Macroeconomics: Canadian Edition

Description

With current Canadian examples, Macroeconomics: Canadian Edition takes a storytelling style to guide you through examples that help clarify how economic concepts work today. Inside Cover Title Page Copyright Page Engaging Students in the Study of Economics About the Authors Vision and Story of Economics Engaging Students with a Narrative Approach Engaging Students with Effective Tools for Learning Engaging Students with Technology Powerful Support for Instructors Acknowledgments Contents Part 1 What Is Economics? Introduction An Engine for Growth and Discovery A Day in the Megacity The Invisible Hand My Benefit, Your Cost Good Times, Bad Times Onward and Upward An Engine for Discovery Key Terms Chapter 1 First Principles Common Ground Principles That Underlie Individual Choice: The Core of Economics Principle #1: Choices Are Necessary Because Resources Are Scarce Principle #2: The True Cost of Something Is Its Opportunity Cost Principle #3: “How Much” Is a Decision at the Margin Principle #4: People Usually Respond to Incentives, Exploiting Opportunities to Make Themselves Better Off For Inquiring Minds Using Incentives to Break the Cycle of Poverty ECONOMICS in Action Boy or Girl? It Depends on the Cost Check Your Understanding 1-1 Quick Review Interaction: How Economies Work Principle #5: There Are Gains from Trade Principle #6: Markets Move Toward Equilibrium Principle #7: Resources Should Be Used Efficiently to Achieve Society’s Goals Principle #8: Markets Usually Lead to Efficiency Principle #9: When Markets Don’t Achieve Efficiency, Government Intervention Can Improve Society’s Welfare ECONOMICS in Action The Fundamental Law of Traffic Congestion Check Your Understanding 1-2 Quick Review Economy-Wide Interactions Principle #10: One Person’s Spending Is Another Person’s Income Principle #11: Overall Spending Sometimes Gets Out of Line with the Economy’s Productive Capacity Principle #12: Government Policies Can Change Spending ECONOMICS in Action Adventures in Babysitting Check Your Understanding 1-3 Quick Review BUSINESS CASE How Priceline Revolutionized the Travel Industry Summary Key Terms Problems Chapter 2 Economic Models: Trade-offs and Trade From Kitty Hawk to CSeries Models in Economics: Some Important Examples For Inquiring Minds The Model That Ate the Economy Trade-offs: The Production Possibility Frontier Comparative Advantage and Gains from Trade Comparative Advantage and International Trade, in Reality Transactions: The Circular-Flow Diagram GLOBAL COMPARISON Pajama Republics ECONOMICS in Action Rich Nation, Poor Nation Check Your Understanding 2-1 Quick Review Using Models Positive versus Normative Economics When and Why Economists Disagree For Inquiring Minds When Economists Agree ECONOMICS in Action Economists: What Are They Good For? Check Your Understanding 2-2 Quick Review BUSINESS CASE Efficiency, Opportunity Cost, and the Logic of Lean Production Summary Key Terms Problems Chapter 2 Appendix: Graphs in Economics Getting the Picture Graphs, Variables, and Economic Models How Graphs Work Two-Variable Graphs Curves on a Graph A Key Concept: The Slope of a Curve The Slope of a Linear Curve Horizontal and Vertical Curves and Their Slopes The Slope of a Non-linear Curve Calculating the Slope Along a Non-linear Curve Maximum and Minimum Points Calculating the Area Below or Above a Curve Graphs That Depict Numerical Information Types of Numerical Graphs Problems in Interpreting Numerical Graphs Problems Part 2 Supply and Demand Chapter 3 Supply and Demand A Natural Gas Boom Supply and Demand: A Model of a Competitive Market The Demand Curve The Demand Schedule and the Demand Curve Shifts of the Demand Curve GLOBAL COMPARISON Pay More, Pump Less Understanding Shifts of the Demand Curve ECONOMICS in Action Beating the Traffic Check Your Understanding 3-1 Quick Review The Supply Curve The Supply Schedule and the Supply Curve Shifts of the Supply Curve Understanding Shifts of the Supply Curve ECONOMICS in Action Only Creatures Small and Pampered Check Your Understanding 3-2 Quick Review Supply, Demand, and Equilibrium Finding the Equilibrium Price and Quantity 1. Why Do All Sales and Purchases in a Market Take Place at the Same Price? 2. Why Does the Market Price Fall If It Is Above the Equilibrium Price? 3. Why Does the Market Price Rise If It Is Below the Equilibrium Price? Using Equilibrium to Describe Markets ECONOMICS in Action The Price of Admission Check Your Understanding 3-3 Quick Review Changes in Supply and Demand What Happens When the Demand Curve Shifts What Happens When the Supply Curve Shifts Simultaneous Shifts of Supply and Demand Curves ECONOMICS in Action The Cotton Panic and Crash of 2011 Check Your Understanding 3-4 Quick Review Competitive Markets—and Others BUSINESS CASE Uber Gives Riders a Lesson in Supply and Demand Summary Key Terms Problems Chapter 3 Appendix A: The Algebra of Demand, Supply, and Equilibrium The Demand Curve The Supply Curve Market Equilibrium Problems Chapter 3 Appendix B: Consumer and Producer Surplus Consumer Surplus and the Demand Curve Willingness to Pay and the Demand Curve Willingness to Pay and Consumer Surplus Producer Surplus and the Supply Curve Cost and Producer Surplus The Gains from Trade Problems Chapter 4 Price Controls and Quotas: Meddling with Markets Big City, Not So Bright Ideas Why Governments Control Prices Price Ceilings Modeling a Price Ceiling How a Price Ceiling Causes Inefficiency For Inquiring Minds Mumbai’s Rent-Control Millionaires So Why Are There Price Ceilings? ECONOMICS in Action Why Price Controls in Venezuela Proved Useless Check Your Understanding 4-1 Quick Review Price Floors How a Price Floor Causes Inefficiency GLOBAL COMPARISON Check Out Our Low, Low Wages! So Why Are There Price Floors? ECONOMICS in Action The Rise and Fall of the Unpaid Intern Check Your Understanding 4-2 Quick Review Controlling Quantities The Anatomy of Quantity Controls The Costs of Quantity Controls ECONOMICS in Action The Lobsters of Atlantic Canada Check Your Understanding 4-3 Quick Review BUSINESS CASE Uber, Welcome to Vancouver. Not Yet! Summary Key Terms Problems Part 3 Individuals and Markets Chapter 5 International Trade The Everywhere Phone Comparative Advantage and International Trade Production Possibilities and Comparative Advantage, Revisited The Gains from International Trade Comparative Advantage versus Absolute Advantage GLOBAL COMPARISON Productivity and Wages Around the World Sources of Comparative Advantage For Inquiring Minds Increasing Returns to Scale and International Trade ECONOMICS in Action How Hong Kong Lost Its Shirts Check Your Understanding 5-1 Quick Review Supply, Demand, and International Trade The Effects of Imports The Effects of Exports International Trade and Wages ECONOMICS in Action Trade, Wages, and Land Prices in the Nineteenth Century Check Your Understanding 5-2 Quick Review The Effects of Trade Protection The Effects of a Tariff The Effects of an Import Quota ECONOMICS in Action Trade Protection in Canada Check Your Understanding 5-3 Quick Review The Political Economy of Trade Protection Arguments for Trade Protection The Politics of Trade Protection International Trade Agreements and the World Trade Organization Challenges to Globalization ECONOMICS in Action Solar Disputes Check Your Understanding 5-4 Quick Review BUSINESS CASE Li & Fung: From Guangzhou to You Summary Key Terms Problems Chapter 6 Macroeconomics: The Big Picture Greek Tragedies The Nature of Macroeconomics Macroeconomic Questions Macroeconomics: The Whole Is Greater Than the Sum of Its Parts Macroeconomics: Theory and Policy ECONOMICS in Action Fending Off Depression Check Your Understanding 6-1 Quick Review The Business Cycle Charting the Business Cycle The Pain of Recession Taming the Business Cycle For Inquiring Minds Defining Recessions and Expansions GLOBAL COMPARISON Slumps Across the Atlantic ECONOMICS in Action Comparing Recessions Check Your Understanding 6-2 Quick Review Long-Run Economic Growth ECONOMICS in Action A Tale of Two Countries Check Your Understanding 6-3 Quick Review Inflation and Deflation The Causes of Inflation and Deflation The Pain of Inflation and Deflation ECONOMICS in Action A Fast (Food) Measure of Inflation Check Your Understanding 6-4 Quick Review International Imbalances ECONOMICS in Action Greece’s Costly Surplus Check Your Understanding 6-5 Quick Review BUSINESS CASE The Business Cycle and the Decline of Montgomery Ward Summary Key Terms Problems Chapter 7 GDP and the CPI: Tracking the Macroeconomy China Hits the Big Time The National Accounts Following the Funds: The Expanded Circular-Flow Diagram Gross Domestic Product Calculating GDP For Inquiring Minds Our Imputed Lives What GDP Tells Us For Inquiring Minds Gross What? Check Your Understanding 7-1 Quick Review Real GDP: A Measure of Aggregate Output Calculating Real GDP What Real GDP Doesn’t Measure GLOBAL COMPARISON GDP and the Meaning of Life ECONOMICS in Action Miracle in Venezuela? Check Your Understanding 7-2 Quick Review Price Indexes and the Aggregate Price Level Market Baskets and Price Indexes The Consumer Price Index Other Price Measures ECONOMICS in Action Indexing to the CPI Check Your Understanding 7-3 Quick Review BUSINESS CASE Betting on Bad Numbers Summary Key Terms Problems Chapter 8 Unemployment and Inflation An Unwelcome Dilemma The Unemployment Rate Defining and Measuring Unemployment The Significance of the Unemployment Rate Growth and Unemployment ECONOMICS in Action Failure to Launch Check Your Understanding 8-1 Quick Review The Natural Rate of Unemployment Job Creation and Job Destruction Frictional Unemployment Structural Unemployment The Natural Rate of Unemployment Changes in the Natural Rate of Unemployment ECONOMICS in Action Structural Unemployment in Spain Check Your Understanding 8-2 Quick Review Inflation and Deflation The Level of Prices Doesn’t Matter … … But the Rate of Change of Prices Does Winners and Losers from Unexpected Inflation Inflation Is Easy; Disinflation Is Hard ECONOMICS in Action Israel’s Experience with Inflation Check Your Understanding 8-3 Quick Review BUSINESS CASE AskforTask Summary Key Terms Problems Part 4 Long-Run Economic Growth Chapter 9 Long-Run Economic Growth Airpocalypse Now Comparing Economies Across Time and Space Real GDP per Capita Growth Rates ECONOMICS in Action An Economic Breakthrough in Bangladesh Check Your Understanding 9-1 Quick Review The Sources of Long-Run Growth The Crucial Importance of Productivity Explaining Growth in Productivity Accounting for Growth: The Aggregate and Per Worker Production Functions What About Natural Resources? ECONOMICS in Action The Rise, Fall, and Return of the Productivity Paradox Check Your Understanding 9-2 Quick Review Why Growth Rates Differ Explaining Differences in Growth Rates The Role of Government in Promoting Economic Growth For Inquiring Minds Inventing R&D ECONOMICS in Action What’s the Matter with Italy? Check Your Understanding 9-3 Quick Review Success, Disappointment, and Failure East Asia’s Miracle Latin America’s Disappointment Africa’s Troubles and Promise Left Behind by Growth? ECONOMICS in Action Are Economies Converging? Check Your Understanding 9-4 Quick Review Is World Growth Sustainable? Natural Resources and Growth, Revisited Economic Growth and the Environment ECONOMICS in Action What Is the Cost of Limiting Carbon? Check Your Understanding 9-5 Quick Review BUSINESS CASE Raising the Bar(code) Summary Key Terms Problems Chapter 10 Savings, Investment Spending, and the Financial System Paying for a Hidden Empire Matching Up Savings and Investment Spending The Savings–Investment Spending Identity The Domestic Market for Loanable Funds For Inquiring Minds Using Present Value ECONOMICS in Action Sixty Years of Canadian Interest Rates Check Your Understanding 10-1 Quick Review The Financial System Three Tasks of a Financial System Types of Financial Assets Financial Intermediaries GLOBAL COMPARISON Corporate Bonds in Canada and the Euro Area ECONOMICS in Action Banks and the South Korean Miracle Check Your Understanding 10-2 Quick Review Financial Fluctuations The Demand for Stocks For Inquiring Minds How Now, Dow Jones? The Demand for Other Assets Asset Price Expectations For Inquiring Minds Behavioural Finance Asset Prices and Macroeconomics ECONOMICS in Action The Great Canadian Housing Bubble Check Your Understanding 10-3 Quick Review BUSINESS CASE Grameen Bank: Banking Against Poverty Summary Key Terms Problems Chapter 10 Appendix: Toward a Fuller Understanding of Present Value How to Calculate the Present Value of One-Year Projects How to Calculate the Present Value of Multiyear Projects How to Calculate the Present Value of Projects with Revenues and Costs How to Calculate the Price of a Bond Using Present Value How to Calculate the Price of a Share of Stock Using Present Value Problems Part 5 Short-Run Economic Fluctuations Chapter 11 Income and Expenditure Hard Times in Helsinki The Multiplier: An Informal Introduction ECONOMICS in Action To Shale and Back Check Your Understanding 11-1 Quick Review Consumer Spending Current Disposable Income and Consumer Spending Shifts of the Aggregate Consumption Function ECONOMICS in Action Famous First Forecasting Failures Check Your Understanding 11-2 Quick Review Investment Spending 1. The Interest Rate and Investment Spending 2. Expected Future Real GDP, Production Capacity, and Investment Spending 3. Inventories and Unplanned Investment Spending ECONOMICS in Action Interest Rates and the Canadian Housing Market Check Your Understanding 11-3 Quick Review The Income–Expenditure Model Planned Aggregate Expenditure and Real GDP Income–Expenditure Equilibrium The Multiplier Process and Inventory Adjustment What About Exports and Imports? ECONOMICS in Action Inventories and the End of a Recession Check Your Understanding 11-4 Quick Review BUSINESS CASE What’s Good for North America Is Good for GM Summary Key Terms Problems Chapter 11 Appendix: Deriving the Multiplier Algebraically Problems Chapter 12 Aggregate Demand and Aggregate Supply Different Generations, Different Policies Aggregate Demand Why Is the Aggregate Demand Curve Downward Sloping? The Aggregate Demand Curve and the Income–Expenditure Model Shifts of the Aggregate Demand Curve Government Policies and Aggregate Demand ECONOMICS in Action Moving Along the Aggregate Demand Curve, 1979–1982 Check Your Understanding 12-1 Quick Review Aggregate Supply The Short-Run Aggregate Supply Curve Shifts of the Short-Run Aggregate Supply Curve For Inquiring Minds What’s Truly Flexible, What’s Truly Sticky The Long-Run Aggregate Supply Curve From the Short Run to the Long Run ECONOMICS in Action Sticky Wages in the Great Recession Check Your Understanding 12-2 Quick Review The AD–AS Model Short-Run Macroeconomic Equilibrium Shifts of Aggregate Demand: Short-Run Effects Shifts of the SRAS Curve Long-Run Macroeconomic Equilibrium For Inquiring Minds Where’s the Deflation? ECONOMICS in Action Supply Shocks versus Demand Shocks in Practice Check Your Understanding 12-3 Quick Review Macroeconomic Policy Policy in the Face of Demand Shocks For Inquiring Minds Keynes and the Long Run Responding to Supply Shocks ECONOMICS in Action Is Stabilization Policy Stabilizing? Check Your Understanding 12-4 Quick Review BUSINESS CASE Toyota Makes Its Move Summary Key Terms Problems Part 6 Stabilization Policy Chapter 13 Fiscal Policy To Stimulate or Not to Stimulate? Fiscal Policy: The Basics Taxes, Purchases of Goods and Services, Government Transfers, and Borrowing The Government Budget and Total Spending Expansionary and Contractionary Fiscal Policy Can Expansionary Fiscal Policy Actually Work? A Cautionary Note: Lags in Fiscal Policy ECONOMICS in Action What was in Canada’s 2009 Economic Action Plan? Check Your Understanding 13-1 Quick Review Fiscal Policy and the Multiplier Multiplier Effects of an Increase in Government Purchases of Goods and Services Multiplier Effects of Changes in Government Transfers and Taxes How Taxes Affect the Multiplier ECONOMICS in Action Austerity and the Multiplier Check Your Understanding 13-2 Quick Review The Budget Balance The Budget Balance as a Measure of Fiscal Policy The Business Cycle and the Cyclically Adjusted Budget Balance Should the Budget Be Balanced? ECONOMICS in Action Trying to Balance Budgets in a Recession Check Your Understanding 13-3 Quick Review Long-Run Implications of Fiscal Policy Deficits, Surpluses, and Debt Problems Posed by Rising Government Debt GLOBAL COMPARISON The Canadian Way of Debt Deficits and Debt in Practice For Inquiring Minds What Happened to the Debt from World War II? Implicit Liabilities ECONOMICS in Action Implicit Liabilities and the Baby Boomers Check Your Understanding 13-4 Quick Review BUSINESS CASE Infrastructure: If You Built It, Will the Economy Grow? Summary Key Terms Problems Chapter 13 Appendix: Taxes and the Multiplier Problems Chapter 14 Money, Banking, and the Central Banking System Funny Money The Meaning of Money What Is Money? Roles of Money GLOBAL COMPARISON The Big Moneys Types of Money Measuring the Money Supply For Inquiring Minds What’s with All the Currency? ECONOMICS in Action The History of the Canadian Dollar Check Your Understanding 14-1 Quick Review The Monetary Role of Banks What Banks Do The Problem of Bank Runs Bank Regulation ECONOMICS in Action It’s a Wonderful Banking System Check Your Understanding 14-2 Quick Review Determining the Money Supply How Banks Create Money Reserves, Bank Deposits, and the Money Multiplier The Money Multiplier in Reality ECONOMICS in Action Multiplying Money Down Check Your Understanding 14-3 Quick Review Central Banks The Functions of a Central Bank The Structure of the Bank of Canada Central Banks’ Tools of Monetary Control Open-Market Operations For Inquiring Minds Who Gets the Interest on the Bank of Canada’s Assets? Interest Rate Targets versus Money Supply Targets ECONOMICS in Action The Bank of Canada’s Balance Sheet, Normal and Abnormal Check Your Understanding 14-4 Quick Review The Evolution of the Canadian Banking System The First World War—An Early Crisis in Canadian Banking Responding to the Great Depression: The Creation of the Bank of Canada Back to the Future: The U.S. Financial Crisis of 2008 and Its Aftermath ECONOMICS in Action Why are Canada’s Banks More Stable? Check Your Understanding 14-5 Quick Review BUSINESS CASE The Perfect Gift: Cash or a Gift Card? Summary Key Terms Problems Chapter 15 Monetary Policy The Most Powerful Person in Government The Demand for Money The Opportunity Cost of Holding Money The Money Demand Curve Shifts of the Money Demand Curve ECONOMICS in Action A Yen for Cash Check Your Understanding 15-1 Quick Review Money and Interest Rates The Equilibrium Interest Rate Two Models of Interest Rates? Monetary Policy and the Interest Rate For Inquiring Minds Eight Fixed Dates for the BOC Policy Interest Rate Announcements Long-Term Interest Rates ECONOMICS in Action The Bank of Canada Reverses Course Check Your Understanding 15-2 Quick Review Monetary Policy and Aggregate Demand Expansionary and Contractionary Monetary Policy Monetary Policy in Practice Inflation Targeting GLOBAL COMPARISON Inflation Targets The Zero Lower Bound Problem ECONOMICS in Action What the Central Bank Wants, the Central Bank Gets Check Your Understanding 15-3 Quick Review Money, Output, and Prices in the Long Run Short-Run and Long-Run Effects of an Increase in the Money Supply Monetary Neutrality Changes in the Money Supply and the Interest Rate in the Long Run ECONOMICS in Action International Evidence of Monetary Neutrality Check Your Understanding 15-4 Quick Review BUSINESS CASE Parking Your Money at PayPal Summary Key Terms Problems Chapter 15 Appendix: Reconciling the Two Models of the Interest Rate The Interest Rate in the Short Run The Interest Rate in the Long Run Problems Chapter 16 Inflation, Disinflation, and Deflation Bringing a Suitcase to the Bank Money and Inflation The Classical Model of Money and Prices The Inflation Tax The Logic of Hyperinflation ECONOMICS in Action Zimbabwe’s Inflation Check Your Understanding 16-1 Quick Review Moderate Inflation and Disinflation The Output Gap and the Unemployment Rate For Inquiring Minds Okun’s Law The Short-Run Phillips Curve For Inquiring Minds The Aggregate Supply Curve and the Short-Run Phillips Curve Inflation Expectations and the Short-Run Phillips Curve ECONOMICS in Action The Phillips Curve in the Great Recession Check Your Understanding 16-2 Quick Review Inflation and Unemployment in the Long Run The Long-Run Phillips Curve The Natural Rate of Unemployment, Revisited GLOBAL COMPARISON Disinflation Around the World The Costs of Disinflation ECONOMICS in Action The Great Disinflation of the 1980s Check Your Understanding 16-3 Quick Review Deflation Debt Deflation Effects of Expected Deflation ECONOMICS in Action Is Europe Turning Japanese? Check Your Understanding 16-4 Quick Review BUSINESS CASE Dining and Dollars in Buenos Aires Summary Key Terms Problems Part 7 Events and Ideas Chapter 17 Macroeconomics: Events and Ideas Old Books and New Ideas Classical Macroeconomics Money and the Price Level The Business Cycle The Great Depression and the Keynesian Revolution Keynes’s Theory For Inquiring Minds The Politics of Keynes Policy to Fight Recessions ECONOMICS in Action The End of the Great Depression Check Your Understanding 17-1 Quick Review Challenges to Keynesian Economics The Revival of Monetary Policy Monetarism Limits to Macroeconomic Policy: Inflation and the Natural Rate of Unemployment The Political Business Cycle ECONOMICS in Action The Bank of Canada’s Flirtation with Monetarism Check Your Understanding 17-2 Quick Review Rational Expectations, Real Business Cycles, and New Classical Macroeconomics Rational Expectations Real Business Cycles ECONOMICS in Action The 1970s in Reverse Check Your Understanding 17-3 Quick Review The Great Moderation Consensus Modern Macroeconomics After the Great Recession The Economic Environment Post Recession Stimulus versus Austerity Unconventional Monetary Policy ECONOMICS in Action Japan’s Escape Attempt Check Your Understanding 17-4 Quick Review Summary Key Terms Problems Part 8 The International Economy Chapter 18 International Macroeconomics Switzerland Doesn’t Want Your Money Capital Flows and the Balance of Payments Balance of Payments Accounts For Inquiring Minds GDP, GNP, and the Current Account Modelling the Financial Account GLOBAL COMPARISON Big Surpluses Underlying Determinants of International Capital Flows Two-Way Capital Flows ECONOMICS in Action The Golden Age of Capital Flows Check Your Understanding 18-1 Quick Review The Role of the Exchange Rate Understanding Exchange Rates The Equilibrium Exchange Rate Inflation and Real Exchange Rates Purchasing Power Parity For Inquiring Minds Burgernomics ECONOMICS in Action Strong Dollar Woes Check Your Understanding 18-2 Quick Review Exchange Rate Policy Exchange Rate Regimes How Can an Exchange Rate Be Held Fixed? The Exchange Rate Regime Dilemma For Inquiring Minds From Bretton Woods to the Euro ECONOMICS in Action China Pegs the Yuan Check Your Understanding 18-3 Quick Review Exchange Rates and Macroeconomic Policy 1. Devaluation and Revaluation of Fixed Exchange Rates 2. Monetary Policy Under Floating Exchange Rates 3. International Business Cycles ECONOMICS in Action The Little Currency That Could Check Your Understanding 18-4 Quick Review BUSINESS CASE A Yen for Japanese Cars Summary Key Terms Problems Macroeconomic Data Tables Solutions to Check Your Understanding Questions Glossary Index Back Cover