Macroeconomics, 7th. ed.

• Main Author: Andrew B. Abel, Ben S. Bernanke, Dean Croushore.
• Format: Book
• Language: English
• Published: Pearson 2020
• Subjects: Macroeconomics
• Online Access: http://dspace.uniten.edu.my/jspui/handle/123456789/15314

What is taught in intermediate macroeconomics courses and how it is taught has changed substantially in recent years. Previous editions of Macroeconomics played a major role in these developments. The seventh edition provides lively coverage of a broad spectrum of macroeconomic issues and ideas, including a variety of new and updated topics: Monetary policy. In response to the financial crisis in 2008, the Federal Reserve introduced new tools to prop up the financial system and to influence economic activity, so we have added a substantial amount of material to discuss many different aspects of these policy changes. In addition, because most central banks now rely primarily on targeting interest rates, we derive a new (horizontal) curve (the LR curve) in place of the LM curve and show how to use this modified IS-LM model to analyze monetary policy in the context of interest-rate targeting. These two major changes have led us to rewrite Chapter 14 on monetary policy substantially. New or substantially revised coverage: In Chapter 14 we now discuss the money multiplier during severe financial crises, comparing the money supply during the Great Depression to that from 2007-2009, illustrate the changes in the Federal Reserve's balance sheet during the recent financial crisis, describe the Federal Reserve's payment of interest on reserves, and expand our analysis of both the Taylor rule and inflation targeting. Long-term economic growth. Because the rate of economic growth plays a central role in determining living standards, we devote much of Part 2 to growth and related issues. We first discuss factors contributing to growth, such as productivity (Chapter 3) and rates of saving and investment (Chapter 4); then in Chapter 6 we turn to a full-fledged analysis of the growth process, using tools such as XV xvi Preface growth accounting and the Solow model. Growth-related topics covered include the post-1973 productivity slowdown, the factors that determine long-run living standards, and the productivity "miracle" of the 1990s. Revised coverage: Updated data and a discussion of the recent growth of China's economy. International macroeconomic issues. We address the increasing integration of the world economy in two ways. First, we frequently use cross-country comparisons and applications that draw on the experiences of nations other than the United States. For example, in Chapter 3, we compare U.S. and European labor markets; in Chapter 6 we compare the long-term economic growth rates of several countries; in Chapter 7 we compare inflation experiences among European countries in transition; in Chapter 8 we compare the growth in industrial production in several countries; in Chapter 12 we compare sacrifice ratios among various countries; and in Chapter 14 we discuss strategies used for making monetary policy around the world. Second, we devote two chapters, 5 and 13, specifically to international issues. In Chapter 5 we show how the trade balance is related to a nation's rates of saving and investment, and then apply this framework to discuss issues such as the U.S. trade deficit and the relationship between government budget deficits and trade deficits. In Chapter 13 we use a simple supply-demand framework to examine the determination of exchange rates. The chapter features innovative material on fixed exchange rates and currency unions, including an explanation of why a currency may face a speculative run. Revised coverage: The text includes updated data comparing U.S. and European labor markets (Chapter 3) and a discussion of the impact of globalization on the U.S. economy (Chapter 5). Business cycles. Our analysis of business cycles begins with facts rather than theories. In Chapter 8 we give a history of U.S. business cycles and then describe the observed cyclical behavior of a variety of important economic variables (the "business cycle facts"). In Chapters 9-11 we evaluate alternative classical and Keynesian theories of the cycle by how well they explain the facts. New to this edition: The text now includes a description of the Fed's preferred inflation measures (Chapter 2), contains a discussion of the housing crisis that began in 2007 (Chapter 7), shows how the rate of job loss and job finding vary across the business cycle (Chapter 8), and presents new coincident indexes (Chapter 8). Fiscal policy. The effects of macroeconomic policies are considered in nearly every chapter, in both theory and applications. We present classical (Chapter 10), Keynesian (Chapter 11), and monetarist (Chapter 14) views on the appropriate use of policy. New or substantially revised coverage: The text now discusses evidence on how consumers respond to tax rebates (Chapter 2) and a description of the fiscal stimulus package of 2009 and its impact on the debt-GDP ratio (Chapter 15). Labor market issues. We pay close attention to issues relating to employment, unemployment, and real wages. We introduce the basic supply-demand model of the labor market, as well as unemployment, early, in Chapter 3. We discuss unemployment more extensively in Chapter 12, which covers the inflationunemployment trade-off, the costs of unemployment, and government policies for reducing unemployment. Other labor market topics include household production and how it affects the business cycle (Chapter 10), efficiency wages (Chapter 11), and the effects of marginal and average tax rate changes on labor supply (Chapter 15). New or substantially revised coverage: The text now discusses Preface • • XVII in greater detail the degree to which jobs are lost and gained over the course of the business cycle, showing data based on recent research. A S o l i d Foun dation The seventh edition builds on the strengths that underlie the book's lasting appeal to instructors and students, including: Real-world applications. A perennial challenge for instructors is to help students make active use of the economic ideas developed in the text. The rich variety of applications in this book shows by example how economic concepts can be put to work in explaining real-world issues such as the housing crisis that began in 2007 and the financial crisis of 2008, the contrasting behavior of unemployment in the United States and Europe, the slowdown and revival in productivity growth, the challenges facing the Social Security system and the Federal budget, the impact of globalization on the U.S. economy, and new approaches to making monetary policy that were used in response to the financial crisis in 2008. The seventh edition offers new applications as well as updates of the best applications and analyses of previous editions. Broad modern coverage. From its conception, Macroeconomics has responded to students' desires to investigate and understand a wider range of macroeconomic issues than is permitted by the course's traditional emphasis on shortrun fluctuations and stabilization policy. This book provides a modern treatment of these traditional topics but also gives in-depth coverage of other important macroeconomic issues such as the determinants of long-run economic growth, the trade balance and financial flows, labor markets, and the institutional framework of policymaking. This comprehensive coverage also makes the book a useful tool for instructors with differing views about course coverage and topic sequence. Reliance on a set of core economic ideas. Although we cover a wide range of topics, we avoid developing a new model or theory for each issue. Instead we emphasize the broad applicability of a set of core economic ideas (such as the production function, the trade-off between consuming today and saving for tomorrow, and supply-demand analysis) . Using these core ideas, we build a theoretical framework that encompasses all the macroeconomic analyses presented in the book: long-run and short-run, open-economy and closed-economy, and classical and Keynesian. A balanced presentation. Macroeconomics is full of controversies, many of which arise from the split between classicals and Keynesians (of the old, new, and neo-varieties). Sometimes the controversies overshadow the broad common ground shared by the two schools. We emphasize that common ground. First, we pay greater attention to long-run issues (on which classicals and Keynesians have less disagreement) . Second, we develop the classical and Keynesian analyses of short-run fluctuations within a single overall framework, in which we show that the two approaches differ principally in their assumptions about how quickly wages and prices adjust. Where differences in viewpoint remainfor example, in the search versus efficiency-wage interp retations of unemployment we present and critique both perspectives. This balanced approach exposes students to all the best ideas in modern macroeconomics. At xviii Preface the same time, an instructor of either classical or Keynesian inclination can easily base a course on this book. Innovative pedagogy. The seventh edition, like its predecessors, provides a variety of useful tools to help students study, understand, and retain the material. Described in more detail later in the preface, these tools include summary tables, key diagrams, key terms, and key equations to aid students in organizing their study, and four types of questions and problems for practice and developing understanding, including problems that encourage students to do their own empirical work, using data readily available on the Internet. Several appendices illustrate how to solve numerical exercises that are based on the algebraic descriptions of the IS-LM/AS-AD model. A Flexi b l e Organization The seventh edition maintains the flexible structure of earlier editions. In Part 1 (Chapters 1-2), we introduce the field of macroeconomics and discuss issues of economic measurement. In Part 2 (Chapters 3-7), we focus on long-run issues, including productivity, saving, investment, the trade balance, growth, and inflation. We devote Part 3 (Chapters 8-11) to the study of short-run economic fluctuations and stabilization policy. Finally, in Part 4 (Chapters 12-15), we take a closer look at issues and institutions of policymaking. Appendix A at the end of the book reviews useful algebraic and graphical tools. Instructors of intermediate macroeconomics have different preferences as to course content, and their choices are often constrained by their students' backgrounds and the length of the term. The structure of Macroeconomics accommodates various needs. In planning how to use the book, instructors might find it useful to consider the following points: Core chapters. We recommend that every course include these six chapters: Chapter 1 Introduction to Macroeconomics Chapter 2 The Measurement and Structure of the National Economy Chapter 3 Productivity, Output, and Employment Chapter 4 Consumption, Saving, and Investment Chapter 7 The Asset Market, Money, and Prices Chapter 9 The IS-LM/ AD-AS Model: A General Framework for Macroeconomic Analysis Chapters 1 and 2 provide an introduction to macroeconomics, including national income accounting. The next four chapters in the list make up the analytical core of the book: Chapter 3 examines the labor market, Chapters 3 and 4 together develop the goods market, Chapter 7 discusses the asset market, and Chapter 9 combines the three markets into a general equilibrium model usable for short-run analysis (in either a classical or Keynesian mode). Suggested additions. To a syllabus containing these six chapters, instructors can add various combinations of the other chapters, depending on the course focus. The following are some possible choices: Short-run focus. Instructors who prefer to emphasize short-run issues (business cycle fluctuations and stabilization policy) may omit Chapters 5 and 6 without loss of continuity. They could also go directly from Chapters 1 Preface • XIX and 2 to Chapters 8 and 9, which introduce business cycles and the IS-LM/ AD-AS framework. Although the presentation in Chapters 8 and 9 is self-contained, it will be helpful for instructors who skip Chapters 3-7 to provide some background and motivation for the various behavioral relationships and equilibrium conditions. Classical emphasis. For instructors who want to teach the course with a modern classical emphasis, we recommend assigning all the chapters in Part 2. In Part 3, Chapters 8-10 provide a self-contained presentation of classical business cycle theory. Other material of interest includes the Friedman- Phelps interpretation of the Phillips curve (Chapter 12), the role of credibility in monetary policy (Chapter 14), and Ricardian equivalence with multiple generations (Chapter 15). Keynesian emphasis. Instructors who prefer a Keynesian emphasis may choose to omit Chapter 10 (classical business cycle analysis). As noted, if a short-run focus is preferred, Chapter 5 (full-employment analysis of the open economy) and Chapter 6 (long-run economic growth) may also be omitted without loss of continuity. International focus. Chapter 5 discusses saving, investment, and the trade balance in an open economy with full employment. Chapter 13 considers exchange rate determination and macroeconomic policy in an open-economy model in which short-run deviations from full employment are possible. (Chapter 5 is a useful but not essential prerequisite for Chapter 13.) Both chapters may be omitted for a course focusing on the domestic economy.