Macroeconomics, 17th edition By Andrew B. Abel
Email: Richard@qwconsultancy.com
Contents Part One: What Is Economics? Chapter 1: Economic Issues and Concepts Chapter 2: Economic Theories, Data, and Graphs Chapter 3: Demand, Supply, and Price
1 3 13 25
Part Two: An Introduction to Macroeconomics Chapter 4: What Macroeconomics Is All About Chapter 5: The Measurement of National Income
36 38 45
Part Three: The Economy in the Short Run Chapter 6: The Simplest Short-Run Macro Model Chapter 7: Adding Government and Trade to the Simple Macro Model Chapter 8: Real GDP and the Price Level in the Short Run
52 54 65 75
Part Four: The Economy in the Long Run Chapter 9: From the Short Run to the Long Run: The Adjustment of Factor Prices Chapter 10: Long-Run Economic Growth
85 86 96
Part Five: Money, Banking, and Monetary Policy Chapter 11: Money and Banking Chapter 12: Money, Interest Rates, and Economic Activity Chapter 13: Monetary Policy in Canada
105 107 115 124
Part Six: Macroeconomic Problems and Policies Chapter 14: Inflation and Disinflation Chapter 15: Unemployment Fluctuations and the NAIRU Chapter 16: Government Debt and Deficits
132 133 141 150
Part Seven: Canada in the Global Economy Chapter 17: The Gains from International Trade Chapter 18: Trade Policy Chapter 19: Exchange Rates and the Balance of Payments
159 160 169 177
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List of Boxes Applying Economic Concepts 1-1 The High Opportunity Cost of Your University Degree 1-2 Economics Needs the Other Social Sciences 2-1 Where Economists Work 2-2 Can Economists Design Controlled Experiments to Test Their Theories? 3-1 Demand and Supply Shocks Created by the COVID-19 Pandemic 3-2 Why Apples but Not iPhones? 4-1 The Terminology of Business Cycles 4-2 How the CPI Is Constructed 5-1 Value Added Through Stages of Production 5-2 Calculating Nominal and Real GDP 6-1 The Simple Multiplier: A Numerical Example 7-1 How Large Is Canada’s Multiplier? 8-1 Analyzing the 2020 Pandemic Recession with the AD/AS Model 10-1 What Does Productivity Growth Really Look Like? 10-2 A Case Against Economic Growth 10-3 Climate Change and Economic Growth 11-1 Are Cryptocurrencies Really Money? 11-2 Confidence and Risk in Canadian Banking 12-1 Understanding Bond Prices and Bond Yields 12-2 Three Propositions About Money Neutrality 13-1 What Determines the Amount of Currency in Circulation? 14-1 Is Deflation the Cause or Result of a Weak Economy? 15-1 Stocks and Flows in the Canadian Labour Market 15-2 Wage Flexibility and the Rise of the “Gig” Economy 15-3 Unemployment and Policy During the “Pandemic Recession” 16-1 From World War to Global Pandemic: The Fall and Rise of Government Debt 17-1 Two Examples of Absolute and Comparative Advantage 17-2 Comparative Advantage and Global Supply Chains 18-1 Canadian Wine: A Free-Trade Success Story 19-1 A Student’s Balance of Payments with the Rest of the World 19-2 Fixed Exchange Rates and Foreign-Exchange Reserves
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7 21 30 34 64 72 82 89 104 115 146 164 191 230 232 254 267 276 294 307 324 356 378 384 394 420 436 444 471 482 490
Lessons from History 8-1 The 1997–1998 Asian Crisis and the Canadian Economy 9-1 Fiscal Policy in the Great Depression 10-1 Should Workers Be Afraid of Technological Change? 11-1 Hyperinflation and the Value of Money 13-1 Two Views on the Role of Money in the Great Depression 16-1 The Modern Greek Tragedy of Debt Dynamics 18-1 Tariff Wars and the Stark Lessons from the Great Depression 19-1 Mercantilism, Then and Now
192 216 245 262 332 412 460 497
Extensions in Theory 3-1 The Distinction Between Stocks and Flows 5-1 Arbitrary Decisions in National Income Accounting 6-1 The Theory of the Consumption Function 6-2 The Algebra of the Simple Multiplier 9-1 The Phillips Curve and the Adjustment Process 14-1 The Phillips Curve and Inflation Expectations 17-1 The Gains from Trade More Generally
53 113 129 148 206 362 434
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________________________________________ Part One What Is Economics?
________________________________________ This opening Part of the book provides an introduction to economics. The central themes of Chapter 1 are scarcity, choice, opportunity cost, and the self-organizing role of markets. The chapter also examines the gains from specialization and trade, the role of money, the effects of globalization, and ends with a discussion of the various types of economic systems. Chapter 2 examines how economists build their models and test their theories. It also addresses central methodological issues, the most important being the idea that the progress of economics (like all scientific disciplines) depends on relating our theories to what we observe in the world around us. Finally, the chapter has an extensive section on graphing. Chapter 3 introduces the basic microeconomic model of demand and supply, and the determination of (relative) prices. Our feeling is that this three-chapter introduction to economics, which includes the workhorse model of demand and supply, is a very useful starting point for students in a macroeconomics course. Some students will have already completed a micro course, perhaps just a few weeks ago, in which case a very quick review of these chapters is all that is necessary. But many students take a macro course without having already taken a micro course, and for them especially, this three-chapter introduction will be very useful. *** Chapter 1 opens with a brief tour of some key economic issues in Canada and other countries—from rising protectionism and the dangers of climate change to accelerating technological change and growing income inequality. The purpose is to whet the reader’s appetite for the kinds of issues economists are thinking about today. This offers a natural segue to the discussion of scarcity, without which few of these issues would be very interesting. The chapter addresses the fundamental concepts of scarcity, choice, and opportunity cost, illustrating these ideas with a production possibilities boundary. (It is worth noting that these concepts are relevant to all economies, whether they are organized by central planning or by free markets.) We then examine the complexity of modern market economies, examining the decision makers, production, trade, money, and globalization. Finally, we examine different types of economic systems, including traditional, command, and freemarket systems. We emphasize that all actual economies are mixtures, containing elements of all three pure systems. Chapter 2 provides a longer introduction to the methodological issues of economics than is usually included in introductory texts. We do this because most students believe that the scientific method is limited to the natural sciences. But to appreciate economics, they must understand that its theories are also open to empirical testing and that these theories continually change as a result of what the empirical evidence shows. We understand that some instructors feel their time is so limited that they cannot spend class time on Chapter 2. We believe that even if it is not covered in class, .