List of figures
List of tables
List of Focus boxes
About the authors
Publisher's acknowledgements
Guided tour
Preface
Author acknowledgements
INTRODUCTION
xii xv xvi xvii xviii xx xxii xxv 1
Chapter 1 A tour of the world
2
1.1 Europe and the euro
1.2 The economic outlook in the USA
1.3 BRie countries
1.4 Looking ahead
Key terms
Questions and problems
Further reading
Appendix Where to find the numbers?
3
6
10 11 12 12 13 14 42
45
51 53 54 55 55 Chapter 4 Financial markets
58 4.1
4.2
4.3
4.4
59 The demand for money
Determining the interest Rate : Part I
Determining the interest Rate: Part II
Two alternative ways of looking at the equi librium
Summary
Key terms
Questions and problems
Further reading
62 69 74 77 77 78 79 Chapter 5 Chapter 2 A tour of the book
15 2.1 Aggregate output
2.2 The other major macroeconomic variables
2.3 The short run, the medium run and the long run
2.4 A tour of the book
Summary
Key terms
Questions and problems
Further reading
Appendix The construction of real GOP and chain-type indexes
16 22 27 28 30 31 31 33 34 Goods and financial markets: the IS-LM model
5.1 The goods market and the IS relation
5.2 Financial markets and the LM relation
5.3 Putting the IS and the LM relations together
5.4 Using a policy mix
5.5 IS -LM and the liquidity trap
5.6 An analytical version of the IS-LM model
5.7 How does the IS-LM model fit the facts?
Summary
Key terms
Questions and problems
Further reading
80 81 85 88 94 94 96 102 104 104 104 106 Chapter 6 THE CORE
THE SHORT RUN
3.2 The demand for goods 3.3 The determination of equilibrium output 3.4 Investment equals saving : an alternative way of thinking about the goods- market equilibrium
3.5 Is the government omnipotent? A warning
Summary
Key terms
Questions and problems
39 Chapter 3 The goods market
40 3.1 The composition of GOP
41 The IS-LM model in an open economy
107 6.1
6.2
6.3
6.4
6.5
108
115 121 127 Openness in goods markets Openness in financial markets
The IS relation in an open economy
Equilibrium in financial markets Putting goods and financial markets together
129 viii
CONTENTS
Summary
Key terms
Questions and problems
Further reading
THE MEDIUM RUN
132
132
133
134
135
Chapter 7
The labour market
136
7.1 A tour of the labour market
7.2 Wage determination
7.3 Price determination
7.4 The natural rate of unemployment
7.5 Where we go from here
Summary
Key terms
Questions and problems
Further reading
Appendix Wage and price setting relations versus
labour supply and labour demand
137
142
149
151
155
156
156
156
158
8.1 Aggregate supply
8.2 Aggregate demand
8.3 Equilibrium in the short run and in the
medium run
8.4 The effects of a monetary expansion
8.5 A decrease in the budget deficit
8.6 Changes in the price of oil
8.7 Conclusions
Summary
Key terms
Questions and problems
9.1 Inflation, expected inflation and unemployment
9.2 The Phillips curve
9.3 The Phillips curve and the natural rate of
unemployment in Europe
Summary
Key terms
Questions and problems
Appendix From the aggregate supply relation
to a relation between inflation,
expected inflation and unemployment
205
10.1 Output, unemployment and inflation
10.2 The effects of money growth
10.3 Disinflation
Summary
Key terms
Questions and problems
Further reading
206
210
217
223
223
224
226
THE LONG RUN
227
Chapter 11
228
229
232
161
11.1 Measuring the standard of living
11.2 Growth in rich countries since 1950
11 .3 A broader look at growth across time
and space
11.4 Thinking about growth: a primer
Summary
Key terms
Questions and problems
Further reading
162
164
Chapter 12
159
166
169
172
176
182
183
184
184
Chapter 9
The natural rate of unemployment
and the Phillips curve
Inflation, activity and nominal
money growth
The facts of growth
Chapter 8
Putting all markets together:
the AS-AD model
Chapter 10
Saving, capital accumulation and
output
12.1 Interactions between output and capital
12.2 The implications of alternative saving rates
12.3 Getting a sense of magnitudes
12.4 Physical versus human capital
Summary
Key terms
Questions and problems
Further reading
Appendix The Cobb-Douglas production function
and the steady state
235
237
242
242
243
244
245
246
249
258
261
264
264
264
266
267
187
188
189
196
201
201
202
204
Chapter 13
Technological progress and growth
13.1 Technological progress and the rate
of growth
13.2 The determinants of technological
progress
13.3 The facts of growth revisited
Summary
Key terms
Questions and problems
Further reading
268
269
275
280
283
284
284
286
CONTENTS
THE OPEN ECONOMY: EXCHANGE RATES AND POLICY CHOICES EXTENSIONS
EXPECTATIONS 289 Expectat ions: the basic tools
290 14.1 Nominal versus real interest rates
14.2 Nominal and real interest rates and the IS-LM model
14.3 Money growth, inflation and nominal and real interest rates
14.4 Expected present discounted values
Summary
Key terms
Questions and problems
291 296 296 299 304 304 304 Chapter 15 Financial markets and expectat ions
306 15.1 Bond prices and bond yields 15.2 The stock market and movements in stock prices
15.3 Bubbles, fads and stock prices
Summary
Key terms
Questions and problems
Further reading
Appendix Arbitrage and stock prices
307 314 318 321 322 322 323 324 Chapter 16 Expectations, consumption and investment
16.1 Consumption theory and the role of expectations
16.2 Toward a more realistic description
16.3 Investment
16.4 The volatility of consumption and investment
Summary
Key terms
Questions and problems
Appendix Derivation of the expected present value of profits under static expectations
326 327 331 335 342 343 344 344 347 Chapter 17 Expectations, output and policy
348 17.1 Expectations and decisions: tak ing stock
17.2 Monetary policy, expectations and output
17.3 Deficit reduction, expectations and output
Summary
Key terms
Questions and problems
349 352 356 361 361 362 365
Chapter 18 Economic policy in an open economy
Chapter 14 ix 18.1 Increases in demand, domestic or foreign
18.2 Depreciation , the trade balance and output
18.3 Looking at dynamics: the J-curve
18.4 Saving , investment and the trade balance
18.5 The effects of policy in an open economy
18.6 Fi xed exchange rates
Summary
Key terms
Questions and problems
Further reading
Appendix Derivation of the Marshall-Lerner condition 366 367 372 375 377 381 382 387 387 387 390 391 Chapter 19 Exchange rate regimes
392 19.1 The medium run
19.2 Exchange rate crises under fixed exchange rates
19.3 Exchange rate movements under flexible exchange rates
19.4 Choosing between exchange rate regimes
Summary
Key terms
Questions and prob lems
Appendix 1 Deriving aggregate demand under fixed exchange rates
Appendi x 2 The real exchange rate and domestic and foreign real interest rates
393 401 404 409 409 409 PATHOLOG IES 415 397 413 414 Chapter 20 The crisis of 2 007-201 0 416
20.1
20 .2
20 .3
20.4
417
419 421 What cannot keep going eventually stops Households 'under water' Leverage and amplification Investment demand, with banks as intermediaries
20.5 International contagion 20 .6 Policy response to the crisis 20.7 The legacy of the crisis Summary
Key terms
Questions and problems Further reading 424 427 428 432 433 434 434
435
X
CONTENTS
Chapter 21 High debt
436 21.1 The government's budget constraint
21.2 The evolution of the debt/GOP ratio
21.3 The return from a high debt
Summary
Key terms
Questions and problems
Further reading
437 441 449 454 454 454 455 Chapter 22 High inflation
456 22 .1 Budget deficits and money creation
22 .2 Inflation and real money balances
22 .3 Deficits, seignorage and inflation 22.4 How do hyperinflations end?
22 .5 Conclusions
Summary
Key terms
Questions and problems
Further reading
458 462 464 468 471 471 472 472 473 SHOULD POLICY MAKERS BE RESTRAINED?
475 Chapter 23 Policy and policy makers: what do we know?
476 23.1 Uncertainty and policy
23.2 Expectations and policy
23.3 Politics and policy
Summary
Key terms
Questions and problems
Further reading
477 480 485 487 488 488 490 Chapter 24 Monetary and fiscal policy rules and constraints
491 24.1 The optimal inflation rate
492 24.2 Monetary policy rules 24.3 Fiscal policy rules and constraints
Summary
Key terms
Questions and problems
Further reading
496 506 512 513 514 516 EUROPE IN PROGRESS 517 Chapter 25 European economic and monetary integration
518 25.1 Why have Europeans always been so adverse to exchange rate volatility?
25.2 The monetary history of Europe from post-war to the present day
25.3 The European system of central banks:
structure and objectives
Summary
Key terms
Questions and problems
Further reading
519 521 527 537 537 537 538 Chapter 26 The euro: the ins and the outs
26.1 Is Europe an optimal currency area?
26.2 The first ten years of the euro (1999-2009)
26.3 Should the outs join?
Summary
Key terms
Questions and problems
Further reading
Appendix 1 A maths refresher
Appendix 2 An introduction to econometrics
Glossary
Symbols used in this book
Index
539 540 543 546 550 550 551 551 552 557 562 572 574