Sapling Plus Everything You Need in a Single Learning Path SaplingPlus is the first system to support students and instructors at every step, from the first point of contact with new content to demonstrating mastery of concepts and skills It is simply the best support for Principles of Economics MACROECONOMICS MACROECONOMICS Fifth Edition Paul Krugman Graduate Center of the City University of New York Robin Wells Vice President, Program Management: Charles Linsmeier Director of Content and Assessment: Shani Fisher Executive Program Manager: Simon Glick Marketing Manager: Andrew Zierman Marketing Assistant: Morgan Ratner Executive Development Editor: Sharon Balbos Assessment Manager: Kristyn Brown Assessment Editor: Joshua Hill Consultant: Ryan Herzog Director of Media Editorial: Noel Hohnstine Media Editor: Emily Schmid Editorial Assistant: Courtney Lindwall Director, Content Management Enhancement: Tracey Kuehn Managing Editor: Lisa Kinne Project Editor: Martha Emry Director of Design Content Management: Diana Blume Interior Design: Blake Logan Cover Design: Lyndall Culbertson and Blake Logan Illustrations: codeMantra, Network Graphics Illustration Coordinator: Janice Donnola Photo Editor: Cecilia Varas Photo Researcher: Elyse Rieder Senior Workflow Project Supervisor: Susan Wein Production Supervisor: Lawrence Guerra Media Project Manager: Andrew Vaccaro Supplements and Media Project Editors: Jodi Isman and Lisa Kinne Composition: codeMantra See page xxxi for cover credits information Page xxxi is an extension of this copyright page ISBN-13: 978-1-319-09875-9 ISBN-10: 1-319-09875-4 Library of Congress Control Number: 2017944025 © 2018, 2015, 2013, 2009 by Worth Publishers All rights reserved Worth Publishers One New York Plaza Suite 4500 New York, NY 10004-1562 www.macmillanlearning.com www.freebookslides.com About the Authors PAUL KRUGMAN, recipient of the 2008 Nobel Memorial Prize in Economic Sciences, is a faculty member of the Graduate Center of the City University of New York, associated with the Luxembourg Income Study, which tracks and analyzes income inequality around the world Prior to that, he taught at Princeton University for 14 years He received his BA from Yale and his PhD from MIT Before Princeton, he taught at Yale, Stanford, and MIT He also spent a year on the staff of the Council of Economic Advisers in 1982-1983 His research has included pathbreaking work on international trade, economic geography, and currency crises In 1991, Krugman received the American Economic Association’s John Bates Clark medal In addition to his teaching and academic research, Krugman writes extensively for nontechnical audiences He is a regular op-ed columnist for the New York Times His best-selling trade books include End This Depression Now!, The Return of Depression Economics and the Crisis of 2008, a history of recent economic troubles and their implications for economic policy, and The Conscience of a Liberal, a study of the political economy of economic inequality and its relationship with political polarization from the Gilded Age to the present His earlier books, Peddling Prosperity and The Age of Diminished Expectations, have become modern classics ROBIN WELLS was a Lecturer and Researcher in Economics at Princeton University She received her BA from the University of Chicago and her PhD from the University of California at Berkeley; she then did postdoctoral work at MIT She has taught at the University of Michigan, the University of Southampton (United Kingdom), Stanford, and MIT www.freebookslides.com Vision and Story of Macroeconomics This is a book about economics as the study of what people and how they interact, a study very much informed by real-world experience These words, this spirit, have served as a guiding principle for us in every edition While we were driven to write this book by many small ideas about particular aspects of economics, we also had one big idea: an economics textbook should be built around narratives, many of them pulled from real life, and it should never lose sight of the fact that economics is, in the end, a set of stories about what people Many of the stories economists tell take the form of models—for whatever else they are, economic models are stories about how the world works But we believe that student understanding of and appreciation for models are greatly enhanced if they are presented, as much as possible, in the context of stories about the real world that both illustrate economic concepts and touch on the concerns we all face living in a world shaped by economic forces You’ll find a rich array of stories in every chapter, in the chapter openers, Economics in Actions, For Inquiring Minds, Global Comparisons, and Business Cases As always, we include many new stories and update others We also integrate an international perspective throughout, more extensively than ever before It starts with a new introduction and an opening story on China’s Pearl River Delta that sets the stage for new attention to China’s ascendance in the global economy An overview of the types of narrative-based features in the text is on p x We also include pedagogical features that reinforce learning For example, each major section ends with three related elements devised with the student in mind: (1) the Economics in Actions: a real-world application to help students achieve a fuller understanding of concepts they just read about; (2) a Quick Review of key ideas in list form; and (3) Check Your Understanding self-test questions with answers at the back of the book Our thought-provoking end-of-chapter problems are another strong feature The Work It Out feature appears in all end-of-chapter problem sets, offering students online tutorials that guide them step-by-step through solving key problems With the Fifth Edition, a new feature, Discovering Data exercises, offers students the opportunity to use interactive graphs to analyze interesting economic questions An overview of the text’s tools for learning is on p xi Students also benefit from the impressive set of online resources that are linked to specific chapter content These include several exciting new digital features as well as adaptive quizzing, tutorials, interactive activities, graphing questions, and data-analysis questions All have been devised with the goal of supporting instructor teaching and student learning in principles of economics courses We hope your experience with this text is a good one Thank you for introducing it into your classroom www.freebookslides.com Paul Krugman Robin Wells www.freebookslides.com Engaging Students in the Study of Macroeconomics We are committed to the belief that students learn best from a complete textbook program built around narratives, steeped in real life and current events, with a strong emphasis on global matters and with proven technology that supports student success Narrative Approach This is a textbook built around narratives and stories, many pulled from real life In every chapter, stories are used to teach core concepts and motivate learning We believe that the best way to introduce concepts and reinforce them is through memorable, real-world stories; students simply relate more easily to them Global Focus This book is unrivaled in the attention paid to global matters We have thoroughly integrated an international perspective into the text, in the numerous applications, cases, and stories and, of course, in the data-based Global Comparison feature Technology That Builds Success Macroeconomics is not just a textbook It has evolved to become a complete program with interactive features designed and built to extend the goals of the text This program encourages even stronger student engagement, mastery of the material, and success in the course Look for this Interactive Activity icon throughout the text to find materials that are enhanced by our online tools What’s New in the Fifth Edition? Technology that offers the best value and price Because students’ needs are changing, our most powerful learning option is now our most affordable SaplingPlus is a new digital solution that combines LearningCurve with an integrated e-Book, robust homework, improved graphing, and fully digital end-of-chapter problems including Work It Outs And if print is important, a package with a loose-leaf copy of the text is only a few dollars more Discovering Data exercises help students interpret, analyze, share, and report on data Students develop data literacy by completing these new interactive exercises, step-by-step problems that have students use up-to-the-minute FRED data Current events framed by the world’s best communicators of economics No other text stays as fresh as this one The authors—who have explained economics to millions through trade www.freebookslides.com received vs paid, 84 of related goods or services, changes in, shifts of the supply curve and, 80 relative, comparative advantage and, 132 of stocks, calculating using present value, 310 supply, 117–119 value of GDP and, 195 world, 138–139 price ceilings, 102–109 inefficiency caused by, 104–107 modeling, 102–103 price floors compared with, 112 reasons for, 107–108 shortages caused by, 102–104, 106, 107 price changes of commodity prices, short-run aggregate supply curve and, 358 expected, change in demand and, 73 rate of change and, 226–229 shifts of demand curve and, 72 shifts of supply curve and, 80 price controls, 102 See also price ceilings; price floors inefficiency caused by, 104–107, 111–114 in Venezuela, 108–109 price floors, 102, 109–115 inefficiency caused by, 111–114 price ceilings compared with, 112 reasons for, 114 surpluses caused by, 110–111, 113 price indexes, 187, 199–203 consumer See consumer price index (CPI) GDP deflator as, 201–202 market baskets and, 199–200, 201 producer, 201 wholesale, 201 price levels See also inflation rate aggregate See aggregate price level classical model of, 477–479, 506 equilibrium, macroeconomic, short-run, 365 inflation and disinflation and See disinflation; inflation inflation rate vs., 226 price stability, 178 as monetary policy goal, 460 Priceline Group, 20 pricing power, 356 prime rate, 354 principal, 309, 457 private savings, shifts of the supply of loanable funds and, 281 private spending crowding out of, 386 reduction by government budget deficits, 387 Procter & Gamble, 547 producer(s) behavior in imperfect competition, 356 behavior in perfectly competitive markets, 355–356 changes in number of, shifts of the supply curve and, 81–82 producer price index (PPI), 201, 202 producer surplus, 163 cost and, 162–164 export effects on, 141 import effects on, 138–140 individual, 163 www.freebookslides.com supply curve and, 162–164 tariffs and, 145, 146 total, 163–164 product(s) See goods and services production See also output aggregate production function and, 243 –247 complements in, 80 efficiency in, 29 factors of See factors of production of final goods and services, GDP as, 191–192 increasing returns to scale and, 136 just-in-time, 375 lean, 44, 136, 375 substitutes in, 80 production capacity, investment spending and, 325 production possibility frontier (PPF), 27–36 comparative advantage and, 32–36, 129–131 economic growth and, 31–32 efficiency and, 28–29 gains from trade and, 32–36 opportunity cost and, 29–31 productive capacity, spending and, 17–18 productivity aggregate production function and, 243 –247 changes in, short-run aggregate supply curve and, 359 growth in, 242–243 international comparison of, 134 long-run economic growth and, 242–247, 248–249 Malthus’s prediction about, 247–248 natural resources and, 247–248 total factor, 247, 248 wage rates and, 133, 134 productivity paradox, 248–249 profits in competitive markets, 93 future, underlying determinants of, 297 during recessions, 173 Progressive, 121 property rights, protection of, economic growth and, 252–253, 257 protection, 144 See also trade protection public debt, 399 of United States, 400 purchases, government See government purchases of goods and services; government spending purchasing power, inflation and See inflation purchasing power parity, 545–546 Q quality inefficiently high, 113 inefficiently low, 106–107 quantitative easing, 463, 498, 524–525 quantity See also shortages; surpluses equilibrium, 84 inefficiently low, 105, 111, 112 price ceilings and price floors and, 105, 111, 112 quantity controls, 115–119 anatomy of, 116–118 costs of, 119 www.freebookslides.com quantity demanded, 68 demand vs., 70 quantity supplied, 77 quits rate, 388 quota(s), 115 See also quantity controls for crab, 119–120 import, 146, 147, 148 quota limits, 115 quota rents, 118, 146 quota share, 120 R rand, 477 random walk, 297 rate of change, 172 rational expectations, 516–517 rational expectations model, 517 R&D See research and development (R&D) and Reagan, Ronald, 518 real business cycle theory, 517 real estate, demand for, 296–297 real exchange rates, inflation and, 543–545 real GDP, 187, 195, 196–199 actual and potential output and, 361 business cycle and, 172 calculating, 196–197 changes in, shifts of money demand curve and, 452 defined, 196–197 expected, investment spending and, 325 GDP deflator and, 201–202 income–expenditure equilibrium, 331–332 as measure of aggregate output, 196 nominal GDP vs., 197–198 planned aggregate spending and, 329–330 real GDP per capita, 197–198 See also economic growth; GDP per capita; long-run economic growth comparison of economies and, 238–241 in United States, India, and China, 238–239, 240 real incomes, 226 real interest rate, 229 nominal interest rate vs., 284, 525 real net exports, 547 real wage, 226 recession(s), 3, 18, 167 See also business cycle; Great Recession babysitting cooperative in, 18–19 balancing budgets in, 397–398 comparison of, 175 conflicts over how to respond to, 506 consumer spending and, 323–324 definition of, 174 double-dip, 371, 591 of early 1990s, 438 effectiveness of fiscal policy in fighting, 519–520 effectiveness of monetary policy in fighting, 519 following Panic of 1907, 435–436 growth, 216 investment spending and, 323–324, 336–337 of 1981–1982, 215, 324, 371, 519 of 1991, 324 www.freebookslides.com of 1970s vs 2007, 345 of 1979–1980, 324, 353–354, 364, 371, 494, 495, 519 of 1973–1975, 324, 494 pain of, 173 stabilization policy and, 372 supply shocks vs demand shocks causing, 371 of 2001, end of, 336–337 of 2001 and 2007–2009, compared, 175 unemployment and, 173, 215–216 recessionary gaps, 368–369, 484 fiscal policy to close, 384–385, 386–387 monetary policy to eliminate, 373 output gap and, 370 Reconstruction Finance Corporation (RFC), 436–437 recoveries See business cycle; expansion(s) regulation after 2008 crisis, 440–441 of banks, 422–423 of financial system, 252, 440–441 Regulation Q, 437, 452 related goods See also complements; substitutes changes in prices of, shifts of the supply curve and, 80 relationships linear, 51 negative, 52 nonlinear, 51 positive, 52 relative prices, comparative advantage and, 132 renminbe See yuan rent implicit, 296 quota, 118 rent control, 101, 102–107 in Mumbai, India, 107 in New York City, 101, 102–104 rentalcars.com, 20 research and development (R&D) economic growth and, 251 government subsidies to, 252 reserve(s) bank See bank reserves foreign exchange, 549 reserve ratio, 421 reserve requirements, 422, 430, 454 reshoring, 129 resolution authority, 441 resources, allocation of See allocation efficient use of, 13–14 natural See natural resources scarcity of See scarce resources wasted, 106, 113 retailers, business cycle and, 181–182 retained earnings, 324 returns to scale, increasing, international trade and, 136 revaluation, of currencies, 553 reverse causality, 62 Revolutionary War, inflation during, 203 RFC See Reconstruction Finance Corporation (RFC) Ricardian equivalence, 387, 522 www.freebookslides.com Ricardian model of international trade, 130 Ricardo, David, 130, 387 risk financial, reducing, 288–289 long-term interest rates and, 457–458 risk-averse people, 288–289 Rockefeller, John D., 436 Rogoff, Kenneth, 515 Romer, Christina, 464 Romer, David, 464 Roosevelt, Franklin Delano, 419, 423, 437, 509 Rule of 70, 240, 247 RunMyErrand, 232 running up against the zero bound, 463 S Sachs, Jeffrey, 257 sales, inefficient allocation among sellers, 111–112 Samuelson, Paul, 332, 507 Saudi Arabia, current account surplus of, 536 savings economic growth and, 250 government, 273, 275 marginal propensity to save and, 314–315 national, 273 private, 275 savings and loans (S&Ls), 437–438 savings–investment spending identity, 271–275 in closed economy, 272–273 in open economy, 273–275 scarce resources individual choice and, 6–7 opportunity cost and See opportunity cost scatter diagrams, 59 Schumpeter, Joseph, 170, 506 Schwartz, Anna, 511 A Monetary History of the United States, 1867–1960, 511 Sears, Roebuck and Co., 181, 182, 218 secular stagnation, 520, 521 secular stagnationists, 520, 521 securities loan-backed, 289, 290 mortgage-backed, financial crisis of 2008–2009 and, 26 securitization, 290, 439 seigniorage, 481 self-correcting economies, 369, 370 self-fulfilling debt crisis, 523 self-regulating economies, 169 sellers, inefficient allocation of sales among, 111–112 Sen, Amartya, services See final goods and services; goods and services shadow banking, 423 Great Recession and, 438 regulation of, 441 sharing economy, Uber and, 94 Shenzhen, China, shifts of aggregate consumption function, 320–321 www.freebookslides.com of aggregate demand curve, 350–352, 364, 365–366 of money demand curve, 451–452 shifts of the demand curve, 68–76, 89–90, 91–92 shifts of the supply curve, 78–79, 90–92 Shiller, Robert, 298 shoe-leather costs, 227–228, 231 short-run danger of ignoring, 507 interest rate in, 473–474 money supply increase effects in, 465–466 shortages, 86–87 market price and, 86–87 price ceilings causing, 101, 102–104, 106, 107 short-run aggregate supply curve, 354–359 during 1929 and 1933, 354, 356 increase in money supply and, 465 movement to long-run aggregate supply curve from, 362–363 shifts of, 357–359, 366–368 short-run equilibrium aggregate output, 365 short-run equilibrium aggregate price level, 365 short-run macroeconomic equilibrium, 364–365 short-run macroeconomic equilibrium price level, 365 short-run Phillips curve, 486–489 aggregate supply curve and, 488 expected rate of inflation and, 488, 489–491 short-term interest rates, 449 shrimp production, of Vietnam and Thailand, 129, 132–133, 134, 149 Singapore congestion pricing in, 76 economic growth in, 255 productivity and wages in, 134 Sirius XM Radio, 114 skills mismatches, structural unemployment and, 222–223 slope, 52–57 arc method of calculating, 54–56 of consumption function, 318 decreasing, positive and negative, 54 of a horizontal curve, 53–54 increasing, positive and negative, 54 of a linear curve, 52–53 of nonlinear curves, 54–56 point method of calculating, 56 of a vertical curve, 53–54 Slovakia, productivity and wages in, 134 S&Ls See savings and loans (S&Ls) smart money, 204 smartphones gig economy and, 232 manufacture of, 127, 129–130, 133 PayPal/Venmo and, 469 Smith, Adam, 2, 3, 12 The Wealth of Nations, 2, 12, 417, 507 social insurance, 383 See also Medicaid; Medicare; Social Security implicit liabilities and, 402–404 taxes and, 382, 383 social insurance taxes, 382, 383 Social Security, 383, 402, 403 payment amount calculation for, 203 Social Security trust fund, 403 www.freebookslides.com society goals of, efficient use of resources to achieve, 13–14 welfare of, government intervention to achieve, 15 Solana power plant, 405 solar panels, dumping of, by China, 151 solar power thermal solar plants and, 405 transition to, 216, 217 SolarWorld, 151 Solow, Robert, 248 Soros, George, 204 South Korea banking system of, 294 economic growth in, 255 gasoline consumption of, 68 GDP per capita of, 254, 255 productivity and wages in, 134 Soviet Union, former economy of, inefficiency in allocation in, 29 S&P 500, 295 Spain net public debt of, 400 productivity and wages in, 134 real GDP per capita in, 258, 259 structural unemployment in, 225 specialization, 12 international, factor endowments and, 135 spending aggregate See aggregate spending consumer See consumer spending on domestically produced final goods and services, GDP as, 192–193 government policies and, 18 income and, 17 investment See investment spending paradox of thrift and, 169 productive capacity and, 17–18 Sri Lanka, clothing exports of, 37 stabilization policy, 372 effectiveness of, 374 stagflation, 367, 371 standard of living in China, convergence in, 258–259 population and, 247–248, 259–260 recessions and, 173 in United States, sticky wages, 355, 357, 363–364 in Great Recession, 363–364 in perfectly vs imperfectly competitive markets, 355 stimulus See fiscal stimulus stock(s), 193, 287, 290–291 calculating price using present value, 310 demand for, 295–296 diversified portfolio of, 291 dividends on, 310 market timing and, 297 markets for, 276 stock market indices, 295 Stockholm, Sweden, congestion pricing in, 76 www.freebookslides.com store of value, money as, 415–416 strikes, labor, 222 structural unemployment, 219–223 government policies and, 222 labor unions and, 222 minimum wages and, 221–222 mismatches between employees and employers and, 222–223 StubHub.com, 87–88 Subaru, 557 subprime lending, 438–440 subsidies agricultural, 149 economic growth and, 251–252 employment, 225 too big to fail, 441 substitutes, 72 changes in prices of, shifts of the demand curve and, 80 in production, 80 sugar, import quota on, 148 sum, horizontal, 74 supply changes in, 88–93 excess See surpluses of loanable funds, 278–279, 281 of money See money supply supply and demand model, 65–99 See also demand; demand curve; demand schedule; market equilibrium; supply; supply curve; supply schedule changes in supply and demand and, 88–93 competitive markets and, 66 equilibrium and, 84–88 international trade and, 137–144 key elements of, 66 shifts of demand curve and, 68–76 shifts of supply curve and, 78–82 supply chain(s), 127 supply chain management, 152 supply curve, 76–83 aggregate See AD–AS model; aggregate supply curve; long-run aggregate supply curve; short-run aggregate supply curve demand curve vs., 90 domestic, 138 individual, 81 market, 81–82 movements along, 78–79 producer surplus and, 162–164 shifts of, 78–82, 90–92 simultaneous shifts of demand curve and, 91–92 supply schedule and, 77 supply price, 117–119 supply schedule, supply curve and, 77 supply shocks, 345, 366–368 demand shocks vs., 367–368, 371 macroeconomic policy response to, 373–374 negative, 366, 367, 371, 373–374, 487, 489, 491 Phillips curve and, 487, 489, 491 positive, 366–367 supply-side economics, 518 surge pricing, 94 surpluses, 86 consumer See consumer surplus in current account, 534 www.freebookslides.com of job-seekers, 220 market price and, 86 producer See producer surplus trade, 179–181 sustainability cost of limiting carbon emissions and, 263 human impact on environment and, 261–263 limited natural resources and, 260–261 long-run economic growth and, 259–263 Paris Agreement and, 262 sustainable long-run economic growth, 259–260 sweatshop labor fallacy, 133 Sweden inflation target of, 462 productivity and wages in, 134 Swiss National Bank, 531 Switzerland banks in, 531 current account surplus of, 536 productivity and wages in, 134 T T-accounts, 420–421 Taiwan economic growth in, 255 productivity and wages in, 134 tangent line, 56 target federal funds rate, 453, 456 target zone, for exchange rates, 548 tariffs, 144–146 on Chinese solar panels, 151 welfare losses and, 147 TaskRabbit, 224, 232 tastes, changes in, shifts in demand curve and, 73 tax(es) changes in, multiplier effects of, 391 dedicated, 403 effect on multiplier, 391–392 fiscal policy and, 382 income, indexing of tax brackets to CPI and, 203 inflation, 481 lump-sum, 391 multiplier and, 411–412 social insurance, 382, 383 unit-of-account costs of inflation and, 229 value-added, 41–42 tax cuts, 381 multiplier effects of, 391 stimulus plans and, 388 tax models, 26 taxis medallions for, 101, 115–119, 121 Uber, 94 Taylor, John, 460 Taylor rule for monetary policy, 460–461, 520 inflation targeting vs., 462 technological change in banking, shifts of money demand curve and, 452 www.freebookslides.com natural rate of unemployment and, 224 productivity paradox and, 248–249 shifts of the supply curve and, 80 technological progress economic growth and, 243 productivity growth and, 246–247 R&D and, 251 technology comparative advantage and, 136 economic growth and, 32 hyperglobalization and, 127, 129 smartphone See smartphones solar, 151 temporary employment agencies, 232 natural rate of unemployment and, 224 Thailand, shrimp production of, 129, 132–133, 134, 149 theory of expansionary austerity, 520, 521, 522–523 A Theory of the Consumption Function (Friedman), 321 thermal solar plants, 405 Thoma, Mark, 43, 505 thrift(s), 437–438 thrift, paradox of, 334–335 tight monetary policy, 345, 459 time, limited, time lags, in fiscal policy, 387–388 time-series graphs, 58, 59 too big to fail subsidy, 441 total allowable catch quota system, 119–120 total consumer surplus, 160–161 total factor productivity, 247 R&D and, 251 real business cycle theory and, 517 rise and fall of, 248 total producer surplus, 163–164 total surplus, 138, 164–165 tariffs and, 145, 146 Toyota, 44, 375, 557 A Tract on Monetary Reform (Keynes), 372 trade, 11 See also export(s); import entries; international trade; international trade agreements free, 144, 148–149 gains from See gains from trade trade associations, economists employed by, 43 trade balance, merchandise, 534 trade deficits, 179–180 of United States, 179 trade protection, 144–151 arguments for, 148 challenges to globalization and, 150–151 import quotas as, 146 international trade agreements and World Trade Organization and, 148–149 politics of, 148 tariffs as, 144–146, 151 in United States, 147 trade surpluses, 179–181 trade-offs comparative advantage and, 32–36, 131 gains from trade and, 32–36 between holding monetary and nonmonetary assets, 448–449 individual choice and, between interest rates and investment spending, 324–325 www.freebookslides.com marginal analysis and See marginal analysis opportunity cost and See opportunity cost production possibility frontier and See production possibility frontier response to supply shocks and, 373–374 scarcity and See scarce resources traffic congestion, congestion pricing and, 76 transaction(s), circular-flow diagram and, 37–38 transaction costs, 288 transfer(s), international, 533 transfer payments See government transfers transparency, inflation targeting and, 462 Treasury bills on Fed’s balance sheet, 434 interest on, 432 open-market purchases of, 480 Trichet, Jean-Claude, 345, 358, 367 Trump, Donald, stimulus proposed by, 381, 386, 388–389 truncated axes, 60–61 trusts, 436 Turkey conditional cash transfer program in, productivity and wages in, 134 two-variable graphs, 49–51 U U-6, 214 Uber, 119, 121, 232 underemployment, 213 U-6 measure of, 214 unemployment, 212–217 budget deficit and, 395 cyclical, 223, 485, 486 defined, 212 duration of, 219–220 European, 222 frictional, 218–219 during Great Depression, 167 Greek, 167 growth in the economy and, 215–216 inflation and See long-run Phillips curve; Phillips curve; short-run Phillips curve Keynesian economics and, 514 macroeconomic policy and, 211 measurement of, 212–214 natural rate hypothesis and, 493, 514, 518, 520 recessionary gaps and, 368–369 recessions and, 173, 215–216 structural See structural unemployment U-6 measure of, 214 unemployment benefits, 224–225 unemployment rate, 173 for college graduates, 2000–2017, 217 defined, 213 of different groups, 214–215 natural See natural rate of unemployment natural rate hypothesis and See natural rate of unemployment output gaps and, 484–485, 486 See also Phillips curve; short-run Phillips curve significance of, 213–214 stimulus plans and, 388 www.freebookslides.com U.S., 490–491 unions See labor unions unit of account, money as, 416 United Kingdom British exit from EU and, 149 exchange rate of, 553 gasoline consumption of, 68 golden age of capital flows and, 538 inflation in, 483 inflation target of, 462 minimum wage in, 113 net public debt of, 400 productivity and wages in, 134 real GDP per capita in, 259 United Nations International Panel on Climate Change (IPCC), 263 United States See also Federal and federal entries banking system of See U.S banking system business cycle in, 172, 174 comparative advantage in clothing production, 39 currency in circulation of, 415, 418 deflation in, 496–497 disinflation in, 495 dispute with Brazil over cotton subsidies, 149 economic growth in, 238–239, 240, 241 economics taught in, effective exchange rate of, 547 gasoline consumption of, 68 GDP per capita and well-being in, 198 government spending and tax revenue of, 382 Great Moderation in, 519–520 higher education in, 243 housing bubble in, 298, 299–300, 438–440 income distribution in, 257 industrial output of, during 1985–2017, 171–172 industrial output of, during 2007–2016, 174 inflation in, 202–203, 477, 483 inflation target of, 462 interest rates in, 285–286 investment spending of, 275 minimum wage in, 113 NAFTA and, 149 net capital inflows of, 281 net public debt of, 400 nominal GDP of, 198 as open economy, 179 pollution in, 262 price level and inflation rate in, 226, 227 productivity and wages in, 134 productivity in, 251 real GDP per capita in, 238–239, 240, 241, 258, 259 real median income in, 258 recessions in, 3, 175 See also Great Recession savings–investment spending identity in, 275 standard of living in, trade and wages in, 143 trade deficit of, 179 trade protection in, 147 unemployment and inflation rates in, 490–491 unemployment rate in, 212–213, 214–217 wages in, 150 www.freebookslides.com U.S banking system, 435–441 crisis in, in early twentieth century, 435 Federal Reserve System and See Federal Reserve System (Fed) financial crisis of 2008 and its aftermath and, 438–441 savings-and-loan crisis of the 1980s and, 437–438 U.S Census Bureau, unemployment defined by, 212 U.S Defense Department, 252 U.S International Trade Commission, 147 unit-of-account costs, 228–229 universities See higher education unpaid interns, 114 unplanned inventory investment, 326 up against the zero bound, 463 Uruguay, economic growth in, 256 U.S dollar, purchasing power of, 500 V value absolute, 54 money as store of, 415–416 value added, 191–192 value-added tax (VAT), 41–42 variable(s), 49 dependent, 50–51 independent, 50–51 omitted, 61–62 VAT See value-added tax velocity of money, 513 Venezuela hyperinflation in, 227 price controls in, 108–109 real and nominal GDP of, 198–199 Venmo, 448, 469 vertical axis, 50 vertical curves, slope of, 53–54 vertical intercept, 52 veterinarians, demand for, 83 Viacom Media, 114 Vietnam clothing exports of, 37 shrimp production of, 129, 132–133, 134, 149 wages in, 150 virtual currencies Bitcoin, 227, 418 Ethereum, 418 W wage(s) currencies and, 555–556 efficiency, 222 as factor prices, 142 international comparison of, 113, 134 international trade and, 141–143 minimum See minimum wage nominal See nominal wages real, 226 sticky, 355, 357, 363–364 www.freebookslides.com structural unemployment and, 221–222 wage rates, productivity and, 133, 134 Wall Street Reform and Consumer Protection Act of 2010, 440–441 Walmart, 6, 152, 182, 248–249 Walt Disney Company, 533 wampum, 418 wasted resources, 106 price floors and, 113 watches, Switzerland’s comparative advantage in, 136 wealth aggregate, changes in, aggregate consumption function and, 321–322 changes in, shifts of the aggregate demand curve and, 351–352 oil as source of, 247 wealth effect of a change in the aggregate price level, downward slope of aggregate demand curve and, 347, 352 The Wealth of Nations (Smith), 2, 12, 417, 507 wedges, 118 welfare, 135, 146 trade protection and, 145, 147 welfare losses, tariffs and, 147 well-being, GDP per capita and, 198 wholesale price index, 201, 202 willingness to pay consumer surplus and, 160–162 demand curve and, 159–160 wind power, 261, 262, 263 work See employment; labor entries; unemployment; unemployment rate Works Progress Administration (WPA), 392 world GDP, 128 world price, 138–139 World Trade Organization (WTO), 149 World War II debt from, 402 economic boom following, 323 government spending during, 353, 366, 510 Great Depression and, 507 price ceilings during, 102 price indexes during, 202–203 WPA See Works Progress Administration (WPA) Wright, Wilbur and Orville, 25 WTO See World Trade Organization (WTO) X x-axis, 50 Y y-axis, 50 Yellen, Janet, 429, 447 yen, 557 yuan, 415, 477 amount in circulation, 415 pegging of, 552 revaluation of, 553 Yunus, Mohammed, 301 Z www.freebookslides.com Zappos, 228 zero interest rate policy (ZIRP), 497–498 zero lower bound for interest rates, 460, 463, 496–497 Zimbabwe economic decline in, 240, 241 hyperinflation in, 228 inflation in, 477, 479, 480, 483 ZIRP See zero interest rate policy (ZIRP) zones of recent settlement, 538 Zuckerberg, Mark, ... Trade PART Introduction to Macroeconomics Chapter Macroeconomics: The Big Picture Greek Tragedies The Nature of Macroeconomics Macroeconomic Questions www.freebookslides.com Macroeconomics: The Whole... Students develop data literacy by completing these new interactive exercises, step -by- step problems that have students use up-to-the-minute FRED data Current events framed by the world’s best communicators... concepts and skills It is simply the best support for Principles of Economics MACROECONOMICS MACROECONOMICS Fifth Edition Paul Krugman Graduate Center of the City University of New York Robin Wells