ROGER A. ARNOLD - GBV · Part 2 Macroeconomic Fundamentals Chapter 6 Macroeconomic Measurements,...

ROGER A. ARNOLDCalifornia State University

s Marcoe

* o SOUTH-WESTERNac CENGAGE Learning"

A u s t r a l i a • B r a z i l • C a n a d a • M e x i c o • S i n g a p o r e • S p a i n • U n i t e d K i n g d o m • U n i t e d S t a t e s

BRIEF CONTENTS

[~AN INTRODUCTION TO ECONOMICS

Part 1 Economics: The Science of Scarcity

Chapter 1 What Economics Is About 1

Appendix A Working with Diagrams 23

Appendix B Should You Major in Economics? 32

Chapter 2 Production Possibilities Frontier Framework 40

Chapter 3 Supply and Demand: Theory 55

Chapter 4 Prices: Free, Controlled, and Relative 85 v.

Chapter 5 Supply, Demand, and Price: Applications 100

^MACROECONOMICT

Part 2 Macroeconomic Fundamentals

Chapter 6 Macroeconomic Measurements, Part I: Prices andUnemployment 117

Chapter 7 Macroeconomic Measurements, Part II: GDP andReal GDP 132

Part 3 Macroeconimic Stability,

Instability, and Fiscal Policy

Chapter 8 Aggregate Demand and Aggregate Supply 152

Chapter 9 Classical Macroeconomics and the Self-RegulatingEconomy 182

Chapter 10 Keynesian Macroeconomics and Economic Instability:A Critique of the Self-Regulating Economy 204

Chapter 11 Fiscal Policy and the Federal Budget 232

Part 4 Money, The Economy, and

Monetary Policy

Chapter 12 Money, Banking, and the Financial System 252

Chapter 13 The Federal Reserve System 269

Appendix C The Market for Reserves (or the Federal FundsMarket) 285

Chapter 14 Money and the Economy 289

Chapter 15 Monetary Policy 314

Appendix D Bond Prices and the Interest Rate 332

Part 5 Expectations and Growth

Chapter 16 Expectations Theory and the Economy 335Chapter 17 Economic Growth: Resources, Technology, Ideas,

and Institutions 358

Part 6 The Financial Crisis of 2007-2009

Chapter 18 The Financial Crisis of 2007-2009 375

Part 7 Government and the Economy

- Chapter 19 Debates in Macroeconomics Over the Role andEffects of Government 396

Part 8 Public Choice and Special-lnterest-Group

Politics

Chapter 20 Public Choice and Special-lnterest-Group Politics 410

| THE GLOBAL ECONOMYPart 9 International Economics and

Globalization

Chapter 21 International Trade 430

Chapter 22 International Finance 448

Chapter 23 Globalization and International Impacts on theEconomy 477

PRACTICAL ECONOMICSPart 10 Financial Matters

Chapter 24 Stocks, Bonds, Futures, and Options 504

|_WEB CHAPTER

Part 11 Web Chapter

Chapter 25 Agriculture: Problems, Policies, and UnintendedEffects

Self-Test Appendix 523

Glossary 536

Index 547

CONTENTS

INTRODUCTION TO ECONOMICS

PART 1 ECONOMICS: THE SCIENCE OF SCARCITY

economics 24/7J.

HOURSISm'ii B'Aetm flat'

U (CaMijfttirm ike M

CHAPTER 1: WHAT ECONOMICS IS ABOUT 1

A Definition of Economics 1Goods and Bads 1 Resources 2 Scarcity and a Definition of Economics 2

Key Concepts in Economics 5Opportunity Cost 5 Opportunity Cost and Behavior 5 Benefits and Costs 6 DecisionsMade at the Margin 6 Efficiency 8 Economics Is About Incentives 10 UnintendedEffects 10 Exchange 12

The Market and Government 12

Ceteris Paribus and Theory 13Ceteris Paribus Thinking 13 What Is a Theory? 14

Economic Categories 17

Positive and Normative Economics 17 Microeconomics and Macroeconomics 17

Chapter Summary 20 ;

Key Terms and Concepts 21

Questions and Problems 21

APPENDIX A: WORKING WITH DIAGRAMS 23

Two-Variable Diagrams 23

Slope of a Line 24

Slope of a Line is Constant 25

Slope of a Curve 25

The 45-Degree Line 27

Pie Charts 27

Bar Graphs 28

Line Graphs 28

Appendix Summary 30


APPENDIX B: SHOULD YOU MAJOR IN ECONOMICS? 32

Five Myths About Economics and Being an Economics Major 33

What Awaits You as an Economics Major? 36

What Do Economists Do? 37

Places to Find More Information 39

Concluding Remarks 39

VII

VIII LUINIbNIi

uni IOC

» ,'lfti? /W

i .wr §a

CHAPTER 2: PRODUCTION POSSIBILITIES FRONTIERFRAMEWORK 40

The Production Possibilities Frontier 40The Straight-Line PPF: Constant Opportunity Costs 40 The Bowed-Outward (Concave-Downward) PPF: Increasing Opportunity Costs 41 Law of Increasing OpportunityCosts 42 Economic Concepts in a PPF Framework 43

Specialization and Trade Can Move Us Beyond Our PPF 48A Simple Two-Person PPF Model 48On or Beyond the PPF? 51

Chapter Summary 52 -



Working with Numbers and Graphs 54

r ©G HuuRS

CHAPTER 3: SUPPLY AND DEMAND:THEORY 55 :

What Is Demand? 55The Law of Demand 56 Four Ways to Represent the Law of Demand 56 Why DoesQuantity Demanded Go Down as Price Goes Up? 57 Individual Demand Curve andMarket Demand Curve 58 A Change in Quantity Demanded Versus a Change inDemand 59 What Factors Cause the Demand Curve to Shift? 61 MovementFactors and Shift Factors 64

Supply 65The Law of Supply 66 Why Most Supply Curves Are Upward Sloping 66 Changesin Supply Mean Shifts in Supply Curves 68 What Factors Cause the Supply Curve toShift? 68 A Change in Supply Versus a Change in Quantity Supplied 69

The Market: Putting Supply and Demand Together 70Supply and Demand at Work at an Auction 71 The Language of Supply and Demand:A Few Important Terms 71 Moving to Equilibrium: What Happens to Price WhenThere Is a Surplus or a Shortage? 72 Speed of Moving to Equilibrium 73 Movingto Equilibrium: Maximum and Minimum Prices 73 Equilibrium in Terms ofConsumers' and Producers' Surplus 75 What Can Change Equilibrium Price andQuantity? 76

Chapter Summary 82




CHAPTER 4: PRICES: FREE, CONTROLLED, ANDRELATIVE 85

Price 85Price as a Rationing Device 85 Price as a Transmitter of Information 86

Price Controls 87Price Ceiling 87 Price Floor: Definition and Effects 89

Two Prices: Absolute and Relative 94Absolute (Money) Price and Relative Price 94 Taxes on Specific Goods and Relative PriceChanges 96

ni Iiuu

IDC

{S>,\,w«««'<ft5 " W

Chapter Summary 98




Uni i p r

CHAPTER 5: SUPPLY, DEMAND, AND PRICE:APPLICATIONS 100

Application 1: Why Is It So Hard to Get Tickets to the Taping of The Big BangTheory 100

Application 2: Government, Easier Loans, and Housing Prices 102

Application 3: Southwest Airlines and the Price of an Aisle Seat 102

Application 4: Why Is Medical Care So Expensive? 103

Application 5: Why Do Colleges Use GPAs, ACTs, and SATs for Purposes ofAdmission? 106

Application 6 : Supply and Demand on a Freeway 106

Application 7: Are Renters Better Off? 108

Application 8: Do You Pay for Good Weather? 109

Application 9: College Superathletes 110

Application 10: 10 a.m. Classes in College 112

Application 11: What Will Happen to the Price of Marijuana If the Purchase and Sale ofMarijuana Are Legalized? 113

Chapter Summary 115 \



MACROECONOMICS

PART 2 MACROECONOMIC FUNDAMENTALS

economics'24/7{

:'Wm^Ali§$§ D23

D2S

©IflHCi HOURS

CHAPTER 6: MACROECONOMIC MEASUREMENTS,PART I: PRICES AND UNEMPLOYMENT 117

Measuring the Price Level 117Computing the Price Level Using the CPI 117 Inflation and the CPI 119 GDP ImplicitPrice Deflator 120 Converting Dollars from One Year to Another 121

Measuring Unemployment 123Who Are the Unemployed? 123 The Unemployment and EmploymentRates 124 Common Misconceptions About the Unemployment and EmploymentRates 125 Reasons for Unemployment 125 Discouraged Workers 126 Types ofUnemployment 126 The Natural Unemployment Rate and Full Employment 127Cyclical Unemployment 127

Chapter Summary 130




I .UI1 I l_IN I J

economics 24/7111990

IkmrnmU DSJB

MS

uni IDC

iKti) J

CHAPTER 7: MACROECONOMIC MEASUREMENTS, PART II:GDP AND REAL GDP 132

Gross Domestic Product 132Calculating GDP 132 Final Goods and Intermediate Goods 133 What GDP Omits 133GDP Is Not Adjusted for Bads Generated in the Production of Goods 135 Per CapitaGDP 135 Is Either GDP or Per-Capita GDP a Measure of Happiness or Well-Being? 136

The Expenditure Approach to Computing GDP for a Real-World Economy 136Computing GDP Using the Expenditure Approach 137 Common Misconceptions aboutIncreases in GDP 138

The Income Approach to Computing GDP for a Real-World Economy 139Computing NationaTIncome 140' From National Income to GDP: Making SomeAdjustments 142 Other National Income Accounting Measurements 144 Net DomesticProduct 144 Personal Income 144 Disposable Income 144

Real GDP 145Why We Need Real GDP 145 Computing Real GDP 145 The General Equationfor Real GDP 146 What Does It Mean If Real GDP Is Higher in One Year Than inAnother? 146 Real GDP, Economic Growth, and Business Cycles 146

Chapter Summary 150Key Terms and Concepts 150



PART 3 MACROECONIMIC STABILITY, INSTABILITY, ANDFISCAL POLICY

CHAPTER 8: AGGREGATE DEMAND AND AGGREGATESUPPLY 152

[EtfYrTg U<~'l I D C

A Way to View the Economy 152

i Aggregate Demand 153Why Does the Aggregate Demand Curve Slope Downward? 154 An Important Word on theThree Effects 155 A Change in Quantity Demanded of Real GDP Versus a Change in AggregateDemand 155 Changes in Aggregate Demand: Shifts in die AD Curve 157 How SpendingComponents Affect Aggregate Demand 158 Why Is There More Total Spending? 159 FactorsThat Can Change C, /, G, zndNX(EX- IM) and Therefore Can Change AD (Shift the ADCurve) 160 Can a Change in the Money Supply Change Aggregate Demand? 164 IfConsumption Rises, Does Some Other Spending Component Have to Decline? 164

Short-Run Aggregate Supply 166Short-Run Aggregate Supply Curve: What It Is and Why It Is Upward Sloping 166What Puts the "Short Run" in the SRAS Curve? 168 Changes in Short-RunAggregate Supply: Shifts in the SRAS Curve 168 Something More to Come: Peoples'Expectations 171

Putting AD and SRAS Together: Short-Run Equilibrium 171How Short-Run Equilibrium in the Economy Is Achieved 171 Thinking in Terms ofShort-Run Equilibrium Changes in the Economy 172 An Important Exhibit 174

Long-Run Aggregate Supply 175Going from the Short Run to the Long Run 175Short-Run Equilibrium, Long-Run Equilibrium, and Disequilibrium 176

LUNItNIb XI

Chapter Summary 178




economicsT24/7i

D90

HuuRS

;!i"am Whiti lik' Ms

CHAPTER 9: CLASSICAL MACROECONOMICS AND THESELF-REGULATING ECONOMY 182

The Classical View 182Classical Economists and Say's Law 182 Classical Economists and Interest RateFlexibility 183 Classical Economists on Prices and Wages: Both Are Flexible 185

Three States of the Economy 185Real GDP and Natural Real GDP: Three Possibilities 185 The Labor Market and the ThreeStates of the Economy 187 Common Misconceptions About the Unemployment Rate and theNatural Unemployment Rate 188

The Self-Regulating Economy 191What Happens If a Self-Regulating Economy Is in a Recessionary Gap? 191 WhatHappens If the Economy Is in an Inflationary Gap? 193 The Self-Regulating Economy: ARecap 194 Policy Implication of Believing the Economy Is Self-Regulating 194 Changesin a Self-Regulating Economy: Short Run and Long Run 195 A Recap of ClassicalMacroeconomics and a Self-Regulating Economy 196 Business-Cycle Macroeconomics andEconomic-Growth Macroeconomics 197

Chapter Summary 200




econorhics-24/7!

(WflCi HOURS

CHAPTER 10: KEYNESIAN MACROECONOMICS ANDECONOMIC INSTABILITY: A CRITIQUE OFTHE SELF-REGULATING ECONOMY 204

Questioning the Classical Position and the Self-Regulating Economy 204Keynes's Criticism of Say's Law in a Money Economy 205 Keynes on WageRates 206 Different Markets, Different Rates of Adjustment 206 Keynes on Prices 208Is It a Question of the Time It Takes for Wages and Prices to Adjust? 210

The Simple Keynesian Model 212Assumptions 212 The Consumption Function 212 Consumption and Saving 214 TheMultiplier 215 The Multiplier and Reality 216

The Simple Keynesian Model in the AD-AS Framework 217Shirts in the Aggregate Demand Curve 218 The Keynesian Aggregate SupplyCurve 218 The Economy in a Recessionary Gap 219 Government's Role in theEconomy 220 The Theme of the Simple Keynesian Model 220

The Simple Keynesian Model in the TE TP Framework 221Deriving a Total Expenditures (TE) Curve 222 What Will Shift the TE Curve? 223Comparing Total Expenditures (TE) and Total Production (TP) 223 Moving fromDisequilibrium to Equilibrium 224 The Economy in a Recessionary Gap and the Role ofGovernment 226 Equilibrium in die Economy 226 The Theme of the Simple KeynesianModel 227

Chapter Summary 229




CHAPTER 11: FISCAL POLICY AND THE FEDERAL BUDGET 232'

The Federal Budget 232Government Expenditures 232 Government Tax Revenues 233 BudgetProjections 233 Budget Deficit, Surplus, or Balance 235 Structural and CyclicalDeficits 236 The Public Debt 236 Valued-Added Tax 237

Fiscal Policy 239Some Relevant Fiscal Policy Terms 239 Two Important Notes 239

Demand-Side Fiscal Policy 240Shifting the Aggregate Demand Curve 240 Fiscal Policy: Keynesian Perspective (Economy IsNot Self-Regulating) 240 Crowding Out: Questioning Expansionary Fiscal Policy 241Lags and Fiscal Policy "243, Crowding Out, Lags, and the Effectiveness of Fiscal Policy 245

Supply-Side Fiscal Policy 245Marginal Tax Rates and Aggregate Supply 245 The Laffer Curve: Tax Rates and TaxRevenues 246 Fiscal Policy and Expectations 248

Chapter Summary 250




PART 4 MONEY, THE ECONOMY, AND MONETARY POLICY

eco nom j'cs|24)©§i|

a&o

HuuRS

Wtb

CHAPTER 12: MONEY, BANKING, AND THEFINANCIAL SYSTEM 252

Money: What Is It and How Did It Come to Be? 252Money: A Definition 252 Three Functions of Money 252 From a Barter to a MoneyEconomy: The Origins of Money 253 Money, Leisure, and Output 254

Defining the Money Supply 256Ml 256 Money Is More Than Currency 256 M2 257 Where Do Credit Cards Fit In? 258

How Banking Developed 258The Early Bankers 258The Bank's Reserves and More 260

The Financial System 261Direct and Indirect Finance 261 Adverse Selection and Moral Hazard Problems 261A Thought Experiment: No Financial Intermediaries 262 The Bank's Balance Sheet 263A Bank's Business: Turning Liabilities into Assets 263

Chapter Summary 267




CHAPTER 13: THE FEDERAL RESERVE SYSTEM 269

The Structure and Functions of the Federal Reserve System (the Fed) 269The Structure of the Fed 269 Functions of the Fed 270Common Misconceptions About the U.S. Treasury and the Fed 273

CUNIbNFb XIII

The Money Supply Expansion Process 274A Quick Review of Reserves, Required Reserves, and Excess Reserves 274 The Money SupplyExpansion Process 274 The Money Supply Contraction Process 277

Other Fed Tools and Recent Fed Actions 278The Required Reserve Ratio 279 The Discount Window and the Federal Funds Market 279The Fed and the Federal Funds Rate Target 280 Dealing with a Financial Crisis 280

Chapter Summary 283




APPENDIX C: THE, MARKET FOR RESERVES (OR THEFEDERAL FUNDS MARKET) 285

The Demand for Reserves 285

The Supply of Reserves 286

Two Different Supply Curves for Reserves 286

The Corridor and Changing the Federal Funds Rate 287

CHAPTER 14: HOMEY AND THE ECONOMY 289

econ o rh ioMA '

luur

Money and the Price Level 289The Equation of Exchange 289 From the Equation of Exchange to the SimpleQuantity Theory of Money 290 The Simple Quantity Theory of Money in an AD-ASFramework 292 Dropping the Assumptions that Kand Q Are Constant 294

Monetarism 295The Four Monetarist Positions 295 Monetarism and AD-AS 296 The Monetarist View ofthe Economy 298

Inflation 298One-Shot Inflation 299 Continued Inflation 301

Money and Interest Rates 305What Economic Variables Does a Change in the Money Supply Affect? 305 The MoneySupply, the Loanable Funds Market, and Interest Rates 306 What Happens to the InterestRate as the Money Supply Changes? 309 The Nominal and Real Interest Rates 309

Chapter Summary 312




CHAPTER 15: MONETARY POLICY 314

economrcsP4OTl

883

SS3

INmsf 833

Transmission Mechanisms 314The Money Market in the Keynesian Transmission Mechanism 314 The KeynesianTransmission Mechanism: Indirect 315 The Keynesian Mechanism May GetBlocked 316 The Monetarist Transmission Mechanism: Direct 319

Monetary Policy and the Problem of Inflationary and Recessionary Gaps 320

Monetary Policy and the Activist-Nonactivist Debate 322The Case for Activist (or Discretionary) Monetary Policy 323 The Case for Nonactivist (orRules-Based) Monetary Policy 323

XIV CONItNIb

I fSY^nri?(? uni inrNonactivist Monetary Proposals 326

Constant-Money-Growth-Rate Rule 326 Predetermined-Money-Growth-RateRule 327 The Fed and the Taylor Rule 327 Inflation Targeting 328

Chapter Summary 330




APPENDIX D: BOND PRICES AND THE INTEREST RATE 332

Appendix Summary 334


PART 5 EXPECTATIONS AND GROWTH

econorhiics'24/7fSi

860

/ •

V

mm*OmA*

m«£)| ( .U

? uni iI nuuRSwgi

CHAPTER 16: EXPECTATIONS THEORY AND THEECONOMY 335

economics"24/7M|L s L ; ' 1 3 > f ^

S&3

Phillips Curve Analysis 335The Phillips Curve 335 Samuelson and Solow: The Americanization of the PhillipsCurve 336

The Controversy Begins: Are There Really Two Phillips Curves? 336Things Aren't Always as We Think 336 Friedman and the Natural Rate Theory 337How Do People Form Their Expectations? 340

Rational Expectations and New Classical Theory 341Rational Expectations 341 Do People Really Anticipate Policy? 341 Price LevelExpectations and the SRAS Curve 342 Expected and Actual Price Levels 343 New ClassicalEconomics and Four Different Cases 344 Comparing Exhibits 9 and 10 350

New Keynesians and Rational Expectations 351

Looking at Things from the Supply Side: Real Business Cycle Theorists 352

Chapter Summary 354




CHAPTER 17: ECONOMIC GROWTH: RESOURCES,TECHNOLOGY, IDEAS, ANDINSTITUTIONS 358

A Few Basics About Economic Growth 358Do Economic Growth Rates Matter? 358

A Production Function and Economic Growth 360The Graphical Representation of the Production Function 360 From the Production Functionto the LRAS Curve 362 Emphasis on Labor 362 Emphasis on Capital 364 Emphasison Other Resources: Natural Resources and Human Capital 366 Emphasis on dieTechnology Coefficient and Ideas 366 Discovery and Ideas 367 Expanding OurHorizons 367 Institutions Matter 368

LUINI t N I b X V

HOURSChapter Summary 373




PART 6 THE FINANCIAL CRISIS OF 2007-2009

CHAPTER 18: THE FINANCIAL CRISIS OF 2007-2009 375

HOURS

Recent Economic Events"v375

The Financial Crisis as a Balance Sheet Problem 376Which Assets Were Risky? 377 Three Questions 378

The Fed, Interest Rates, and Housing Prices 379The Global Savings Glut and Low Interest Rates 379 Our Story So Far 380

The Taylor Rule and Interest Rates 381Alan Greenspan Responds 382 Rising House Prices, Delinquency Rates, andForeclosures 383

The Politics of Housing 384The Community Reinvestment Act 384

Fannie Mae and Freddie Mac 384 \

The Role of Leverage and Regulatory Capital Arbitrage 385Leverage 385 Regulatory Capital Arbitrage 386Where We Are So Far 389 House Prices Decline 389 Domino Effects 390 How the RealSector Affects the Financial Sector 390 The Government Response 391

Chapter Summary 392




PART 7 GOVERNMENT AND THE ECONOMY

economics"24/7S'

HOURS

CHAPTER 19: DEBATES IN MACROECONOMICS OVER THEROLE AND EFFECTS OF GOVERNMENT 396

Macroeconomics and Government: The Debate 396

Tax Cuts, Tax Revenue, and Budget Deficits 397

The Economy: Self-Regulating or Not? 398

More Government Spending or a Cut in Taxes: Which Gives a Bigger Bang for theBuck? 398

More Government Spending or a Cut in Taxes: The Size and Scope of Government 399

The Degree of Crowding Out 400

The Politics of Government Spending 400

Monetary Policy: Rules Versus Discretion 401

l_UIN I tlNIS

Bailouts 403

Demand-Side and Supply-Side Views of the Economy and Government Tools toChange Real GDP 404

Chapter Summary 408




PART 8 PUBLIC CHOICE AND SPECIAL-INTEREST-GROUP POLITICS

Jjni IDC

a 'ih'.tf

CHAPTER 20: PUBLIC CHOICE AND SPECIAL-INTEREST-GROUP POLITICS 410

Public Choice Theory 410

The Political Market 411Moving Toward die Middle: The Median Voter Model 411 What Does the TheoryPredict? 412

Voters and Rational Ignorance 414The Costs and Benefits of Voting 414 Rational Ignorance 415

More About Voting 417Example 1: Voting for a Nonexcludable Public Good 417 Example 2: Voting and Efficiency 418

Special Interest Groups 419Information and Lobbying Efforts 419 Congressional Districts as Special InterestGroups 419 Public Interest Talk, Special Interest Legislation 420 Rent Seeking 420Bringing About Transfers 421 Information, Rational Ignorance, and Seeking Transfers 422

Chapter Summary 426




THE GLOBAL ECONOMY

PART 9 INTERNATIONAL ECONOMICS AND GLOBALIZATION

economic s<B8

CHAPTER 21: INTERNATIONAL TRADE 430

International Trade Theory 430How Countries Know What to Trade 430 Common Misconception About How MuchWe Can Consume 434 How Countries Know When They Have a ComparativeAdvantage 434

Trade Restrictions 436The Distributional Effects of International Trade 436 Consumers' and Producers'Surpluses 436 The Benefits and Costs of Trade Restrictions 437 Why NationsSometimes Restrict Trade 440

CONTENTS x v i i

HOURSChapter Summary 444




CHAPTER 22: INTERNATIONAL FINANCE 448

HOURS

The Balance of Payments 448Current Account 449 Capital Account 452 Official Reserve Account 453 StatisticalDiscrepancy 453 What the Balance of Payments Equals 454

The Foreign Exchange Market 455The Demand for Goods 455 The Demand for and Supply of Currencies 456

Flexible Exchange Rates 458The Equilibrium Exchange Rate 458 Changes in the Equilibrium ExchangeRate 459 Factors That Affect the Equilibrium Exchange Rate 459

Fixed Exchange Rates 462Fixed Exchange Rates and Overvalued/Undervalued Currency 462 What Is So BadAbout an Overvalued Dollar? 463 Government Involvement in a Fixed Exchange RateSystem 464 Options Under a Fixed Exchange Rate System 465The Gold Standard 466

Fixed Exchange Rates Versus Flexible Exchange Rates 468Promoting International Trade 468Optimal Currency Areas 469 v

The Current International Monetary System 470

Chapter Summary 472




<sro

Simm£$teWssM <ES

k8i>§§3imiitoM>®§® <»8

T£ uni inc

CHAPTER 23: GLOBALIZATION AND INTERNATIONALIMPACTS ON THE ECONOMY 477

What Is Globalization? 477A Smaller World 477 A World Economy 478

Two Ways to See Globalization 478No Barriers 479 A Union of States 480

Globalization Facts 480International Trade 480 Foreign Exchange Trading 480 Foreign DirectInvestment 480 Personal Investments 480 The World Trade Organization 480Business Practices 481

The Movement Toward Globalization 481The End of the Cold War 481 Advancing Technology 483Policy Changes 484

Benefits and Costs of Globalization 484The Benefits 484 The Costs 486

The Continuing Globalization Debate 487

More or Less Globalization: A Tug of War? 488Less Globalization 488 More Globalization 489

International Factors and Aggregate Demand 489Net Exports 490 TheJ-Curve 491

International Factors and Aggregate Supply 493Foreign Input Prices 493 Why Foreign Input Prices Change 493

Factors That Affect Both Aggregate Demand and Aggregate Supply 494The Exchange Rate 494 The Role That Interest Rates Play 495

Deficits: International Effects and Domestic Feedback 496The Budget Deficit and Expansionary Fiscal Policy 497 The Budget Deficit andContractionary Fiscal Policy 497 The Effects of Monetary Policy 499

Chapter Summary 502




PRACTICAL ECONOMICS

PART 10 FINANCIAL MATTERS

economics 24/7•

HOURSi gas

CHAPTER 24: STOCKS, BONDS, FUTURES, AND OPTIONS 504

Financial Markets 504

Stocks 504Where Are Stocks Bought and Sold? 505 The Dow Jones Industrial Average (DJIA) 505How the Stock Market Works 507 Why Do People Buy Stock? 508 How to Buy and SellStock 509 Buying Stocks or Buying the Market 509 How to Read the StockMarket Page 510

Bonds 512The Components of a Bond 512 Bond Ratings 512 Bond Prices and Yields(or Interest Rates) 513 Common Misconceptions About the Coupon Rate and Yield(Interest Rate) 514 Types of Bonds 514 How to Read the Bond Market Page 515Risk and Return 516

Futures and Options 516

Futures 516 Options 518

Chapter Summary 521




[[_WEB CHAPTER

PART 11 WEB CHAPTER

CHAPTER 25: AGRICULTURE: PROBLEMS, POLICIES, ANDUNINTENDED EFFECTS

Agriculture: The IssuesA Few Facts Agriculture and Income Inelasticity Agriculture and Price Inelasticity PriceVariability and Futures Contracts Can Bad Weather Be Good for Farmers?

\_UIN I tIN I

HOURS

Agricultural PoliciesPrice Supports Restricting Suppl Target Prices and Deficiency Payments ProductionFlexibility Contract Payments, (Fixed) Direct Payments, and CountercyclicalPayments Nonrecourse Commodity Loans

Chapter Summary

Key Terms and Concepts

Questions and Problems

Working with Numbers and Graphs

SELF-TEST APPENDIX 523GLOSSARY 536INDEX 547 - N "

ROGER A. ARNOLD - GBV · Part 2 Macroeconomic Fundamentals Chapter 6 Macroeconomic Measurements,...

Documents

Transcript of ROGER A. ARNOLD - GBV · Part 2 Macroeconomic Fundamentals Chapter 6 Macroeconomic Measurements,...