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Contents List of Key Graphs 00 Preface 00 Contributors 00 PART ONE Introduction to Economics and the Economy 00 To the Student 00 Chapter 1 Limits, Alternatives, and Choices 00 The Economic Perpective 00 Scarcity and Choice / Purposeful Behavior / Marginal Analysis: Benefits and Costs Consider This: Free for All? 00 Consider This: Fast-Food Lines 00 Theories, Principles, and Models 00 Microeconomics and Macroeconomics 00 Microeconomics / Macroeconomics / Positive and Normative Economics Individuals? Economizing Problem 00 Limited Income / Unlimited Wants / A Budget Line / Attainable and Unattainable Combinations Consider This: Did Gates, Winfrey, and Rodriguez Make Bad Choices? 00 Society?s Economizing Problem 00 Scarce Resources / Resource Categories Production Possibilities Model 00 Production Possibilities Table / Production Possibilities Curve / Law of Increasing Opportunity Costs / Optimal Allocation Consider This: The Economics of War 00 Unemployment, Growth, and the Future 00 A Growing Economy / Present Choices and Future Possibilities / A Qualification: International Trade Last Word: Pitfalls to Sound Economic Reasoning 00 Chapter 1 Appendix: Graphs and Their Meaning 00 Chapter 2 The Market System and the Circular Flow 00 Economic Systems 00 The Command System / The Market System Characteristics of the Market System 00 Private Property / Freedom of Enterprise and Choice / Self-Interest / Competition / Markets and Prices / Technology and Capital Goods / Specialization / Use of Money Five Fundamental Questions 00 What Will Be Produced? / How Will the Goods and Services Be Produced? / Who Will Get the Output? / How Will the System Accommodate Change? / How Will the System Promote Progress? Consider This: McHits and McMisses 00 The ?Invisible Hand? 00 The Demise of the Command Systems 00 The Coordination Problem / The Incentive Problem Consider This: The Two Koreas 00 The Circular Flow Model 00 Resource Market / Product Market Last Word: Shuffling the Deck 00 Chapter 3 Demand, Supply, and Market Equilibrium 00 Markets 00 Demand 00 Law of Demand / The Demand Curve / Market Demand / Change in Demand / Changes in Quantity Demanded Supply 00 Law of Supply / The Supply Curve / Market Supply / Determinants of Supply / Changes in Supply / Changes in Quantity Supplied Market Equilibrium Equilibrium Price and Quantity / Rationing Function of Prices / Efficient Allocation / Changes in Supply, Demand, and Equilibrium Consider This: Ticket Scalping: A Bum Rap! 00 Consider This: Salsa and Coffee Beans 00 Application: Government-Set Prices 00 Price Ceilings on Gasoline / Rent Controls / Price Floors on Wheat Last Word: A Legal Market for Human Organs? 00 Chapter 3 Appendix: Additional Examples of Supply and Demand 00 Chapter 4 The U.S. Economy: Private and Public Sectors 00 Households as Income Receivers 00 The Functional Distribution of Income / The Personal Distribution of Income Households as Spenders 00 Personal Taxes / Personal Saving / Personal Consumption Expenditures The Business Population 00 Legal Forms of Businesses 00 Advantages of Corporations / The Principal-Agent Problem Consider This: Unprincipled Agents 00 The Public Sector: Government?s Role 00 Providing the Legal Structure / Maintaining Competition / Redistributing Income / Reallocating Resources / Promoting Stability / Government?s Role: A Qualification Consider This: Street Entertainers 00 The Circular Flow Revisited 00 Government Finance 00 Government Purchases and Transfers Federal Finance 00 Federal Expenditures / Federal Tax Revenues State and Local Finance 00 State Finances / Local Finances Last Word: Financing Social Security 00 Chapter 5 The United States in the Global Economy 00 International Linkages 00 The United States and World Trade 00 Volume and Pattern / Rapid Trade Growth / Participants in International Trade Specialization and Comparative Advantage 00 Comparative Advantage: Production Possibilities Analysis Consider This: A CPA and House Painter 00 The Foreign Exchange Market 00 Dollar-Yen Market / Changing Rates: Depreciation and Appreciation Government and Trade 00 Trade Impediments and Subsidies / Why Government Trade Interventions? / Costs to Society Consider This: Buy American? 00 Multilateral Trade Agreements and Free-Trade Zones 00 Reciprocal Trade Agreements Act / General Agreement on Tariffs and Trade / World Trade Organization / The European Union / North American Free Trade Agreement Trade-Related Issues 00 Trade Adjustment Assistance / Offshoring of Jobs Global Competition 00 Last Word: Fair-Trade Products 00 PART TWO Microeconomics of Product Markets 00 Chapter 6 Elasticity, Consumer Surplus, and Producer Surplus 00 Price Elasticity of Demand 00 The Price-Elasticity Coefficient and Formula / Interpretations of Ed / The Total-Revenue Test / Price Elasticity and the Total-Revenue Curve / Determinants of Price Elasticity of Demand / Applications of Price Elasticity of Demand Consider This: A Bit of a Stretch 00 Price Elasticity of Supply 00 Price Elasticity of supply: The Market Period / Price Elasticity of Supply: The Short Run / Price Elasticity of Supply: The Long Run / Applications of Price Elasticity of Supply Cross Elasticity and Income Elasticity of Demand 00 Cross Elasticity of Demand / Income Elasticity of Demand Consumer and Producer Surplus 00 Consumer Surplus / Producer Surplus / Efficiency Revisited / Efficiency Losses (or Deadweight Losses) Last Word: Elasticity and Pricing Power: Why Different Consumers Pay Different Prices 00 Chapter 7 Consumer Behavior 00 Law of Diminishing Marginal Utility 00 Terminology / Total Utility and Marginal Utility / Marginal Utility and Demand Consider This: Vending Machines and Marginal Utility 00 Theory of Consumer Behavior 00 Consumer Choice and Budget Constraint / Utility-Maximizing Rule / Numerical Example / Algebraic Generalization Utility Maximization and the Demand Curve 00 Deriving the Demand Schedule and Curve / Income and Substitution Effects Applications and Extensions 00 iPods / The Diamond-Water Paradox / The Value of Time / Medical Care Purchases / Cash and Noncash Gifts Last Word: M&M?s, Final Exams, and Retirement Savings: Insights from Behavioral Economics 00 Chapter 7 Appendix: Indifference Curve Analysis 00 Chapter 8 The Costs of Production 00 Economic Costs 00 Explicit and Implicit Costs / Normal Profit as a Cost / Economic Profit (or Pure Profit) Short-Run Production Relationships 00 Law of Diminishing Returns Consider This: Diminishing Returns from Study 00 Short-Run Production Costs 00 Fixed, Variable, and Total Costs / Per-Unit, or Average, Costs / Marginal Cost / Shifts of the Cost Curves Long-Run Production Costs 00 Firm Size and Costs / The Long-Run Cost Curve / Economies and Diseconomies of Scale / Minimum Efficient Scale and Industry Structure Applications and Illustrations 00 The Doubling of the Price of Corn / Successful Start-Up Firms / The Verson Stamping Machine / The Daily Newspaper / Aircraft and Concrete Plants Last Word: Don?t Cry over Sunk Costs 00 Chapter 9 Pure Competition 00 Four Market Models 00 Pure Competition: Characteristics and Occurrence 00 Demand as Seen by a Purely Competitive Seller 00 Perfectly Elastic Demand / Average, Total, and Marginal Revenue Profit Maximization in the Short Run: Total-Revenue?Total-Cost Approach 00 Profit Maximization in the Short Run: Marginal-Revenue?Marginal-Cost Approach 00 Profit-Maximizing Case / Loss-Minimizing Case / Shutdown Case Consider This: The Still There Motel 00 Marginal Cost and Short-Run Supply 00 Generalized Depiction / Diminishing Returns, Production Costs, and Product Supply / Changes in Supply / Firm and Industry: Equilibrium Price Profit Maximization in the Long Run 00 Assumptions / Goal of Our Analysis / Long-Run Equilibrium / Long-Run Supply for a Constant-Cost Industry / Long-Run Supply for an Increasing-Cost Industry / Long- Run Supply for a Decreasing-Cost Industry Pure Competition and Efficiency 00 Productive Efficiency: P = Minimum ATC / Allocative Efficiency: P = MC / Maximum Consumer and Producer Surplus / Dynamic Adjustments / ?Invisible Hand? Revisited Last Word: Efficiency Gains from Entry: The Case of Generic Drugs 00 Chapter 10 Pure Monopoly 00 An Introduction to Pure Monopoly 00 Examples of Monopoly / Dual Objectives of the Study of Monopoly Barriers to Entry 00 Economies of Scale / Legal Barriers to Entry: Patents and Licenses / Ownership or Control of Essential Resources / Pricing and Other Strategic Barriers to Entry Monopoly Demand 00 Marginal Revenue Is Less Than Price / The Monopolist Is a Price Maker / The Monopolist Sets Prices in the Elastic Region of Demand Output and Price Determination 00 Cost Data / MR = MC Rule / No Monopoly Supply Curve / Misconceptions Concerning Monopoly Pricing / Possibility of Losses by Monopolist Economic Effects of Monopoly 00 Price, Output, and Efficiency / Income Transfer / Cost Complications / Assessment and Policy Options Price Discrimination 00 Conditions / Examples of Price Discrimination / Graphical Analysis Consider This: Price Discrimination at the Ballpark 00 Regulated Monopoly 00 Socially Optimal Price: P = MC / Fair-Return Price: P = ATC / Dilemma of Regulation Last Word: De Beers? Diamonds: Are Monopolies Forever? 00 Chapter 11 Monopolistic Competition and Oligopoly 00 Monopolistic Competition 00 Relatively Large Number of Sellers / Differentiated Products / Easy Entry and Exit / Advertising / Monopolistically Competitive Industries Price and Output in Monopolistic Competition 00 The Firm?s Demand Curve / The Short Run: Profit or Loss / The Long Run: Only a Normal Profit Monopolistic Competition and Efficiency 00 Neither Productive nor Allocative Efficiency / Excess Capacity Product Variety 00 Benefits of Product Variety / Further Complexity Oligopoly 00 A Few Large Producers / Homogeneous or Differentiated Products / Control over Price, but Mutual Interdependence / Entry Barriers / Mergers / Oligopolistic Industries Oligopoly Behavior: A Game-Theory Overview 00 Mutual Interdependence Revisited / Collusion / Incentive to Cheat Consider This: Creative Strategic Behavior 00 Three Oligopoly Models 00 Kinked-Demand Theory: Noncollusive Oligopoly / Cartels and Other Collusion / Price Leadership Model Oligopoly and Advertising 00 Positive Effects of Advertising / Potential Negative Effects of Advertising Oligopoly and Efficiency 00 Productive and Allocative Efficiency / Qualifications Last Word: Oligopoly in the Beer Industry 00 Chapter 11 Appendix: Additional Game Theory Applications 00 WEB Chapter 11 www.mcconnell18e.com Technology, R&D, and Efficiency 00 Invention, Innovation, and Diffusion 00 Invention / Innovation / Diffusion / R&D Expenditures / Modern View of Technological Advance Role of Entrepreneurs and Other Innovators 00 Forming Start-Ups / Innovating within Existing Firms / Anticipating the Future / Exploiting University and Government Scientific Research A Firm?s Optimal Amount of R&D 00 Interest-Rate Cost of Funds / Expected Rate of Return Increased Profit via Innovation 00 Increased Revenue via Product Innovation / Reduced Cost via Process Innovation Imitation and R&D Incentives 00 Benefits of Being First Consider This: Trade Secrets 00 Role of Market Structure 00 Market Structure and Technological Advance / Inverted-U Theory of R&D / Market Structure and Technological Advance: The Evidence Technological Advance and Efficiency 00 Productive Efficiency / Allocative Efficiency / Creative Destruction Last Word: On the Path to the Personal Computer and Internet 00 PART THREE Microeconomics of Resource Markets 00 Chapter 12 The Demand for Resources 00 Significance of Resource Pricing 00 Marginal Productivity Theory of Resource Demand 00 Resource Demand as a Derived Demand / Marginal Revenue Product / Rule for Employing Resources: MRP = MRC / MRP as Resource Demand Schedule / Resource Demand under Imperfect Product Market Competition / Market Demand for a Resource Consider This: Superstars 00 Determinants of Resource Demand 00 Changes in Product Demand / Changes in Productivity / Changes in the Prices of Other Resources / Occupational Employment Trends Elasticity of Resource Demand 00 Optimal Combination of Resources 00 The Least-Cost Rule / The Profit-Maximizing Rule / Numerical Illustration Marginal Productivity Theory of Income Distribution 00 Last Word: Input Substitution: The Case of ATMs 00 Chapter 13 Wage Determination 00 Labor, Wages, and Earnings 00 General Level of Wages 00 Role of Productivity / Real Wages and Productivity / Long-Run Trend of Real Wages A Purely Competitive Labor Market 00 Market Demand for Labor / Market Supply of Labor / Labor Market Equilibrium Monopsony Model 00 Upward-Sloping Labor Supply to Firm / MRC Higher Than the Wage Rate / Equilibrium Wage and Employment / Examples of Monopsony Power Three Union Models 00 Demand-Enhancement Model / Exclusive or Craft Union Model / Inclusive or Industrial Union Model / Wage Increases and Unemployment Bilateral Monopoly Model 00 Indeterminate Outcome of Bilateral Monopoly / Desirability of Bilateral Monopoly The Minimum-Wage Controversy 00 Case against the Minimum Wage / Case for the Minimum Wage / Evidence and Conclusions Wage Differentials 00 Marginal Revenue Productivity / Noncompeting Groups / Compensating Differences / Market Imperfections Consider This: My Entire Life 00 Pay for Performance 00 The Principal-Agent Problem Revisited / Addenda: Negative Side Effects of Pay for Performance Last Word: Are Chief Executive Officers (CEOs) Overpaid? 00 Chapter 13 Appendix: Labor Unions and Their Impacts 00 Chapter 14 Rent, Interest, and Profit 00 Economic Rent 00 Perfectly Inelastic Supply / Equilibrium Rent and Changes in Demand / Land Rent: A Surplus Payment / Application: A Single Tax on Land / Productivity Differences and Rent Differences / Alternative Uses of Land Interest 00 Loanable Funds Theory of Interest / Extending the Model / Time-Value of Money / Range of Interest Rates / Pure Rate of Interest / Role of the Interest Rate / Application: Usury Laws Consider This: That Is Interest 00 Economic Profit 00 Role of the Entrepreneur / Sources of Economic Profit / Functions of Profit Income Shares 00 Last Word: Determining the Price of Credit 00 Chapter 15 Natural Resource and Energy Economics 00 Resource Supplies: Doom or Boom? 00 Population Growth / Resource Consumption per Person Consider This: Can Governments Raise Birthrates? 00 Energy Economics 00 Efficient Energy Use / Running Out of Energy? Consider This: Turning Entrails (and Nearly Anything Else) into Oil 00 Natural Resource Economics 00 Using Present Values to Evaluate Future Possibilities 00 Nonrenewable Resources 00 Present Use versus Future Use / Incomplete Property Rights Lead to Excessive Present Use / Applications Renewable Resources 00 Forest Management / Optimal Forest Harvesting / Optimal Fisheries Management / Policies to Limit Catch Sizes Last Word: Is Economic Growth Bad for the Environment? 00 PART FOUR Microeconomics of Government 00 Chapter 16 Public Goods, Externalities, and Information Asymmetries 00 Public Goods 00 Private Goods Characteristics / Public Goods Characteristics / Optimal Quantity of a Public Good / Demand for Public Goods / Comparing MB and MC / Cost-Benefit Analysis Consider This: Art for Art?s Sake 00 Externalities 00 Negative Externalities / Positive Externalities / Individual Bargaining: Coase Theorem / Liability Rules and Lawsuits / Government Intervention / A Market-Based Approach to Negative Externalities / Society?s Optimal Amount of Externality Reduction / Climate Change Information Failures 00 Inadequate Buyer Information about Sellers / Inadequate Seller Information about Buyers / Qualification Consider This: ?Lemons? 00 Last Word: Lojack: A Case of Positive Externalities 00 Chapter 17 Public Choice Theory and the Economics of Taxation 00 Revealing Preferences through Majority Voting 00 Inefficient Voting Outcomes / Paradox of Voting / Median-Voter Model Government Failure 00 Special Interests and Rent Seeking / Clear Benefits, Hidden Costs / Limited and Bundled Choice / Bureaucracy and Inefficiency / Imperfect Institutions Apportioning the Tax Burden 00 Benefits Received versus Ability to Pay / Progressive, Proportional, and Regressive Taxes Tax Incidence and Efficiency Loss 00 Elasticity and Tax Incidence / Efficiency Loss of a Tax / Probable Incidence of U.S. Taxes / The U.S. Tax Structure Last Word: ?Government Failure? in the News 00 PART FIVE Microeconomic Issues and Policies 00 Chapter 18 Antitrust Policy and Regulation 00 The Antitrust Laws 00 Historical Background / Sherman Act of 1890 / Clayton Act of 1914 / Federal Trade Commission Act of 1914 / Celler-Kefauver Act of 1950 Antitrust Policy: Issues and Impacts 00 Issues of Interpretation / Effectiveness of Antitrust Laws Consider This: Of Catfish and Art (and Other Things in Common) 00 Industrial Regulation 00 Natural Monopoly / Problems with Industrial Regulation / Legal Cartel Theory Deregulation 00 Social Regulation 00 Distinguishing Features / The Optimal Level of Social Regulation / Two Reminders Last Word: United States v. Microsoft 00 Chapter 19 Agriculture: Economics and Policy 00 Economics of Agriculture 00 The Short Run: Price and Income Instability / The Long Run: A Declining Industry / Farm- Household Income Consider This: Risky Business 00 Economics of Farm Policy 00 Rationale for Farm Subsidies / Background: The Parity Concept / Economics of Price Supports / Reduction of Surpluses Consider This: Putting Corn in Your Gas Tank 00 Criticisms and Politics 00 Criticisms of the Parity Concept / Criticisms of the Price-Support System / The Politics of Farm Policy Recent Farm Policies 00 Freedom to Farm Act of 1996 / The Farm Act of 2008 Last Word: The Sugar Program: A Sweet Deal 00 Chapter 20 Income Inequality, Poverty, and Discrimination 00 Facts about Income Inequality 00 Distribution by Income Category / Distribution by Quintiles (Fifths) / The Lorenz Curve and Gini Ratio / Income Mobility: The Time Dimension / Effect of Government Redistribution Causes of Income Inequality 00 Ability / Education and Training / Discrimination / Preferences and Risks / Unequal Distribution of Wealth / Market Power / Luck, Connections, and Misfortune Income Inequality over Time 00 Rising Income Inequality since 1970 / Causes of Growing Inequality Consider This: Laughing at Shrek 00 Equality versus Efficiency 00 The Case for Equality: Maximizing Total Utility / The Case for Inequality: Incentives and Efficiency / The Equality-Efficiency Trade-off Consider This: Slicing the Pizza 00 The Economics of Poverty 00 Definition of Poverty / Incidence of Poverty / Poverty Trends / Measurement Issues The U.S. Income-Maintenance System 00 Social Insurance Programs / Public Assistance Programs Discrimination 00 Economic Analysis of Discrimination 00 Taste-for-Discrimination Model / Statistical Discrimination / Occupational Segregation: The Crowding Model / Cost to Society as Well as to Individuals Last Word: U.S. Family Wealth and Its Distribution 00 Chapter 21 Health Care 00 The Health Care Industry 00 Twin Problems: Costs and Access 00 High and Rising Health Care Costs 00 Health Care Spending / Quality of Care: Are We Healthier? / Economic Implications of Rising Costs / Too Much Spending? Limited Access 00 Why the Rapid Rise in Costs? 00 Peculiarities of the Health Care Market / The Increasing Demand for Health Care / Role of Health Insurance / Supply Factors in Rising Health Care Prices / Relative Importance Consider This: Cancer Fight Goes Nuclear 00 Reform of the Health Care System 00 Universal Access / Cost Containment: Altering Incentives / Recent Laws and Proposals Last Word: Mandatory Health Insurance: Play to Stay 00 Chapter 22 Immigration 00 Number of Immigrants 00 Legal Immigrants / Illegal Immigrants The Decision to Migrate 00 Earnings Opportunities / Moving Costs / Factors Affecting Costs and Benefits Economic Effects of Immigration 00 Personal Gains / Impacts on Wage Rates, Efficiency, and Output / Income Shares / Complications and Modifications / Fiscal Impacts / Research Findings Consider This: Stars and Stripes 00 The Illegal Immigration Debate 00 Employment Effects / Wage Effects / Price Effects / Fiscal Impacts on Local and State Governments / Other Concerns Optimal Immigration 00 Last Word: Immigration Reform: The Beaten Path to the Current Stalemate 00 PART SIX GDP, Growth, and Instability 00 Chapter 23 An Introduction to Macroeconomics 00 Performance and Policy 00 The Miracle of Modern Economic Growth 00 Savings, Investment, and Choosing between Present and Future Consumption / Banks and Other Financial Institutions Uncertainty, Expectations, and Shocks 00 Demand Shocks and Flexible Prices / Demand Shocks and Sticky Prices How Sticky Are Prices? 00 Categorizing Macroeconomic Models Using Price Stickiness 00 Last Word: Will Better Inventory Management Mean Fewer Recessions? 00 Chapter 24 Measuring Domestic Output and National Income 00 Assessing the Economy?s Performance 00 Gross Domestic Product 00 A Monetary Measure / Avoiding Multiple Counting / GDP Excludes Nonproduction Transactions / Two Ways of Looking at GDP: Spending and Income The Expenditures Approach 00 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 00 The Income Approach 00 Compensation of Employees / Rents / Interest / Proprietors? Income / Corporate Profits / Taxes on Production and Imports / From National Income to GDP Other National Accounts 00 Net Domestic Product / National Income / Personal Income / Disposable Income / The Circular Flow Revisited Nominal GDP versus Real GDP 00 Adjustment Process in a One-Product Economy / An Alternative Method / Real-World Considerations and Data Shortcomings of GDP 00 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: Magical Mystery Tour 00 Chapter 25 Economic Growth 00 Economic Growth 00 Growth as a Goal / Arithmetic of Growth / Growth in the United States Modern Economic Growth 00 The Uneven Distribution of Growth / Catching Up Is Possible Consider This: Economic Growth Rates Matter! 00 Institutional Structures That Promote Growth 00 Consider This: <<titl to come>> 00 Ingredients of Growth 00 Supply Factors / Demand Factor / Efficiency Factor Production Possibilities Analysis 00 Growth and Production Possibilities / Labor and Productivity Accounting for Growth 00 Labor Inputs versus Labor Productivity / Technological Advance / Quantity of Capital / Education and Training / Economies of Scale and Resource Allocation Consider This: Women, the Labor Force, and Economic Growth 00 The Recent Productivity Acceleration 00 Reasons for the Productivity Acceleration / Implication: More Rapid Economic Growth / Skepticism about Permanence / What Can We Conclude? Is Growth Desirable and Sustainable? 00 The Antigrowth View / In Defense of Economic Growth Last Word: Economic Growth in China 00 Chapter 26 Business Cycles, Unemployment, and Inflation 00 The Business Cycle 00 Phases of the Business Cycle / Causation: A First Glance / Cyclical Impact: Durables and Nondurables Unemployment 00 Measurement of Unemployment / Types of Unemployment / Definition of Full Employment / Economic Cost of Unemployment / Noneconomic Costs / International Comparisons Consider This: Why Is the Unemployment Rate in Europe So High? 00 Inflation 00 Meaning of Inflation / Measurement of Inflation / Facts of Inflation / Types of Inflation / Complexities Consider This: Clipping Coins 00 Redistribution Effects of Inflation 00 Who Is Hurt by Inflation? / Who Is Unaffected or Helped by Inflation? / Anticipated Inflation / Other Redistribution Issues Does Inflation Affect Output? Cost-Push Inflation and Real Output / Demand-Pull Inflation and Real Output / Hyperinflation Last Word: The Stock Market and the Economy 00 PART SEVEN Macroeconomic Models and Fiscal Policy 00 Chapter 27 Basic Macroeconomic Relationships 00 The Income-Consumption and Income-Saving Relationships 00 The Consumption Schedule / The Saving Schedule / Average and Marginal Propensities / Nonincome Determinants of Consumption and Saving / Other Important Considerations Consider This: What Wealth Effect? 00 The Interest-Rate?Investment Relationship 00 Expected Rate of Return / The Real Interest Rate / Investment Demand Curve / Shifts of the Investment Demand Curve / Instability of Investment The Multiplier Effect 00 Rationale / The Multiplier and the Marginal Propensities / How Large Is the Actual Multiplier Effect? Last Word: Squaring the Economic Circle 00 Chapter 28 The Aggregate Expenditures Model 00 Assumptions and Simplifications 00 Consumption and Investment Schedules 00 Equilibrium GDP: C + Ig = GDP 00 Tabular Analysis / Graphical Analysis Other Features of Equilibrium GDP 00 Saving Equals Planned Investment / No Unplanned Changes in Inventories Changes in Equilibrium GDP and the Multiplier 00 Adding International Trade 00 Net Exports and Aggregate Expenditures / The Net Export Schedule / Net Exports and Equilibrium GDP / International Economic Linkages Adding the Public Sector 00 Government Purchases and Equilibrium GDP / Taxation and Equilibrium GDP Equilibrium versus Full-Employment GDP 00 Recessionary Expenditure Gap / Inflationary Expenditure Gap / Application: The U.S. Recession of 2001 / Application: Full-Employment Output, with Large Negative Net Exports Last Word: Say?s Law, the Great Depression, and Keynes 00 Chapter 29 Aggregate Demand and Aggregate Supply 00 Aggregate Demand 00 Aggregate Demand Curve Changes in Aggregate Demand 00 Consumer Spending / Investment Spending / Government Spending / Net Export Spending Aggregate Supply 00 Aggregate Supply in the Immediate Short Run / Aggregate Supply in the Short Run / Aggregate Supply in the Long Run / Focusing on the Short Run Changes in Aggregate Supply 00 Input Prices / Productivity / Legal-Institutional Environment Equilibrium and Changes in Equilibrium 00 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 00 Last Word: Has the Impact of Oil Prices Diminished? 00 Chapter 29 Appendix: The Relationship of the Aggregate Demand Curve to the Aggregate Expenditures Model 00 Chapter 30 Fiscal Policy, Deficits, and Debt 00 Fiscal Policy and the AD-AS Model 00 Expansionary Fiscal Policy / Contractionary Fiscal Policy / Policy Options: G or T? Built-In Stability 00 Automatic or Built-In Stabilizers Evaluating Fiscal Policy 00 Standardized Budget / Recent U.S. Fiscal Policy / Budget Deficits and Projections / Social Security Considerations Problems, Criticisms, and Complications 00 Problems of Timing / Political Considerations / Future Policy Reversals / Offsetting State and Local Finance / Crowding-Out Effect / Current Thinking on Fiscal Policy The Public Debt 00 Ownership / Debt and GDP / International Comparisons / Interest Charges False Concerns 00 Bankruptcy / Burdening Future Generations Substantive Issues 00 Income Distribution / Incentives / Foreign-Owned Public Debt / Crowding-Out Effect Revisited Last Word: The Leading Indicators 00 PART EIGHT Money, Banking, and Monetary Policy 00 Chapter 31 Money and Banking 00 The Functions of Money 00 The Components of the Money Supply 00 Money Definition M1 / Money Definition M2 Consider This: Are Credit Cards Money? 00 What ?Backs? the Money Supply 00 Money as Debt / Value of Money / Money and Prices / Stabilizing Money?s Purchasing Power The Federal Reserve and the Banking System 00 Historical Background / Board of Governors / The 12 Federal Reserve Banks / FOMC / Commercial Banks and Thrifts / Fed Functions and the Money Supply / Federal Reserve Independence Recent Developments in Money and Banking 00 The Relative Decline of Banks and Thrifts / Consolidation among Banks and Thrifts / Convergence of Services Provided by Financial Institutions / Globalization of Financial Markets / Electronic Payments Last Word: The Global Greenback 00 Chapter 32 Money Creation 00 The Fractional Reserve System 00 Illustrating the Idea: The Goldsmiths / Significant Characteristics of Fractional Reserve Banking A Single Commercial Bank 00 Transaction: Creating a Bank / Transaction 2: Acquiring Property and Equipment / Transaction 3: Accepting Deposits / Transaction 4: Depositing Reserves in a Federal Reserve Bank / Transaction 5: Clearing a Check Drawn against the Bank Money-Creating Transactions of a Commercial Bank 00 Transaction 6: Granting a Loan / Transaction 7: Buying Government Securities / Profits, Liquidity, and the Federal Funds Market The Banking System: Multiple-Deposit Expansion 00 The Banking System?s Lending Potential / The Monetary Multiplier / Reversibility: The Multiple Destruction of Money Last Word: The Bank Panics of 1930 to 1933 00 Chapter 33 Interest Rates and Monetary Policy 00 Interest Rates 00 The Demand for Money / The Equilibrium Interest Rate / Interest Rates and Bond Prices The Consolidated Balance Sheet of the Federal Reserve Banks 00 Assets / Liabilities Tools of Monetary Policy 00 Open-Market Operations / The Reserve Ratio / The Discount Rate / Term Auction Facility / Relative Importance Targeting the Federal Funds Rate 00 Expansionary Monetary Policy / Restrictive Monetary Policy / The Taylor Rule Consider This: The Fed as a Sponge 00 Monetary Policy, Real GDP, and the Price Level 00 Cause-Effect Chain / Effects of an Expansionary Monetary Policy Monetary Policy: Evaluation and Issues 00 Recent U.S. Monetary Policy / Problems and Complications / ?Artful Management? pr ?Inflation Targeting?? Consider This: Pushing on a String 00 The ?Big Picture? 00 Last Word: The Mortgage Debt Crisis: The Fed Responds 00 Chapter 34 Financial Economics 00 Financial Investment 00 Present Value 00 Compound Interest / The Present Value Model / Applications Some Popular Investments 00 Stocks / Bonds / Mutual Funds / Calculating Investment Returns / Asset Pricies and Rates of Return Arbitrage 00 Risk 00 Diversification / Comparing Risky Investments / Relationship of Risk and Average Expected Rates of Return / The Risk-Free Rate of Return The Security Market Line 00 Consider This: Does Ethical Investing Increase Returns? 00 An Increase in the Risk-Free Rate 00 Last Word: Why Do Index Funds Beat Actively Managed Funds? 00 PART NINE Extensions and Issues 00 Chapter 35 Extending the Analysis of Aggregate Supply 00 From Short Run to Long Run 00 Short-Run Aggregate Supply / Long-Run Aggregate Supply / Long-Run Equilibrium in the AD-AS Model Applying the Extended AD-AS Model 00 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 / Ongoing Inflation in the Extended AD-AS Model The Inflation-Unemployment Relationship 00 The Phillips Curve / Aggregate Supply Shocks and the Phillips Curve The Long-Run Phillips Curve 00 Short-Run Phillips Curve / Long-Run Vertical Phillips Curve / Disinflation Taxation and Aggregate Supply 00 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 00 Last Word: Tax Cuts for Whom? A Supply-Side Anecdote 00 Chapter 36 Current Issues in Macro Theory and Policy 00 What Causes Macro Instability? 00 Mainstream View / Monetarist View / Real-Business-Cycle View / Coordination Failures Does the Economy ?Self-Correct?? 00 New Classical View of Self-Correction / Mainstream View of Self-Correction Rules or Discretion? 00 In Support of Policy Rules / In Defense of Discretionary Stabilization Policy / Increased Macro Stability Consider This: On the Road Again 00 Summary of Alternative Views 00 Last Word: The Taylor Rule: Could a Robot Replace Ben Bernanke? 00 PART TEN International Economics 00 Chapter 37 International Trade 00 Some Key Facts 00 The Economic Basis for Trade 00 Comparative Advantage: Graphical Analysis 00 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 00 Supply and Demand in the United States / Supply and Demand in Canada / Equilibrium World Price, Exports, and Imports Trade Barriers 00 Economic Impact of Tariffs / Economic Impact of Quotas / Net Costs of Tariffs and Quotas The Case for Protection: A Critical Review 00 Military Self-Sufficiency Argument / Diversification-for-Stability Argument / Infant Industry Argument / Protection-against-Dumping Argument / Increased Domestic Employment Argument / Cheap Foreign Labor Argument Consider This: Shooting Yourself in the Foot 00 The World Trade Organization 00 Last Word: The WRO Protests 00 Chapter 38 The Balance of Payments, Exchange Rates, and Trade Deficits 00 International Financial Transactions 00 The Balance of Payments 00 Current Account / Capital and Financial Account / Why the Balance of Payments Balances / Payments, Deficits, and Surpluses Flexible Exchange Rates 00 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 00 Fixed Exchange Rates 00 Use of Reserves / Trade Policies / Exchange Controls and Rationing / Domestic Macroeconomic Adjustments The Current Exchange Rate System: The Managed Float 00 Recent U.S. Trade Deficits 00 Causes of the Trade Deficits / Implications of U.S. Trade Deficits Last Word: Speculation in Currency Markets 00 WEB Supplement 38 www.mcconnell18e.com Previous International Exchange-Rate Systems 00 The Gold Standard: Fixed Exchange Rates 00 Gold Flows / Domestic Macroeconomic Adjustments / Collapse of the Gold Standard The Bretton Woods System 00 IMF and Pegged Exchange Rates / Fundamental Imbalances: Adjusting the Peg / Demise of the Bretton Woods System WEB Chapter 39 www.mcconnell18e.com The Economics of Developing Countries 00 The Rich and the Poor 00 Classifications / Comparisons / Growth, Decline, and Income Gaps / The Human Realities of Poverty Obstacles to Economic Development 00 Natural Resources / Human Resources / Capital Accumulation / Technological Advance / Sociocultural and Institutional Factors The Vicious Circle 00 The Role of Government 00 A Positive Role / Public Sector Problems The Role of Advanced Nations 00 Expanding Trade / Foreign Aid: Public Loans and Grants / Flows of Private Capital Where from Here? 00 DVC Policies for Promoting Growth / IAC Policies for Fostering DVC Growth Last Word: Famine in Africa 00 Glossary G-1 Index IND-1
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