible Rates and the Balance of Payments / Disadvantages of Flexible Exchange Rates Consider This: The Big Mac Index Fixed Exchange Rates Use of Reserves / Trade Policies / Exchange Controls and Rationing / Domestic Macroeconomic Adjustments International Exchange-Rate Systems The Gold Standard: Fixed Exchange Rates / The Bretton Woods System / The Current System:The Managed Float Recent U.S.Trade Deficits Causes of the Trade Deficits / Implications of U.S.Trade Deficits Last Word: Speculation in Currency Markets
CHAPTER 22Web: The Economics of Developing Countries
(Web Chapter, www.mcconnell16.com) The Rich and the Poor Classifications / Comparisons / Growth, Decline, and Income Gaps / The Human Realities of Poverty Obstacles to Economic Development Natural Resources / Human Resources / Capital Accumulation / Technological Advance / Sociocultural and Institutional Factors The Vicious Circle Role of Government A Positive Role / Public Sector Problems Role of Advanced Nations Expanding Trade / Foreign Aid: Public Loans and Grants / Flows of Private Capital Where from Here? DVC Policies for Promoting Growth / IAC Policies for Fostering DVC Growth Last Word: Famine in Africa
CHAPTER 23Web: Transition Economies: Russia and China
(Web Chapter, www.mcconnell16.com) Ideology and Institutions State Ownership and Central Planning Planning Goals and Techniques Problems with Central Planning The Coordination Problem / The Incentive Problem Collapse of the Soviet Economy Declining Growth / Poor Product Quality / Lack of Consumer Goods / Large Military Burden / Agricultural Drag The Russian Transition to a Market System Privatization / Price Reform / Promotion of Competition / Making the Ruble Fully Convertible / Price-Level Stabilization / Other Major Problems / Recent Revival Market Reforms in China Agricultural and Rural Reform / Reform of Urban Industries / Special Economic Zones / Development of Supporting Institutions / Transformation of the SOEs Outcomes and Prospects Positive Outcomes of Reform / Problems Conclusion Last Word: Police Smash Down Smirnov's Doors
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2005 McGraw-Hill Higher Education