Macroeconomics, 7th Edition

641 Pages·2009·2.84 MB·English

by  N. Gregory Mankiw

MACROECONOMICS
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S E V E N T H E D I T I O N
MACROECONOMICS
.
N GREGORY MANKIW
Harvard University
Worth Publishers
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WHAT’S YOUR ANGLE?
Encaustic on Wood Panel 24'' x 24'' © 2005
Library of Congress Cataloging-in-Publication Number: 2009924581
ISBN-13: 978-1-4292-1887-0
ISBN-10: 1-4292-1887-8
© 2010, 2007, 2003 by N. Gregory Mankiw
All rights reserved.
Printed in the United States of America
First Printing 2009
Worth Publishers
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New York, NY 10010
www.worthpublishers.com
about the author
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N. Gregory Mankiw is Professor of Economics at Harvard University. He began
his study of economics at Princeton University, where he received an A.B. in 1980.
After earning a Ph.D. in economics from MIT, he began teaching at Harvard in
1985 and was promoted to full professor in 1987. Today, he regularly teaches both
undergraduate and graduate courses in macroeconomics. He is also author of the
popular introductory textbook Principles of Economics (Cengage Learning).
Professor Mankiw is a regular participant in academic and policy debates. His
research ranges across macroeconomics and includes work on price adjustment,
consumer behavior, financial markets, monetary and fiscal policy, and economic
growth. In addition to his duties at Harvard, he has been a research associate of
the National Bureau of Economic Research, a member of the Brookings Panel
on Economic Activity, and an adviser to the Federal Reserve Bank of Boston and
the Congressional Budget Office. From 2003 to 2005 he was chairman of the
President’s Council of Economic Advisers.
Professor Mankiw lives in Wellesley, Massachusetts, with his wife, Deborah;
children, Catherine, Nicholas, and Peter; and their border terrier, Tobin.
v
To Deborah
T
hose branches of politics, or of the laws of social life, on which there
exists a collection of facts sufficiently sifted and methodized to form
the beginning of a science should be taught ex professo. Among the
chief of these is Political Economy, the sources and conditions of wealth and
material prosperity for aggregate bodies of human beings. . . .
The same persons who cry down Logic will generally warn you against Polit-
ical Economy. It is unfeeling, they will tell you. It recognises unpleasant facts. For
my part, the most unfeeling thing I know of is the law of gravitation: it breaks
the neck of the best and most amiable person without scruple, if he forgets for a
single moment to give heed to it. The winds and waves too are very unfeeling.
Would you advise those who go to sea to deny the winds and waves – or to make
use of them, and find the means of guarding against their dangers? My advice to
you is to study the great writers on Political Economy, and hold firmly by what-
ever in them you find true; and depend upon it that if you are not selfish or hard-
hearted already, Political Economy will not make you so.
John Stuart Mill, 1867
brief contents
Preface xxiii
Supplements and Media xxxii
part I
Chapter 11 Aggregate Demand II: Applying the
Introduction 1 IS–LMModel 311
Chapter 12 The Open Economy Revisited: The
Chapter 1 The Science of Macroeconomics 3
Mundell–Fleming Model and the
Chapter 2 The Data of Macroeconomics 17 Exchange-Rate Regime 339
Chapter 13 Aggregate Supply and the Short-Run
Tradeoff Between Inflation and
part II Unemployment 379
Classical Theory: The Economy in the Chapter 14 A Dynamic Model of Aggregate
Long Run 43 Demand and Aggregate Supply 409
Chapter 3 National Income: Where It Comes
From and Where It Goes 45
part V
Chapter 4 Money and Inflation 79
Macroeconomic Policy Debates 443
Chapter 5 The Open Economy 119
Chapter 6 Unemployment 163 Chapter 15 Stabilization Policy 445
Chapter 16 Government Debt and Budget
Deficits 467
part III
Growth Theory: The Economy in the
part VI
Very Long Run 189
More on the Microeconomics Behind
Chapter 7 Economic Growth I: Capital
Macroeconomics 493
Accumulation and Population
Growth 191 Chapter 17 Consumption 495
Chapter 8 Economic Growth II: Technology, Chapter 18 Investment 525
Empirics, and Policy 221
Chapter 19 Money Supply, Money Demand, and
the Banking System 547
part IV
EpilogueWhat We Know, What We Don’t 567
Business Cycle Theory: The Economy
in the Short Run 255
Glossary 575
Chapter 9 Introduction to Economic
Index 585
Fluctuations 257
Chapter 10 Aggregate Demand I: Building the
IS–LMModel 287
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contents
Preface xxiii
Supplements and Media xxxii
part I Introduction 1
Chapter 1 The Science of Macroeconomics 3
1-1 What Macroeconomists Study 3
(cid:2) CASE STUDY The Historical Performance of the U.S. Economy 4
1-2 How Economists Think 7
Theory as Model Building 7
(cid:2) FYI Using Functions to Express Relationships Among Variables 11
The Use of Multiple Models 12
Prices: Flexible Versus Sticky 12
Microeconomic Thinking and Macroeconomic Models 13
(cid:2) FYI Nobel Macroeconomists 14
1-3 How This Book Proceeds 15
Chapter 2 The Data of Macroeconomics 17
2-1 Measuring the Value of Economic Activity:
Gross Domestic Product 18
Income, Expenditure, and the Circular Flow 18
(cid:2) FYI Stocks and Flows 20
Rules for Computing GDP 20
Real GDP Versus Nominal GDP 23
The GDP Deflator 25
Chain-Weighted Measures of Real GDP 25
(cid:2) FYI Two Arithmetic Tricks for Working With Percentage Changes 26
The Components of Expenditure 27
(cid:2) FYI What Is Investment? 28
(cid:2) CASE STUDY GDP and Its Components 28
Other Measures of Income 29
Seasonal Adjustment 31
2-2 Measuring the Cost of Living: The Consumer Price Index 32
The Price of a Basket of Goods 32
The CPI Versus the GDP Deflator 33
(cid:2) CASE STUDY Does the CPI Overstate Inflation? 35
2-3 Measuring Joblessness: The Unemployment Rate 36
The Household Survey 36
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