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to learn more A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM Global Edition MACROECONOMICS Daron Acemoglu Massachusetts Institute of Technology David Laibson Harvard University John A List University of Chicago Boston Columbus Indianapolis New York San Francisco Hoboken Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Preface A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM Vice President, Business Publishing: Donna Battista Executive Acquisitions Editor: Adrienne D’Ambrosio Executive Development Editor: Mary Clare McEwing Editorial Assistant: Courtney Turcotte Senior Acquisitions Editor, Global Editions: Steven Jackson Project Editor, Global Editions: Suchismita Ukil Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Senior Product Marketing Manager: Alison Haskins Executive Field Marketing Manager: Lori DeShazo Senior 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recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-08063-9 ISBN 13: 978-1-292-08063-5 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 14 13 12 11 Typeset in by S4Carlisle Publishing Services Printed and bound by CPI Digital in the United Kingdom A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM Dedication With love for Asu, Nina, and Jennifer, who inspire us every day A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM About the Authors Daron Acemoglu is Elizabeth and James Killian Professor of Economics in the Department of Economics at the Massachusetts Institute of Technology He has received a B.A in economics at the University of York, 1989; M.Sc in mathematical economics and econometrics at the London School of Economics, 1990; and Ph.D in economics at the London School of Economics in 1992 He is an elected fellow of the National Academy of Sciences, the American Academy of Arts and Sciences, the Econometric Society, the European Economic Association, and the Society of Labor Economists He has received numerous awards and fellowships, including the inaugural T W Shultz Prize from the University of Chicago in 2004, the inaugural Sherwin Rosen Award for outstanding contribution to labor economics in 2004, Distinguished Science Award from the Turkish Sciences Association in 2006, and the John von Neumann Award, Rajk College, Budapest in 2007 He was also the recipient of the John Bates Clark Medal in 2005, awarded every two years to the best economist in the United States under the age of 40 by the American Economic Association, and the Erwin Plein Nemmers prize awarded every two years for work of lasting significance in economics He holds Honorary Doctorates from the University of Utrecht and Bosporus University His research interests include political economy, economic development and growth, human capital theory, growth theory, innovation, search theory, network economics, and learning His books include Economic Origins of Dictatorship and Democracy (jointly with James A Robinson), which was awarded the Woodrow Wilson and the William Riker prizes, Introduction to Modern Economic Growth, and Why Nations Fail: The Origins of Power, Prosperity, and Poverty (jointly with James A Robinson), which has become a New York Times bestseller David Laibson is the Robert I Goldman Professor of Economics at Harvard University He is also a member of the National Bureau of Economic Research, where he is Research Associate in the Asset Pricing, Economic Fluctuations, and Aging Working Groups His research focuses on the topic of behavioral economics, and he leads Harvard University’s Foundations of Human Behavior Initiative He serves on several editorial boards, as well as the boards of the Health and Retirement Study (National Institutes of Health) and the Pension Research Council (Wharton) He serves on Harvard’s Pension Investment Committee and on the Academic Research Council of the Consumer Financial Protection Bureau He is a recipient of a Marshall Scholarship and a Fellow of the Econometric Society and the American Academy of Arts and Sciences He is also a recipient of the TIAA-CREF Paul A Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security Laibson holds degrees from Harvard University (A.B in Economics, Summa), the London School of Economics (M.Sc in Econometrics and Mathematical Economics), and the Massachusetts Institute of Technology (Ph.D in Economics) He received his Ph.D in 1994 and has taught at Harvard since then In recognition of his teaching, he has been awarded Harvard’s Phi Beta Kappa Prize and a Harvard College Professorship A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM John A List is the Homer J Livingston Professor in Economics at the University of Chicago, and Chairman of the Department of Economics List received the Kenneth Galbraith Award, Agricultural and Applied Economics Association, 2010 He is a Member of the American Academy of Arts and Sciences, 2011; Editor, Journal of Economic Perspectives; Associate Editor, American Economic Review; and Associate Editor, Journal of Economic Literature His research focuses on questions in microeconomics, with a particular emphasis on the use of experimental methods to address both positive and normative issues Much of his time has been spent developing experimental methods in the field to explore economic aspects of environmental regulations, incentives, preferences, values, and institutions Recently, he has focused on issues related to the economics of charity, exploring why people give, plus optimal incentive schemes for first-time as well as warm-list donors A02_ACEM0635_01_GE_FM.indd About the Authors 17/03/15 7:30 PM A02_ACEM0635_01_GE_FM.indd 17/03/15 7:30 PM jobless recoveries, 347–350 Jobs, Steve, 357–360 job search, 239 Jolie, Angelina, 223 K Kenya economic development, 219–220 economic growth, 175, 176, 179 economic institutions of, 211 income per capita, 149 income per worker, 151 poverty, 189 Keynes, John Maynard, 309–313 Keynesian theory, 309–313, 311–313 Kleiner-Perkins, 262 Kmart, 228 Korea See North Korea; South Korea Krgyz Republic, 189 Kuwait, 134–135, 149 L labor demand curve, 234 countercyclical fiscal policy, 342, 347–350 countercyclical monetary policy, 333–342 countercyclical policies, overview, 331–333 equilibrium, long-run, 316–319 equilibrium, short-run, 315–317 expansions, modeling of, 320–321 fluctuations in, 233–238, 242–243, 307–313 multipliers, 313–315 labor force, 230 aggregate production function, 155–157 circular flows, 123–124 economic fluctuations and, 307–320 economic growth and, 179–185 equilibrium in labor market, 233–238 Evidence-Based Economics, unemployment, 245–246 expansions, modeling of, 320–321 gross national product (GNP), 134–135 international trade and, 372–374 labor hoarding, 311 Solow growth model, 195–203 unemployment, measures of, 229–233 unemployment, natural rate of, 243–244 unions, 241–242 wage rigidity and, 239–244 labor force participation rate, 230–233 labor income, 130 labor supply curve, 236 countercyclical fiscal policy, 342, 347–350 countercyclical monetary policy, 333–342 countercyclical policies, overview, 331–333 equilibrium, long-run, 316–319 equilibrium, short-run, 315–317 expansions, modeling of, 320–321 fluctuations in, 233–238, 242–243, 307–313 multipliers, 313–315 land, 156 Law of Demand, 96, 102 Law of Diminishing Marginal Product, 156–157 law of supply, 104 Lehman Brothers, 262, 267, 268–269, 273, 324–325, 337 leisure, 135 Lenovo, 371 Letting the Data Speak Big Mac index, 149 Chinese yuan, value of, 393 divergence and convergence in Eastern Europe, 212 efficiency of production, 160 Fed, managing expectations, 338 fixed exchange rates, costs of, 396 from IBM to Lenovo, 371 income inequality, 188 international trade, 364 levels vs growth, 177 life expectancy and innovation, 191 monopoly and GDP, 161 Moore’s Law, 159 Okun’s Law, unemployment and real GDP, 310–311 savings vs investment, 130–131 technology, resistance to, 216 Levitt, S., 66n1 liabilities, bank balance sheets, 262–264, 265–266 Liberia, 149 Libya, 106, 109, 110 life expectancy, 153, 191 limited predictability, economic fluctuations, 304–305 Linden, Greg, 361 linear demand curves, 98 Linh, Nguyen Van, 373 liquidity, 287, 288–289 List, J A., 66n1 loanable funds market, 259–261 location, housing costs and, 85–87 long-term debt, 264 long-term investments, 263 long-term real interest rate, 294–296 Ludd, Ned, 240 Luddites, 240 Lusitania, 166 Luxembourg, 149 M macroeconomics defined, 38 overview of, 119–121 Madagascar, 149 Maddison Project, 171, 212 Maimonides, 65 malaria, 191 Malawi, 151 Malaysia, 178 ringitt, currency of, 398 Malthus, Thomas, 186 Malthusian cycle, 186 managed exchange rate, 380–381 Mao Tse-tung (Zedong), 176, 369 maps, 53–54 marginal analysis, 82–85 marginal cost, 82–85, 83 marginal product of labor, 233–234 marginal tax rate, 91 mark, German, 387–389, 395 market clearing wage, 237–238, 242–243 market demand curve, 98–99 market economies economic institutions of, 210–217 South Korea, 208–210 market price, 87, 94, 104–105 markets buyer behavior, overview, 95–101 demand curves, 96 equilibrium, 107–111 Evidence-Based Economics, gasoline, 101–102 overview, 93–95 perfectly competitive market, 94 seller behavior, overview, 103–107 willingness to pay, 96–97 market supply curve, 104–105 market wage, 234 Marshall, Alfred, 206 Martin, William McChesney Jr., 338 maturity, 264–265 maturity transformation, 265 McDonald’s, 149 mean, 57 medical innovations, 191 medium of exchange, 275 Mercedes-Benz, 364 Mexico child labor, 373 economic development, 218, 219–220 Index 419 Z04_ACEM0635_01_GE_IDX.indd 419 19/03/15 7:15 PM Mexico (Continued) economic growth, 175, 176, 177, 178, 179 foreign exchange markets, 385–386 GDP and life satisfaction, 135 income per capita, 147–148, 149 income per worker, 151, 162 inflation, 281 monopolies, 161 standard of living, 153, 154 underground economy, 133 microeconomics, defined, 38 Microsoft, 267 minimum wage laws, 239–241 model, 53–55 monetary policy, 285–286, 317–318 monetary supply equilibrium, federal funds market, 289–292 federal funds rate and interest rates, 294–296 inflation, Federal Reserve and, 292–293 monetary system See also central bank bank reserves, 286–288 federal funds market, 288–289 Federal Reserve monetary policy, 285–286, 292–293 monetary theories, economic fluctuations, 309, 313 monetary value, opportunity cost and, 41 money, 275 See also currency; exchange rates functions, types, and supply of, 275–278 GDP and, 278–280 money supply, 277, 286–288, 313 monopoly, GDP and, 161 Montesquieu, 206 Moore, Gordon, 159 Moore’s Law, 159, 181 moral hazard, 273 Morocco, 149, 151, 179, 219–220 mortgages, 265–266 movement along a demand curve, 100 movement along a supply curve, 106 Mugabe, Robert, 226 multipliers, 311–319, 312, 393–394 Myanmar, 211, 216 N NAFTA (North American Free Trade Agreement), 161 National Bureau of Economic Research (NBER), 249 national income accounting identity, 127 national income accounts, 121 See also gross domestic product (GDP) circular flows, 123–124 Evidence-Based Economics, U.S GDP, 128–129 expenditures, 126–127 income, 130–131 items not measured by, 131–136 overview of, 121–122 production, 124–126 real vs nominal GDP, 136–142 National Income and Product Accounts (NIPA), 121 natural experiment, 61 natural rate of unemployment, 243–244 natural resources, land, 156 negative correlation, 59 negative externalities, 133–134 negatively related, 96 net exports, 365–369 net exports curve, 391–392 Nicaragua, 151, 178, 281 Niger, 151 Nigeria, 189, 190, 219–220 Nike, 261, 267, 356 Nikolai I, 216 Nogales, Mexico and Texas, 226 nominal exchange rate, 379–380 nominal GDP, 136–137, 278–280 nominal interest rate, 254–255, 256, 257 nominal wages, 319–320 Nordhaus, William D., 182, 194 normal good, 100, 101 normative economics, 37–38 North, Douglass, 207–208 North American Free Trade Agreement (NAFTA), 161 Northern Rock, 252, 267, 273 North Korea, 208–211, 216, 362 Norway, 135, 165 O Obama, Barack, 345–346, 347 offshoring, costs and benefits of, 361–362 Okun, Arthur, 310–311 Okun’s Law, 310–311 Old Navy, 364 omitted variable, 59, 60 one dollar a day per person poverty line, 152–154 open economy, 362–363 open market operations, 290–292 opportunity cost of time labor supply curve, 236–238 unemployment and, 232–233 opportunity costs, 40–41 absolute and comparative advantage, 357–361 economic institutions and, 211–215 Facebook, cost of, 42–44 housing prices, 87 optimization in levels, 79 savings, 257–258 optimization, 38–42 housing costs and location, 85–87 Principle of Optimization at the Margin, 84 skill development, 77 supply curve shifts, 106–107 types of, 75–77 willingness to accept, 104 optimization in differences, 76–77, 82–85 optimization in levels, 76–81 optimum, 79 Oreopoulos, Philip, 61 outsourcing, costs and benefits of, 361–362 Owen, Robert, 216 P Pakistan, 135, 151, 211, 364 patents, 217 Pearl Harbor, attack on, 349–350 Penn World Table, 173, 189 per capita income See income per capita perfectly competitive market, 94 persistence, rate of growth, 305 Peru, 211, 218, 219–220 peso, 379, 380, 385–386 physical capital, 154 aggregate production function, 154–157 depreciation of, 132 economic fluctuations and, 313 economic growth and, 179–185 GDP and, 126–127 income and, 130–131 prosperity, causes of, 205–210 Solow growth model, 195–203 sustained growth and, 180–181 technology, role of, 158–163 physical capital stock, 155 pie chart graphs, 67–68 Pigou, Arthur Cecil, 311 Piketty, Thomas, 188 planned economies economic institutions of, 210–217 North Korea, 208–210 Poland, 151, 165, 281 political creative destruction, 215–216 political institutions, 211 population growth, 194, 237 pork barrel spending, 348 420 Index Z04_ACEM0635_01_GE_IDX.indd 420 19/03/15 7:15 PM Portugal, 151, 396 positive correlation, 59 positive economics, 37 positive externalities, 133–134 positively related, 104 potential workers, 229–230 pound, British, 387–391, 395 poverty China, poverty line, 166 definition of, 185 economic growth and, 189–191 economic institutions and, 210–211 Evidence-Based Economics, geography and, 217–222 foreign aid and, 222–224 geography and, 204–205, 206–207 prosperity, causes of, 205–210 standard of living, 146, 152–154 preferences, buyers, 99–100 price See also exchange rates aggregated demand curves, 97–98 asset price fluctuations and banks, 270 buyer behavior, overview, 95–101 Consumer Price Index (CPI), 140–141, 144–145, 283 demand curve, 96, 99–101 economic fluctuations and, 309, 313 Evidence-Based Economics, gasoline prices, 101–102 GDP deflator, 138–140 global differences in, 148 housing, location and, 86–87 inflation rate and, 141, 280–283 labor demand curve and, 234–238, 307 market demand curve and, 98–99 market equilibrium, 107–111 market price, 87, 94, 104–105 markets, overview, 93–95 market supply curve, 104–105 money supply, GDP and prices, 278–280 price ceilings, 112 real vs nominal GDP, 136–142 savings vs consumption decisions, 180 supply and, 103–107 willingness to pay, 96–97 price controls, 282 price taker, 94 Principle of Optimization at the Margin, 84 private equity funds, 262 private investment, 126–127 private property rights, 210, 211–217 productivity, 151 aggregate production function, 154–157, 168–169 circular flows, 123–124 Consumer Price Index (CPI), 140–141 economic growth and, 179–185 efficiency wages, 242 externalities, 133–134 gross national product (GNP) and, 134–135 home production, 132–133 income per capita and, 151–152 labor demand curve and, 307 leisure, 135 national income accounts, overview, 121–122, 124–126 real vs nominal GDP, 136–142 Solow growth model, 195–203 technology, role of, 158–163 underground economy, 133 profit demand for labor and, 233–238 dividends as, 261–262 efficiency wages, 242 property rights, private, 210, 211–217 prosperity See also economic growth causes of, 205–210 Evidence-Based Economics, geography and, 217–222 foreign aid and, 222–224 institutions, inclusive and extractive, 210–217 standard of living, 152–154, 372–374 proximate causes of prosperity, 205–210 Prudential, 252 psychology, economic fluctuations and, 312 public-use data, 56 Puerto Rico, 135 purchasing power parity (PPP), 148, 175–179 Q Qatar, 149, 151, 281 quantitative easing, 337 quantity demanded, 95–96 aggregate demand curve, 97–98 demand curve, 96 government intervention and, 112 market demand curve, 98–99 market equilibrium, 107–111 price fixing and, 113 quantity supplied, 103 government intervention and, 112 market equilibrium, 107–111 market supply curve, 104–105 price fixing and, 113 quantity theory of money, 279–280, 281, 283–284, 338–339 questions, economic, 61–63 R railway technology, 216 Ramey, Valerie, 349 randomization, 60–61, 70–72 rational expectations, 295 real business cycle theory, 309, 311 real exchange rate, 389–395, 390 real GDP, 136–137, 278–280, 310–311 See also gross domestic product (GDP) real GDP growth, 137 real interest rate, 254–255 credit demand curve, 255–256, 257 credit supply curve, 257–261 realized real interest rate, 294–296 real wages, 283, 319–320 recession, 120 of 1981, 339 countercyclical fiscal policy, 342–350 countercyclical policies, overview, 331–333 economic fluctuations, overview of, 300–303 equilibrium and, 315–320 Japan’s lost decades, 340–341 labor demand and fluctuations, 307–313 multipliers, 313–320 unemployment and, 231–232, 243 recession (2007–2009) bank failures, 266, 268–269, 270 capital utilization, 309 causes of, 300, 321–325 central bank policy mistakes, 340 fixed exchange rates, cost of, 396 government stimulus programs, 342–350 overview of, 120, 270, 302–303 unemployment and, 231–232 red advertising campaign, 58–59, 60 Reinikka, Ritva, 223 rent, 130 Reporters Without Borders, 216 research and development (R&D), 159–160, 187 research design, 60–61 reserve deposits, 273, 286–289, 336 resource allocation economic questions, 61–62 overview of, 35–36 scarcity and price, 86–87 resources, land, 156 retained earnings, 259 retirement savings, 258 revenue, demand for labor and, 233–238 Index 421 Z04_ACEM0635_01_GE_IDX.indd 421 19/03/15 7:15 PM reversal of fortune, 219–222 reverse causality, 59–60 Ricardo, David, 376 risk, optimization and, 39–42 risk management, banks and, 265–266 Rockefeller, John D., 145 Rome, 185 Rosling, Hans, 194 Russia GDP and life satisfaction, 135 income per capita, 149 income per worker, 151 poverty, 189 railway investment, 216 Rwanda, 175, 176, 219–220 S Sachs, Jeffrey, 207 Sadoff, S., 66n1 Saez, Emmanuel, 188 salary.com, 250 Saudi Arabia, 135, 216 savings credit and, 256–257 economic fluctuations and, 312 economic growth and, 173–180 financial intermediaries, 261–264 vs investments, 130–131 Solow growth model, 196–203 tax cuts and, 346–347 savings and loan crisis (1980s–1990s), 268–269, 270 savings rate, 180, 181 scarce resources, 36 scarcity, 36, 86–87 scatter plot, 69 Schmitz, James Jr., 160 Schumpeter, Joseph, 215 scientific method, 53–58 causation and correlation, 58–61 questions, properties of, 61–62 Sears, 228 securities, 262 seignorage, 282–283 self-fulfilling prophecy, 313 sellers behavior of, overview, 103–107 competitive markets and, 94–95 market equilibrium, 107–111 Senegal, 148 sentiment, economic fluctuations, 309–313 sentiments, 312 Sequoia Capital, 262 services government purchases, 127 international trade, 364 real vs nominal GDP, 136–142 technological change and, 181–182 shadow banking system, 262 Shiller, Robert, 270 short-term borrowing, 264 Sierra Leone, 193 Singapore, 135, 175, 176, 178, 362–363 Slim, Carlos, 161 slope, 71 Slovenia, 151 Smith, Adam, 208 Social Security, 144 Solow growth model, 195–203 solvent, 266 Soros, George, 378, 387–389, 398 South Africa, 149, 152 South Korea economic growth, 175, 176, 177, 178, 179 economic institutions, 210–211 income per capita, 149 income per worker, 151, 162 inflation, 281 prosperity of, 208–210 standard of living, 153, 154 South Sudan, 193 Spain economic growth, 175, 176, 178, 179 GDP and life satisfaction, 135 income per capita, 149 income per worker, 151, 162 recession (2007–2009), 396 standard of living, 153, 154 unemployment, 244 specialization, gains from, 357, 360–361 Sputnik, 349–350 standard of living, 152–154, 372–374 See also economic growth; poverty Standard Oil, 145 Staples, 125 Starbucks, 165, 250 steady-state equilibrium, 196–203 stimulus, government, 342–350 stockholders’ equity, 263–266, 264 stocks, 262 store of value, 275–276 structural unemployment, 239–244 student achievement, incentives and, 66–77 subsistence level, 186 substitutes, 101 Summers, Robert, 173, 189 supply equilibrium, federal funds market, 289–292 excess supply, 108 foreign exchange market, 381–387 government intervention and, 111–112 of labor, 236–238 price fixing and, 113 supply curve, 104 See also labor supply curve equilibrium, 107–111 market supply curve, 104–105 shifts in, 106–107 supply curve shifts, 106, 110–111 sustained growth, 178 Svensson, Jakob, 223 Sweden, 148 Switzerland, 133, 148, 187 Syria, 216 systemically important financial institutions (SIFIs), 269 T Taft, William Howard, 141 Taft-Hartley Act (1947), 50 Taiwan, 135, 399 Tajikistan, 149 tariffs, 190, 363–365 See also trade Tata Steel, 366 taxes average tax rate, 91 countercyclical fiscal policy, 342–344, 346–347 marginal tax rate, 91 public policy decisions, 37–38 savings vs consumption decisions, 180 tariffs, 363–365 tax credits, 260 Taylor, John, 341, 354 Taylor rule, 341–342 technological change, 181–182 technology, 155 aggregate production function, 168–169 creative destruction, 215–216 economic fluctuations and, 316 economic growth and, 181–185 foreign aid and, 223–224 history of economic growth, 185–187 Industrial Revolution, 187, 216–217 labor demand curve and, 235–238, 307 life expectancy and, 191 Luddites, 240 Moore’s Law, 159 poverty reduction and, 190 prosperity, causes of, 205–210 real business cycle theory, 311 422 Index Z04_ACEM0635_01_GE_IDX.indd 422 19/03/15 7:15 PM role in GDP, 158–163 Solow growth model, 195–203 transfer of, international trade, 369–370 test group, 60, 67 Thailand, 178, 329, 398, 399 theory causation and correlation, 58–61 empiricism and, 46–47 theory of efficient markets, 270 time Facebook, cost of, 42–44 monetary value of, 41 opportunity costs, 79, 80–81 as resource, 35–36 time series graph, 68–69 Togo, 135, 149 total efficiency units of labor, 155 trade absolute and comparative advantage, 357–361 barriers, tariffs, 363–365 costs and benefits of, 361–362 current and financial accounts, 365–369 efficiencies from, 361–362 gains from specialization, 357 Nike and Vietnamese workers, 372–374 open and closed economies, 362–363 poverty reduction and, 190 technology transfer and economic growth, 369–370 trade balance, 365–369 trade deficit, 365–369 trade-offs, 40 trade surplus, 365–369 transfer payments, 127, 366–369 treatment (test) group, 60, 67 Troubled Asset Relief Program (TARP), 351 Turkey, 165, 364 Turkmenistan, 193, 211, 216 U Uganda, 149, 223 underemployed, 231 underground economy, 133, 387 unemployed, 120, 230 unemployment countercyclical fiscal policy, 347–350 cyclical unemployment, 244 Evidence-Based Economics, 245–246 frictional unemployment, 238–239, 244 Great Depression, 305–307 labor demand and fluctuations, 307–313 labor market equilibrium, 233–238 measurement of, 229–233 natural rate of, 243–244 Okun’s Law, 310–311 reasons for, 238 structural unemployment, 239–244 unemployment rate, 120, 230–233 unions, labor, 241–242 United Airlines, 256, 312 United Arab Emirates, 135, 149 United Kingdom bank runs, 267 economic growth, 175, 176, 178, 179 exchange rates, 390–391 GDP and life satisfaction, 135 GDP per capita, 165 income per worker, 162 inflation, 281 innovation from, 190 international trade, 362–363 life expectancy, 191 railway investment, 216 standard of living, 153, 154 United Kingdom General Household Survey, 62 United Nations, 154, 207, 223 United States child labor, 373 economic development, 219–220 economic growth, 171–172, 173, 175, 177, 178, 179, 183–185, 193 Federal Reserve Bank, 285–286 financial intermediaries, assets of, 262 foreign exchange market, 381–387 GDP, 128–129, 135 GNP (gross national product), 134–135 income inequality, 188 income (GDP) per capita, 147, 149, 162–163, 171–172, 173, 174 income per worker, 151 inflation rates, 272, 281 innovation from, 190 interest rates, 399 international trade, 362–363, 365, 367, 376 labor supply, 237 life expectancy, 191 minimum wage, 240 potential workers, 230 railway investment, 216 R&D spending, 160, 187 real exchange rate, 389–392 real GDP growth, 137–138 reserve requirements, 287 savings rate, 180 standard of living, 153, 154 tariffs, 363–365 tire production, 376 underground economy, 133 unemployment rate, 231–232, 244, 248 union membership, 241 unit of account, 276 urbanization, prosperity and, 218–220 U.S Commerce Department See Bureau of Economic Analysis U.S Department of Labor, 140, 184, 229–233, 249 U.S Treasury Department, 337, 351 usury laws, 272 Uzbekistan, 211, 216 V value, current, 141–142 value added, 125–126 value of the marginal product of labor, 233–234 Vanguard, 262 van Zanden, J L., 171, 212 variables, 59 causation and correlation, 58–61, 69–72 comparative statics, 80–81 dependent variables, 68 graphing data, 67–77 independent variables, 68 pie chart graphs, 67–68 supply curve shifts, 104–107 vault cash, 286–288 Venezuela black market, 387, 398 gasoline prices, 101–102 GDP and life satisfaction, 135 life expectancy, 191 poverty, 189, 190 Venice, 185 venture capital funds, 262 Vietnam, 149, 189, 190, 364, 373 Volker, Paul, 339 von Metternich, Klemens, 216 W wage rigidity, 239–244 wages countercyclical policies, overview, 331–333 downward wage rigidity, 242–243, 309, 313, 315–320 economic fluctuations and, 313–320 education level and, 56, 57–58, 62 efficiency wages, 242 Evidence-Based Economics, unemployment, 245–246 inflation and, 280–281 international trade and, 372–374 labor demand and fluctuations, 307–313 labor demand curve and, 234–238 market-clearing wage, 237–238 Index 423 Z04_ACEM0635_01_GE_IDX.indd 423 19/03/15 7:15 PM wages (Continued) market wage, 234 minimum wage laws, 239–241 nominal vs real wages, 319–320 real wage, 283 wage rigidity, 239–244 Wall Street Journal, 227 Walmart, 58–59, 60, 125, 126, 364, 379, 380, 389–392 Washington Mutual, 268–269 wealth, demand curve and, 100 Weber, Max, 207 willingness to accept, 104 willingness to pay, 96–97 Wilson, Beth, 85 Z04_ACEM0635_01_GE_IDX.indd 424 World Bank foreign aid, 223 GDP per capita, 171, 173 GNP per capita, 167 on poverty, 152–154, 161, 185, 189 World Health Organization (WHO), 191, 207 Z Zaire, 281 Zambia, 149 zero correlation, 59 zero lower bound, 340–341 Zimbabwe, 120, 151, 226, 299 Zoellick, Robert B., 365 X Xiaoping, Deng, 370, 373 Y Yellen, Janet, 286 Yemen, 189, 190, 281 yuan, 379–380, 381–387, 389–392, 393 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 425 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 426 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 427 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 428 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 429 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 430 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 431 19/03/15 7:15 PM Z04_ACEM0635_01_GE_IDX.indd 432 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