Dr. Gert D. Wehinger1
Fall Term 2000 American Graduate School (AGS) of International Relations and Diplomacy Principles of Economics Seminar, Thursday, 18:30-21:15
Prerequisites: Non special requirements. Course objective: To provide a basic understanding of economic reasoning, economic theory and economic policy. Main Text: MANKIW, N. GREGORY (2000). Principles of Economics. Second Edition. Harcourt College Publishers. Supplementary Reading: - Copies of supplementary texts will be provided in class when necessary. - Newspapers and magazines, e.g. Financial Times, Wall Street Journal, The Economist. Course method: - Lecturing, class assignments and discussions. - Answers to selected questions and problems (mainly from the respective chapters of the main text) should be regularily submitted in written form and/or presented in class. - One final written exam. Grading: - Regular class activity and homework: 75%. - Final exam: 25%.
Course Schedule: Date
Topics
1
12.Oct.00
Introduction - 10 Principles of Economics
1-3
2
19.Oct.00
Supply and Demand I: How Markets Work
4-6
3
02.Nov.00 Supply & Demand II: Markets & Welfare
4
09.Nov.00 The Economics of the Public Sector
10-11
5
16.Nov.00 Firm Behavior and the Organization of Industry
13-15
6
23.Nov.00 The Data of Macroeconomics
22-23
7
30.Nov.00 The Real Economy in the Long Run
24-26
8
07.Dec.00 Money and Prices in the Long Run
27-28
9
14.Dec.00 Short-Run Economic Fluctuations & Final Exam (1 hour)!
31-32
1 Contact: Office e-mail
[email protected], Phone 01-4524-8768, Fax 01-4430-6379. Private e-mail
[email protected], phone 01-48 25 13 60, mobile 06-08 53 69 35.
Reading (Chapters)
7-9
Wehinger: Principles of Economics, Fall Term 2000
Course Summary
1 Introduction 1.1
TEN PRINCIPLES OF ECONOMICS
1.2
THINKING LIKE AN ECONOMIST
1.3
INTERDEPENDENCE AND THE GAINS FROM TRADE
2 Supply and Demand I: How Markets Work 2.1
THE MARKET FORCES OF SUPPLY AND DEMAND
2.2
ELASTICITY AND ITS APPLICATION
2.3
SUPPLY, DEMAND, AND GOVERNMENT POLICIES
3 Supply & Demand II: Markets & Welfare 3.1
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS
3.2
APPLICATION: THE COSTS OF TAXATION
3.3
APPLICATION: INTERNATIONAL TRADE
4 The Economics of the Public Sector 4.1
EXTERNALITIES
4.2
PUBLIC GOODS AND COMMON RESOURCES
5 Firm Behavior and the Organization of Industry 5.1
THE COSTS OF PRODUCTION
5.2
FIRMS IN COMPETITIVE MARKETS
5.3
MONOPOLY
6 The Data of Macroeconomics 6.1
MEASURING A NATION'S INCOME
6.2
MEASURING THE COST OF LIVING
7 The Real Economy in the Long Run 7.1
PRODUCTION AND GROWTH
7.2
SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM
7.3
UNEMPLOYMENT AND ITS NATURAL RATE
8 Money and Prices in the Long Run 8.1
THE MONETARY SYSTEM
8.2
MONEY GROWTH AND INFLATION
9 Short-Run Economic Fluctuations 9.1
AGGREGATE DEMAND AND AGGREGATE SUPPLY
9.2
THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
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Wehinger: Principles of Economics, Fall Term 2000
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10 Principles of Economics (by Mankiw)
Ø Economics is the study of how society makes decisions and manages its scarce resources, the foundation of which is based on a few principles that can be applied in most situations. Even the most sophisticated economic analysis begins with these basic ideas... HOW PEOPLE MAKE DECISIONS 1. People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another. 2. The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions (opportunity cost). 3. Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost. 4. People Respond to Incentives. Behavior changes when costs or benefits change. HOW PEOPLE INTERACT 5. Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services. 6. Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government. 7. Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution (market power, externalities) HOW THE ECONOMY WORKS AS A WHOLE 8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income. 9. Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services. 10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment (Phillips curve). This tradeoff is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.
Wehinger: Principles of Economics, Fall Term 2000
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Principles of Economics: Detailed Course Contents
1 1.1
Introduction
TEN PRINCIPLES OF ECONOMICS (Mankiw, Ch.1)
1.1.1
HOW PEOPLE MAKE DECISIONS
1.1.2
HOW PEOPLE INTERACT
1.1.3
HOW THE ECONOMY AS A WHOLE WORKS
1.1.4
CONCLUSION Mankiw - Questions 3, 4, 6, 15
1.2
THINKING LIKE AN ECONOMIST (Mankiw, Ch.2)
1.2.1 • • • • • •
The Scientific Method: Observation, Theory, and More Observation The Role of Assumptions Economic Models Our First Model: The Circular-Flow Diagram Our Second Model: The Production Possibilities Frontier Microeconomics and Macroeconomics
1.2.2 • •
WHY ECONOMISTS DISAGREE
Differences in Scientific Judgements Differences in Values Perception versus Reality
1.2.4 • • • • • • •
THE ECONOMIST AS POLICY ADVISER
Positive versus Normative Analysis Economists in Washington
1.2.3 • • •
THE ECONOMIST AS SCIENTIST
GRAPHING: A BRIEF REVIEW
Graphs of a Single Variable Graphs of Two Variables: The Coordinate System Curves in the Coordinate System Slope and Elasticity Cause and Effect Omitted Variables Reverse Causality Mankiw - Questions 3, 4, (6, 7)
•
INTERDEPENDENCE AND THE GAINS FROM TRADE (Mankiw, Ch.3)
1.2.5 • •
Production Possibilites Specialization and Trade
1.2.6 • • •
THE PRINCIPLE OF COMPARATIVE ADVANTAGE
Absolute Advantage Opportunity Cost and Comparative Advantage Comparative Advantage and Trade
1.2.7 • • •
A PARABLE FOR THE MODERN ECONOMY
APPLICATIONS OF COMPARATIVE ADVANTAGE
Should Michael Jordan Mow His Own Lawn? Should the United States Trade with Other Countries? FYI - The Legacy of Adam Smith and David Ricardo
Wehinger: Principles of Economics, Fall Term 2000 1.2.8
CONCLUSION Mankiw - Questions 3, 8
2 2.1
THE MARKET FORCES OF SUPPLY AND DEMAND (Mankiw, Ch.4)
2.1.1 • •
SUPPLY
The Determinants of Individual Supply The Supply Schedule and the Supply Curve Market Supply versus Individual Supply Shifts in the Supply Curve
2.1.4 • • •
DEMAND
The Determinants of Individual Demand The Demand Schedule and the Demand Curve Ceteris Paribus Market Demand versus Individual Demand Shifts in the Demand Curve Case Study: Two Ways to Reduce the Quantity of Smoking Demanded
2.1.3 • • • •
MARKETS AND COMPETITION
Competitive Markets Competition: Perfect and Otherwise
2.1.2 • • • • • •
Supply and Demand I: How Markets Work
SUPPLY AND DEMAND TOGETHER
Equilibrium Three Steps to Analyzing Changes in Equilibrium In the News: Supply, Demand, and the Price of Paper
2.1.5
CONCLUSION: HOW PRICES ALLOCATE RESOURCES Mankiw - Questions 3, 7, 9
2.2
ELASTICITY AND ITS APPLICATION (Mankiw, Ch.5)
2.2.1 • • • • • • • • •
The Price Elasticity of Demand and Its Determinants Computing the Price Elasticity of Demand FYI: Calculating Elasticities Using the Midpoint Method The Variety of Demand Curves Total Revenue and the Price Elasticity of Demand FYI: Elasticity and Total Revenue along a Linear Demand Curve Case Study: Pricing Admission to a Museum In the News: On the Road with Elasticity The Income Elasticity of Demand
2.2.2 • • •
THE ELASTICITY OF SUPPLY
The Price Elasticity of Supply and Its Determinants Computing the Price Elasticity of Supply The Variety of Supply Curves
2.2.3 • • •
THE ELASTICITY OF DEMAND
THREE APPLICATIONS OF SUPPLY, DEMAND, AND ELASTICITY
Can Good News for Farming Be Bad News for Farmers? Why Did OPEC Fail to Keep the Price of Oil High? Does Drug Interdiction Increase or Decrease Drug-Related Crime?
2.2.4
CONCLUSION Mankiw - Questions 2, 3, 9
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Wehinger: Principles of Economics, Fall Term 2000
2.3
SUPPLY, DEMAND, AND GOVERNMENT POLICIES (Mankiw, Ch.6)
2.3.1 • • • • • • •
How Price Ceilings Affect Market Outcomes Case Study: Lines at the Gas Pump Case Study: Rent Control in the Short Run and Long Run In the News: Rent Control in New York City How Price Floors Affect Market Outcomes Case Study: The Minimum Wage Evaluating Price Controls
2.3.2 • • • • •
CONTROLS ON PRICES
TAXES
How Taxes on Buyers Affect Market Outcomes How Taxes on Sellers Affect Market Outcomes Case Study: Can Congress Distribute the Burden of a Payroll Tax? Elasticity and Tax Incidence Case Study: Who Pays the Luxury Tax?
2.3.3
CONCLUSION Mankiw - Questions 2, 4, 7, 8, (9)
3 3.1
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS (Mankiw, Ch.7)
3.1.1 • • • •
PRODUCER SURPLUS
Cost and the Willingness to Sell Using the Demand Curve to Measure Producer Surplus How a Higher Price Raises Producer Surplus
3.1.3 • • • • •
CONSUMER SURPLUS
Willingness to Pay Using the Demand Curve to Measure Consumer Surplus How a Lower Price Raises Consumer Surplus What Does Consumer Surplus Measure?
3.1.2 • • •
Supply & Demand II: Markets & Welfare
MARKET EFFICIENCY
The Benevolent Social Planner Evaluating the Market Equilibrium FYI: The Invisible Hand of the Marketplace In the News: Ticket Scalping Tickets? Supply Meets Demand on Sidewalk
3.1.4
CONCLUSION: MARKET EFFICIENCY AND MARKET FAILURE Mankiw - Questions 3, 4, (8)
3.2
APPLICATION: THE COSTS OF TAXATION (Mankiw, Ch.8)
3.2.1 • •
How A Tax Affects Market Participants Deadweight Losses and the Gains from Trade
3.2.2 • •
THE DETERMINANTS OF THE DEADWEIGHT LOSS
Case Study: The Deadweight Loss of Taxes on Labor Case Study: Henry George and the Tax on Land
3.2.3 •
THE DEADWEIGHT LOSS OF TAXATION
DEADWEIGHT LOSS AND TAX REVENUE AS TAXES VARY
Case Study: The Laffer Curve
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Wehinger: Principles of Economics, Fall Term 2000 •
In the News: Should Ukraine Cut Tax Rates to Raise Tax Revenue?
3.2.4
CONCLUSION Mankiw - Questions 1, 5
3.3
APPLICATION: INTERNATIONAL TRADE (Mankiw, Ch.9)
3.3.1 • • •
The Equilibrium without Trade The World Price and Comparative Advantage FYI: Comparing Prices and Comparative Advantage
3.3.2 • • • • •
THE WINNERS AND LOSERS FROM TRADE
The Gains and Losses of an Exporting Country The Gains and Losses of an Importing Country The Effects of a Tariff The Effects of an Import Quota The Lessons for Trade Policy
3.3.3 • • • • • • • •
THE DETERMINANTS OF TRADE
THE ARGUMENTS FOR RESTRICTING TRADE
The Jobs Argument In the News: NAFTA and Mexican Tomatoes The National-Security Argument The Infant-Industry Argument The Unfair-Competition Argument The Protection-as-a-Bargaining-Chip Argument Case Study: GATT and the Multilateral Approach to Free Trade In the News: A Chicken Invasion
3.3.4
CONCLUSION Mankiw - Questions 1, 2
4 4.1
EXTERNALITIES (Mankiw, Ch.10)
4.1.1 • • • • •
PRIVATE SOLUTIONS TO EXTERNALITIES
The Types of Private Solutions In the News: An Outraged Citizen Speaks Out The Coase Theorem Why Private Solutions Do Not Always Work
4.1.3 • • • • •
EXTERNALITIES AND MARKET INEFFICIENCY
Welfare Economics: A Recap Negative Externalities in Production Positive Externalities in Production Case Study: The Debate over Technology Policy Externalities in Consumption
4.1.2 • • • •
The Economics of the Public Sector
PUBLIC POLICIES TOWARD EXTERNALITIES
Regulation Pigovian Taxes and Subsidies Tradable Pollution Permits Objections to the Economic Analysis of Pollution In the News: Pollution Permits in Action
4.1.4
CONCLUSION Mankiw - Questions 2, 4
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Wehinger: Principles of Economics, Fall Term 2000
4.2
PUBLIC GOODS AND COMMON RESOURCES (Mankiw, Ch.11)
4.2.1 4.2.1.1 • • • • •
PUBLIC GOODS
The Free-Rider Problem Some Important Public Goods Case Study: Are Lighthouses Public Goods? The Difficult Job of Cost-Benefit Analysis Case Study: How Much is a Life Worth?
4.2.1.2 • • • • • •
THE DIFFERENT KINDS OF GOODS
COMMON RESOURCES
The Tragedy of the Commons Case Study: Captialism, Communism, and Collective Resources Some Important Common Resources In the News: The Singapore Solution Case Study: Why the Cow Is Not Extinct In the News: Should Yellowstone Charge as Much as Disney World?
4.2.2
CONCLUSION: THE IMPORTANCE OF PROPERTY RIGHTS Mankiw - Questions (1,) 2, (3, 8)
5 5.1
THE COSTS OF PRODUCTION (Mankiw, Ch.13)
5.1.1 • • • •
PRODUCTION AND COSTS
The Production Function From the Production Function to the Total-Cost Curve
5.1.3 • • • •
WHAT ARE COSTS?
Total Revenue, Total Cost, and Profit Costs as Opportunity Costs The Cost of Capital as an Opportunity Cost Economic Profit versus Accounting Profit
5.1.2 • •
Firm Behavior and the Organization of Industry
THE VARIOUS MEASURES OF COST
Fixed and Variable Costs Average and Marginal Cost Cost Curves and Their Shape Typical Cost Curves
5.1.4
COSTS IN THE SHORT RUN AND IN THE LONG RUN
5.1.5
CONCLUSION Mankiw - Question 4
5.2
FIRMS IN COMPETITIVE MARKETS (Mankiw, Ch.14)
5.2.1 • •
The Meaning of Competition The Revenue of a Competitive Firm
5.2.2 • • •
WHAT IS A COMPETITIVE MARKET?
PROFIT MAXIMIZATION AND THE COMPETITIVE FIRM'S SUPPLY CURVE
A Simple Example of Profit Maximization The Marginal-Cost Curve and the Firm's Supply Decision The Firm's Short-Run Decision to Shut Down
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Wehinger: Principles of Economics, Fall Term 2000 • • • •
Case Study: Near Empty Restaurants and Off-Season Miniature Golf FYI: Spilt Milk and Sunk Costs The Firm's Long-Run Decision To Exit or Enter an Industry Measuring Profit in Our Graph for the Competitive Firm
5.2.3 • • • • • •
THE SUPPLY CURVE IN A COMPETITIVE MARKET
Market Supply with a Fixed Number of Firms Market Supply with Entry and Exit FYI: Why Do Competitive Firms Stay in Business If They Make Zero Profit? A Shift in Demand in the Short Run and Long Run Why the Long-Run Supply Curve Might Slope Upward
5.2.4
CONCLUSION: BEHIND THE SUPPLY CURVE Mankiw - Question 2
5.3
MONOPOLY (Mankiw, Ch.15)
5.3.1 • • • •
Monopoly Resources Case Study: The DeBeers Diamond Monopoly Government-Created Monopolies Natural Monopolies
5.3.2 • • • • • •
PUBLIC POLICY TOWARD MONOPOLIES
Increasing Competition with Anti-Trust Laws In the News: Boeing's Market Power Regulation Public Ownership Doing Nothing In the News: The Future of Electricity
5.3.5 • • • • •
THE WELFARE COST OF MONOPOLY
The Deadweight Loss The Monopoly's Profit: A Social Cost?
5.3.4 • • • • • • •
HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS
Monopoly versus Competition A Monopoly's Revenue Profit Maximization FYI: Why a Monopoly Does Not Have a Supply Curve A Monopoly's Profit Case Study: Monopoly Drugs versus Generic Drugs
5.3.3 • •
WHY MONOPOLIES ARISE
PRICE DISCRIMINATION
A Parable About Pricing The Moral of the Story The Analytics of Price Discrimination Examples of Price Discrimination In the News: Competing to Be the Best Monopolist
5.3.6
CONCLUSION: THE PREVALENCE OF MONOPOLY Mankiw - Question 1
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Wehinger: Principles of Economics, Fall Term 2000
6 6.1
The Data of Macroeconomics
MEASURING A NATION'S INCOME (Mankiw, Ch.22)
6.1.1
THE ECONOMY'S INCOME AND EXPENDITURE
6.1.2
THE MEASUREMENT OF GROSS DOMESTIC PRODUCT
• • • • • • • •
"GDP is the market value..." "...of all..." "...final..." "...goods and services..." "...produced..." "...within a country..." "...in a given period of time." FYI: Three Other Measures of Income
6.1.3
THE COMPONENTS OF GDP
6.1.4
REAL VERSUS NOMINAL GDP
• • •
A Numerical Example The GDP Deflator Case Study: Real GDP Over Recent History
6.1.5 •
GDP AND ECONOMIC WELL-BEING
Case Study: International Differences in GDP and the Quality of Life
6.1.6
CONCLUSION Mankiw - Questions 1, 4, 6
6.2
MEASURING THE COST OF LIVING (Mankiw, Ch.23)
6.2.1 • • • • • •
How the Consumer Price Index is Calculated FYI: What is in the CPI's Basket? In the News: Shopping for the CPI Problems in Measuring the Cost of Living In the News: The CPI Commission The GDP Deflator versus the Consumer Price Index
6.2.2 • • • •
THE CONSUMER PRICE INDEX
CORRECTING ECONOMIC VARIABLES FOR THE EFFECTS OF INFLATION
Dollar Figures from Different Times In the News: Mr. Index Goes To Hollywood Indexation Real and Nominal Interest Rates
6.2.3
CONCLUSION Mankiw - Questions 1, 5
7 7.1
PRODUCTION AND GROWTH (Mankiw, Ch.24)
7.1.1 •
The Real Economy in the Long Run
ECONOMIC GROWTH AROUND THE WORLD
FYI: The Magic of Compounding and the Rule of 70
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Wehinger: Principles of Economics, Fall Term 2000 7.1.2 • • • • •
Why Productivity Is So Important How Productivity is Determined Case Study: Are Natural Resources a Limit to Growth? In the News: Computers and Productivity The Production Function
7.1.3 • • • • • • • • • • •
PRODUCTIVITY: ITS ROLE AND DETERMINANTS
ECONOMIC GROWTH AND PUBLIC POLICY
The Importance of Saving and Investment Diminishing Returns and the Catch-Up Effect Investment from Abroad In the News: The World Bank Education Property Rights and Political Stability Case Study: What Causes Famine? Free Trade The Control of Population Growth Research and Development Case Study: The Productivity Slowdown In the News: The Sachs Solution to the African Problem
7.1.4
CONCLUSION: THE IMPORTANCE OF LONG-RUN GROWTH Mankiw - Questions 4, 11
7.2
SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM (Mankiw, Ch.25)
7.2.1 • • • •
7.2.2 • •
SAVING AND INVESTMENT IN THE NATIONAL INCOME ACCOUNTS
Some Important Identities The Meaning of Saving and Investment
7.2.3 • • • • • • • •
FINANCIAL INSTITUTIONS IN THE U.S. ECONOMY
Financial Markets FYI: How to Read the Newspaper's Stock Tables Financial Intermediaries Summing Up
THE MARKET FOR LOANABLE FUNDS
Supply and Demand for Loanable Funds Policy No.1: Taxes and Saving Policy No.2: Taxes and Investment Policy No.3: Government Budget Deficits Case Study: Government Debt and Deficits in the United States FYI Ricardian Equivalence: An Alternative View of Government Budget Deficits In the News: The Balanced Budget Amendment
7.2.4
CONCLUSION Mankiw - Questions 3, 10
7.3
UNEMPLOYMENT AND ITS NATURAL RATE (Mankiw, Ch.26)
7.3.1 • • • •
How is Unemployment Measured? Case Study: Labor-Force Participation of Men and Women in the U.S. Economy Is Unemployment Measured Correctly? How Long are the Unemployed without Work?
7.3.2 • •
IDENTIFYING UNEMPLOYMENT
JOB SEARCH
The Inevitability of Search Unemployment Public Policy and Job Search
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Wehinger: Principles of Economics, Fall Term 2000 •
Unemployment Insurance
7.3.3 • •
7.3.4 • • •
UNION AND COLLECTIVE BARGAINING
The Economics of Unions Are Unions Good or Bad for the Economy? In the News: The UAW's Tradeoff
7.3.5 • • • • • •
MINIMUM-WAGE LAWS
In the News: The Minimum-Wage Debate Thesis: Rise in Wages Will Hurt Teen-Age Group
THE THEORY OF EFFICIENCY WAGES
Worker Health Worker Turnover Worker Effort Worker Quality FYI: The Economics of Asymmetric Information Case Study: Henry Ford and the Very Generous $5-a-day Wage
7.3.6
CONCLUSION Mankiw - Questions 2, 5
8 8.1
THE MONETARY SYSTEM (Mankiw, Ch.27)
8.1.1 • • • • • •
THE FEDERAL RESERVE SYSTEM
The Fed's Organization The Federal Open Market Committee
8.1.3 • • • • • •
THE MEANING OF MONEY
The Functions of Money The Kinds of Money In the News: Money on the Island of Yap Money in the U.S. Economy FYI: Credit Cards, Debit Cards, and Money Case Study: Where is All the Currency?
8.1.2 • •
Money and Prices in the Long Run
BANKS AND THE MONEY SUPPLY
The Simple Case of 100-Percent-Reserve Banking Money Creation with Fractional-Reserve Banking The Money Multiplier The Fed's Tools of Monetary Control Problems in Controlling the Money Supply Case Study: Bank Runs and the Money Supply
8.1.4
CONCLUSION Mankiw - Questions 5, 8
8.2
MONEY GROWTH AND INFLATION (Mankiw, Ch.28)
8.2.1 • • • • •
THE CLASSICAL THEORY OF INFLATION
The Level of Prices and the Value of Money Money Supply, Money Demand, and Monetary Equilibrium The Effects of a Monetary Injection A Brief Look at the Adjustment Process The Classical Dichotomy and Monetary Neutrality
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Wehinger: Principles of Economics, Fall Term 2000 • • • • •
Velocity and the Quantity Equation Case Study: Money and Prices During Four Hyperinflations The Inflation Tax In the News: The Hyperinflation in Serbia The Fisher Effect
8.2.2 • • • • • • • • • •
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THE COSTS OF INFLATION
A Fall In Purchasing Power?: The Inflation Fallacy Shoeleather Costs Menu Costs Relative-Price Variability and the Misallocation of Resources Inflation-Induced Tax Distortions Confusion and Inconvenience A Special Cost of Unexpected Inflation: Arbitrary Redistributions of Wealth Case Study: The Wizard of Oz and the Free-Silver Debate In the News: How to Protect Your Savings From Inflation Inflation Fighters for the Long Term
8.2.3
CONCLUSION Mankiw - Questions 1, 2, (3, 6, 11)
9 9.1
AGGREGATE DEMAND AND AGGREGATE SUPPLY (Mankiw, Ch.31)
9.1.1 • • • •
THE AGGREGATE-SUPPLY CURVE
Why the Aggregate-Supply Curve is Vertical in the Long Run Why the Long-Run Aggregate-Supply Curve Might Shift Why the Aggregate-Supply Curve is Upward Sloping in the Short Run Why the Short-Run Aggregate-Supply Curve Might Shift
9.1.5 • • • • •
THE AGGREGATE-DEMAND CURVE
Why the Aggregate-Demand Curve is Downward Sloping Why the Aggregate-Demand Curve Might Shift
9.1.4 • • • •
EXPLAINING SHORT-RUN ECONOMIC FLUCTUATIONS
How the Short Run Differs from the Long Run The Basic Model of Economic Fluctuations
9.1.3 • •
THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS
Fact No.1: Economic Fluctuations are Irregular and Unpredictable Fact No.2: Most Macroeconomic Quantities Fluctuate Together Fact No.3: As Output Falls, Unemployment Rises FYI: Okun's Law
9.1.2 • •
Short-Run Economic Fluctuations
TWO CAUSES OF ECONOMIC FLUCTUATIONS
The Effects of a Shift in Aggregate Demand In the News: How Consumers Shift Aggregate Demand Consumers Get the Credit for Expanding Economy The Effects of a Shift in Aggregate Supply Case Study: Oil and the Economy
9.1.6
CONCLUSION: THE ORIGINS OF AGGREGATE DEMAND AND AGGREGATE SUPPLY Mankiw - Questions 2, 3, (7)
9.2
THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND (Mankiw, Ch.32)
Wehinger: Principles of Economics, Fall Term 2000 9.2.1 • • • •
The Theory of Liquidity Preference The Downward Slope of the Aggregate-Demand Curve Changes in the Money Supply Interest-Rate Targets and Fed Policy
9.2.2 • • • • • •
HOW FISCAL POLICY INFLUENCES AGGREGATE DEMAND
Changes in Government Purchases The Multiplier Effect FYI: A Formula for the Government-Purchases Multiplier The Crowding-Out Effect Changes in Taxes FYI: How Fiscal Policy Might Affect Aggregate Supply
9.2.3 • • • • •
HOW MONETARY POLICY INFLUENCES AGGREGATE DEMAND
USING POLICY TO STABILIZE THE ECONOMY
The Case for Active Stabilization Policy Case Study: Keynesians in the White House The Case Against Active Stabilization Policy Automatic Stabilizers In the News: The Independence of the Federal Reserve
9.2.4
CONCLUSION Mankiw - Questions upon choice/progress.
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