CONTENTS IN BRIEFPART 1 INTRODUCTION 1 Chapter 2 Thinking Like an Economist • 25 PART 2 PERFECT MARKETS 51 Chapter 3 Demand, Supply, and Price • 53 Chapter 4 Using Demand and Supply • 77
Trang 3∂ ECONOMICS
F O U R T H E D I T I O N
Trang 4Joseph E Stiglitz
C O L U M B I A U N I V E R S I T Y
Carl E.Walsh
U N I V E R S I T Y O F C A L I F O R N I A , S A N TA C R U Z
Trang 6Copyright © 2006, 2002, 1997, 1993 by W W Norton & Company, Inc.
All rights reserved Printed in the United States of America
Manufacturing by RR Donnelley Book design by Rubina Yeh Editor: Jack Repcheck Director of Manufacturing—College: Roy Tedoff Project Editor: Lory A Frenkel
Manuscript Editor: Alice Falk Editorial Assistants: Sarah Solomon, Mik Awake Photo Researcher: Kelly Mitchell
Library of Congress Cataloging-in Publication Data Stiglitz, Joseph E.
Economics / Joseph E Stiglitz, Carl E Walsh.—4th ed.
W W Norton & Company has been independent since
its founding in 1923, when William Warder Norton and
Mary D Herter Norton first published lectures
delivered at the People’s Institute, the adult education
division of New York City’s Cooper Union The Nortons
soon expanded their program beyond the Institute,
publishing books by celebrated academics from
America and abroad By mid-century, the two major
pillars of Norton’s publishing program—trade books
and college texts—were firmly established In the
1950s, the Norton family transferred control of the
company to its employees, and today—with a staff of
four hundred and a comparable number of trade,
college, and professional titles published each year—
W W Norton & Company stands as the largest and
oldest publishing house owned wholly by its
employees.
ISBN 0-393-11644-1 (ebook)
Trang 7ABOUT THE AUTHORS
Joseph E Stiglitz is professor of economics, business, and international and
public affairs at Columbia University Before joining the Columbia faculty, he held
appointments at Yale, Oxford, Princeton, and Stanford Internationally recognized
as one of the leading economists of his generation, Professor Stiglitz has made
impor-tant contributions to virtually all of the major subfields of economics, in particular
the economics of information, one of the key topics highlighted in this text He was
a co-recipient of the Nobel Prize in Economic Science in 2001, and earlier in his
career received the American Economic Association’s John Bates Clark Medal,
which is given every two years to the most outstanding economist under the age of
forty Professor Stiglitz is the author and editor of hundreds of scholarly articles
and books, including the best-selling undergraduate textbook Economics of the Public
Sector (Norton) and, with Anthony Atkinson, the classic graduate textbook Lectures
in Public Economics He is the author of two influential popular books as well:
Globalization and Its Discontents and The Roaring Nineties In addition, he was the
founding editor of the Journal of Economic Perspectives Professor Stiglitz has also
played a prominent role at the highest levels of economic policy making He was a
member and chairman of President Clinton’s Council of Economic Advisers and
later served as Senior Vice President and Chief Economist of the World Bank
Carl E Walshis professor of economics at the University of California, Santa
Cruz, where he teaches principles of economics He previously held faculty
appoint-ments at Princeton and the University of Auckland, New Zealand, and has been a
vis-iting professor at Stanford He is widely known for his research in monetary economics
and is the author of a leading graduate text, Monetary Theory and Policy (MIT Press).
Before joining the Santa Cruz faculty, Professor Walsh was senior economist at the
Federal Reserve Bank of San Francisco, where he continues to serve as a visiting
scholar He has also been a visiting scholar at the Federal Reserve Banks of Kansas
City, Philadelphia, and at the Board of Governors He has taught courses in
mone-tary economics to the research department and staff economists at the central banks
of Hong Kong, Norway, Portugal, Spain, and the United Kingdom, and at the
International Monetary Fund He is a past member of the board of editors of the
American Economic Review and is currently an associate editor of the Journal of
Money, Credit, and Banking and the Journal of Economics and Business He is also on
the editorial board of the Journal of Macroeconomics.
Trang 8This page intentionally left blank
Trang 9CONTENTS IN BRIEF
PART 1 INTRODUCTION 1
Chapter 2 Thinking Like an Economist • 25
PART 2 PERFECT MARKETS 51
Chapter 3 Demand, Supply, and Price • 53
Chapter 4 Using Demand and Supply • 77
Chapter 5 The Consumption Decision • 101
Chapter 6 The Firm’s Costs • 131
Chapter 7 The Competitive Firm • 155
Chapter 8 Labor Markets • 175
Chapter 9 Capital Markets • 191
Chapter 10 The Efficiency of Competitive Markets • 215
PART 3 IMPERFECT MARKETS 237
Chapter 11 Introduction to Imperfect Markets • 239
Chapter 12 Monopoly, Monopolistic Competition, and Oligopoly • 261
Chapter 13 Government Policies Toward Competition • 289
Chapter 14 Strategic Behavior • 311
Chapter 15 Imperfect Information in the Product Market • 333
Chapter 16 Imperfections in the Labor Market • 355
PART 4 ISSUES IN PUBLIC POLICY 373
Chapter 17 The Public Sector • 375
Chapter 18 Environmental Economics • 405
Chapter 19 International Trade and Trade Policy • 423
Chapter 20 Technological Change • 453
PART 5 INTRODUCTION TO MACROECONOMICS 471
Chapter 21 Macroeconomics and the Economic Perspective • 473
Chapter 22 Measuring Output and Unemployment • 485
Chapter 23 The Cost of Living and Inflation • 509
Trang 10PART 6 FULL-EMPLOYMENT MACROECONOMICS 523
Chapter 24 The Full-Employment Model • 525
Chapter 25 Government Finance at Full Employment • 547
Chapter 26 The Open Economy at Full Employment • 567
Chapter 27 Growth and Productivity • 585
Chapter 28 Money, the Price Level, and the Federal Reserve • 605
PART 7 MACROECONOMIC FLUCTUATIONS 635
Chapter 29 Introduction to Macroeconomic Fluctuations • 637
Chapter 30 Aggregate Expenditures and Income • 661
Chapter 31 Aggregate Demand and Inflation • 689
Chapter 32 The Federal Reserve and Interest Rates • 715
Chapter 33 The Role of Macroeconomic Policy • 727
PART 8 THE GLOBAL ECONOMY 755
Chapter 34 The International Financial System • 757
Chapter 35 Policy in the Open Economy • 779
Chapter 36 Development and Transition • 793
PART 9 FURTHER TOPICS IN MACROECONOMICS 817
Chapter 37 Inflation and Unemployment • 819
Chapter 38 Controversies in Macroeconomic Policy • 837
Chapter 39 A Student’s Guide to Investing • 865
Trang 11PART 1 INTRODUCTION 1
INTERNET CONNECTION:Tracking the Digital
Trade-offs 7 Incentives 8
THINKING LIKE AN ECONOMIST:Incentives and
Exchange 10
INTERNET CONNECTION:Auction Sites 11
Information 13 Distribution 14
Keeping Track of Tricky Terms 16
Microeconomics and Macroeconomics: The Two
Discovering and Interpreting Relationships 18 Causation and Correlation 19
REVIEW AND PRACTICE 21
Trang 12CHAPTER 2 THINKING LIKE AN ECONOMIST 25
Rational Consumers and Profit-Maximizing Firms 26 Competitive Markets 27
e-INSIGHT:Markets, Exchange, and e-Commerce 27
Efficiency and Distribution in the Basic Competitive Model 28
The Basic Competitive Model as a Benchmark 28
Incentives and Information: Prices, Property Rights, and
Incentives Versus Equality 31 When Property Rights Fail 31
Budget and Time Constraints 34 The Production Possibilities Curve 35
Opportunity Costs 38
THINKING LIKE AN ECONOMIST:Trade-Offs 39
INTERNET CONNECTION:Internet Resources for
CASE IN POINT:The Opportunity Cost of Attending
Sunk Costs 42 Marginal Costs 43
INTERNET CONNECTION:The Economists’ Voice43
REVIEW AND PRACTICE 45 APPENDIX:Reading Graphs 47
Slope 48 Interpreting Curves 49
PART 2 PERFECT MARKETS 51
The Individual Demand Curve 54 The Market Demand Curve 55 Shifts in Demand Curves 57
Trang 13Sources of Shifts in Demand Curves 57
CASE IN POINT:Gasoline Prices and the Demand for
FUNDAMENTALS OF DEMAND, SUPPLY, AND PRICE 2:Supply Increases as Price Rises 67
Using Demand and Supply Curves 69 Consensus on the Determination of Prices 70
FUNDAMENTALS OF DEMAND, SUPPLY, AND PRICE 3:The Market Clears at the Equilibrium
INTERNET CONNECTION:The Demand and Supply
REVIEW AND PRACTICE 72
Price Elasticity and Revenues 79
INTERNATIONAL PERSPECTIVE:Comparing
THINKING LIKE AN ECONOMIST:Incentives and
Price Ceilings 91
CASE IN POINT:Rent Control in New York City 93
Trang 14The Budget Constraint 102 Choosing a Point on the Budget Constraint: Individual Preferences 104
What Happens to Consumption When Income Changes? 105
CASE IN POINT:The Fate of the BTU Tax 107
INTERNET CONNECTION:What We Consume 109
Deriving Demand Curves 110 The Importance of Distinguishing Between Income and Substitution Effects 111
THINKING LIKE AN ECONOMIST:Incentives,
Consumer Surplus 117
How Well Do the Underlying Assumptions Match Reality? 118
Using Indifference Curves to Derive Demand Curves 128 Substitution and Income Effects 128
Production with One Variable Input 132 Types of Costs and Cost Curves 135
Trang 15Short-Run and Long-Run Cost Curves 141
Short-Run Cost Curves 142 Long-Run Cost Curves 142
INTERNET CONNECTION:Economic Definitions146
Cost Minimization 147 The Principle of Substitution 147
CASE IN POINT:The Principle of Substitution and
REVIEW AND PRACTICE 151
INTERNET CONNECTION:Firms’ Profit-and-Loss
Sunk Costs and Exit 161 The Firm’s Supply Curve 162 The Market Supply Curve 163
e-INSIGHT:The 2001 Recession: Cutbacks Versus
Opportunity Costs 166 Economic Rent 168
CASE IN POINT:Entering the Painting Business and
REVIEW AND PRACTICE 172
INTERNET CONNECTION:Labor Force Data 176
The Choice Between Leisure and Consumption 176 Labor Force Participation 179
THINKING LIKE AN ECONOMIST:Trade-Offs 179
Factor Demand 182
Trang 16From the Firm’s Factor Demand to the Market’s Factor Demand 184
REVIEW AND PRACTICE 186 APPENDIX:Indifference Curves and the Labor Supply
Deciding Whether to Work 188
The Household Decision to Save 192
THINKING LIKE AN ECONOMIST:Wealth
INTERNET CONNECTION:Household Saving 198
CASE IN POINT:Why is the U.S Saving Rate So Low?198
e-INSIGHT:Financing the New Economy 205
Education and Economic Trade-Offs 206
REVIEW AND PRACTICE 207 APPENDIX A:Indifference Curves and the Saving
Deciding How Much to Save 209 Changing the Interest Rate 210
APPENDIX B:Calculating Present Discounted Value 211
Consumer and Producer Surplus 217
FUNDAMENTALS OF COMPETITIVE MARKETS 1:
FUNDAMENTALS OF COMPETITIVE MARKETS 2:
The Equilibrium Price Maximizes Consumer Plus
INTERNET CONNECTION:Digital Economist 219
Taxes and Efficiency 220
Pareto Efficiency 222
Trang 17Conditions for the Pareto Efficiency of the Market Economy 222
THINKING LIKE AN ECONOMIST:Exchange and
Competitive Markets and Pareto Efficiency 225
FUNDAMENTALS OF COMPETITIVE MARKETS 3:
The Competitive Market Economy is Pareto
Competitive Markets and Income Distribution 225
The Basic Competitive Equilibrium Model 227
THINKING LIKE AN ECONOMIST:Indirect
CASE IN POINT:The Labor Market and the Widening
REVIEW AND PRACTICE 235
PART 3 IMPERFECT MARKETS 237
FUNDAMENTALS OF IMPERFECT MARKETS 1:
Price and Quantity with Imperfect Competition 244 Government Policies 245
INTERNET CONNECTION:The Federal Trade
Trang 18How Prices Convey Information 248 Markets for Information 249
e-INSIGHT:Information, Competition, and the Internet249
Government Policies 250
FUNDAMENTALS OF IMPERFECT MARKETS 3:
Government Policies Toward Externalities 252
THINKING LIKE AN ECONOMIST:Incentives and
REVIEW AND PRACTICE 257
COMPETITION, AND OLIGOPOLY 261
An Example: The ABC-ment Company 264 Monopoly Profits 265
Price Discrimination 266
INTERNATIONAL PERSPECTIVE:South Africa,
Number of Firms in the Industry 270 Product Differentiation 271
e-INSIGHT:Network Externalities, the New Economy,
Collusion 275 Restrictive Practices 279 Entry Deterrence 281
INTERNET CONNECTION:Keeping Track of
Trang 19THINKING LIKE AN ECONOMIST:Trade-Offs,
REVIEW AND PRACTICE 285
The Drawbacks of Monopolies and Limited Competition289
Restricted Output 289 Managerial Slack 291 Reduced Research and Development 291 Rent Seeking 292
Further Drawbacks of Limited Competition 292
e-INSIGHT:Using the Internet to Enhance Price
Public Ownership 294 Regulation 295 Encouraging Competition 296
INTERNATIONAL PERSPECTIVE:The Darker Side of
INTERNET CONNECTION:U.S Department of
THINKING LIKE AN ECONOMIST:Incentives andthe Remedy to the Microsoft Monopoly Problem302
Curbing Restrictive Practices 304 Enforcing the Antitrust Laws 305
CASE IN POINT:Coke and Pepsi Play Merger 306
REVIEW AND PRACTICE 308
Dominant Strategies 313
Trang 20Nash Equilibrium 313
Games With Only One Dominant Strategy 316
INTERNATIONAL PERSPECTIVE:
Games Without Dominant Strategies 318
INTERNET CONNECTION:The Zero-Sum Game
Reputations 321 Tit for Tat 321
INTERNET CONNECTION:The Prisoner’s Dilemma321
REVIEW AND PRACTICE 329
Signaling 335 Judging Quality by Price 336
Market Solutions 337 Contract Solutions 338 Reputation Solutions 339 The Market for Health Insurance 340
CASE IN POINT:Buying Health Insurance 341
THINKING LIKE AN ECONOMIST:Incentive andInformation Problems in the Housing Market343
e-INSIGHT:Information Technology and Middlemen344
INTERNET CONNECTION:Job Search 345
Search and Imperfect Competition 345 Search and the Labor Market 346
Trang 21Search and Information Intermediaries 346
Advertising and Competition 348 Advertising and Profits 348
REVIEW AND PRACTICE 351
e-INSIGHT:Labor Markets and the Internet 369
REVIEW AND PRACTICE 371
PART 4 ISSUES IN PUBLIC POLICY
373
Why Does the Government Intervene in the Economy?
377
INTERNATIONAL PERSPECTIVE:The Size of
Equity-Efficiency Trade-Offs 380
e-INSIGHT:The New Economy and Inequality 381
Trang 22Characteristics of a Good Tax System 382 The Scope of the U.S Tax System 383 Grading the U.S Tax System 383
Welfare 387 Housing 388 Social Insurance 389
Incentives and Constraints 392 Budgeting and Spending Procedures 393 Imperfections of Information 393 Collective Decision Making 394
Current and Recent Controversies in the Economics of
Dealing With the Deficit 395 Social Security 396
Health Care 398
INTERNET CONNECTION:Policy Analysis 400
REVIEW AND PRACTICE 401
INTERNATIONAL PERSPECTIVE:Global Warming408
THINKING LIKE AN ECONOMIST:Environmental
Regulation 410 Taxes and Subsidies 412 The Marketable Permit Response 413
CASE IN POINT:Reducing Acid Rain 414
Weighing the Alternative Approaches 415
INTERNET CONNECTION:The National Center for
e-INSIGHT:Information and the Environment 418
REVIEW AND PRACTICE 419
Trang 23CHAPTER 19 INTERNATIONAL TRADE AND TRADE
Interdependence in the Product Market 424 Interdependence in the Labor Market 424 Interdependence in the Capital Market 425 Multilateral Trade 425
INTERNET CONNECTION:David Ricardo 427
Production Possibilities Curves and Comparative Advantage 427
Comparative Advantage and Specialization 428
e-INSIGHT:The United States’ Comparative Advantage
What Determines Comparative Advantage? 430
The Perceived Costs of International Interdependence432
THINKING LIKE AN ECONOMIST:Exchange and
Commercial Policy 434 Tariffs 435
Quotas 436 Voluntary Export Restraints 436 Other Nontariff Barriers 437
“Fair Trade” Laws 437
INTERNATIONAL PERSPECTIVE:Surrogate
Displaced Firms and Workers 440 Beggar-Thy-Neighbor Policies 441 Wages in Affected Sectors 442 Increased Competition 442
THINKING LIKE AN ECONOMIST:Distribution and
The Infant Industry Argument 443
e-INSIGHT:Trade Liberalization in Information
Strategic Trade Theory 445
GATT and the WTO 445
Trang 24The Growing Protest Against the WTO 446
CASE IN POINT:The Banana War 447
Regional Trading Blocs 448
INTERNET CONNECTION:The World Trade
REVIEW AND PRACTICE 450
Links Between Technological Change and Imperfect
e-INSIGHT:The New Economy and Innovation 455
Patents and the Production of Ideas 455
THINKING LIKE AN ECONOMIST:Intellectual
The Trade-Off Between Short-term Efficiency and Innovation 457
CASE IN POINT:Eli Whitney and the Cotton Gin 460
R & D as a Fixed Cost 460 Learning by Doing 461 Access to Capital Markets 462 Schumpeterian Competition 463
Subsidies 465 Protection 466 Relaxing Antitrust Policies 466
INTERNET CONNECTION:Competitiveness 468
REVIEW AND PRACTICE 469
PART 5 INTRODUCTION TO
MACROECONOMICS 471
Getting the Country Moving Again 477 Stagflation 477
The Conquest of Inflation 478
Trang 25Government Deficits and Trade Deficits 479 Getting the Economy Moving (Again) 479 New Challenges 480
The Three Key Goals of Macroeconomic Performance 481
REVIEW AND PRACTICE 483
Gross Domestic Product 486 Measuring GDP: The Value of Output 489
INTERNET CONNECTION:The Bureau of Economic
REVIEW AND PRACTICE 506
Who Suffers from Inflation 510 The Economy 511
CASE IN POINT:Hyperinflation in Germany in the
Trang 26Alternative Measures of Inflation 517
INTERNET CONNECTION:The Inflation Calculator517
e-INSIGHT:Measuring the Price and Quantity of
REVIEW AND PRACTICE 521
PART 6 FULL-EMPLOYMENT
MACROECONOMICS 523
Shifts in the Demand and Supply of Labor 529
CASE IN POINT:Mass Migration in the Nineteenth
e-INSIGHT:Labor Markets and the Internet 532
Potential GDP 533 Demand and Equilibrium Output 534
Household Saving 536 Investment 537 Equilibrium in the Capital Market 538
Using the General Equilibrium Model 541
REVIEW AND PRACTICE 543
The Government and the Capital Market 549 Leakages and Injections 554
INTERNATIONAL PERSPECTIVE:Deficits in Other
THINKING LIKE AN ECONOMIST:Distribution,
Trang 27Evaluating Government Deficits and Surpluses 557Government Deficits and Surpluses: Our Recent
Risk Factors for the Federal Budget 562
REVIEW AND PRACTICE 563
The Capital Market in the Open Economy 568
INTERNET CONNECTION:U.S Trade Data 573
CASE IN POINT:The Trade Deficit 574
e-INSIGHT:High-Tech Exports and Imports 576
THINKING LIKE AN ECONOMIST:Net Exports and
REVIEW AND PRACTICE 583
Technological Change and the Role of Ideas 593
Total Factor Productivity: Measuring the Sources of
Trang 28Are There Limits to Economic Growth? 600
THINKING LIKE AN ECONOMIST:Trade-Offs and
REVIEW AND PRACTICE 602
Money Demand 607 Money Supply 609 The Price Level 609
INTERNET CONNECTION:How Much Cash Do We
CASE IN POINT:When Atlanta Printed Money 614
Money Is What Money Does 615 Measuring the Money Supply 617 Money and Credit 618
CASE IN POINT:“Boggs Bills” and the Meaning of
The Money Supply and the Bank’s Balance Sheet 620
THINKING LIKE AN ECONOMIST:Exchange,
How Banks Create Money 622
e-INSIGHT:Electronic Cash 623
How the Fed Affects the Money Supply 628
INTERNET CONNECTION:The Federal Reserve
Reducing the Threat of Bank Runs 631
REVIEW AND PRACTICE 633
Trang 29PART 7 MACROECONOMIC
FLUCTUATIONS 635
MACROECONOMIC FLUCTUATIONS 637
INTERNET CONNECTION:Dating Business Cycle
CASE IN POINT:Estimating the Output Costs of a
THINKING LIKE AN ECONOMIST:Employment
Nominal Versus Real Wages 645 The Slow Adjustment of Nominal Wages 645 The Slow Adjustment of Prices 645
THINKING LIKE AN ECONOMIST:Information and
Understanding Macroeconomic Fluctuations: Key
e-INSIGHT:Cyclical and Structural Productivity 650
FUNDAMENTALS OF FLUCTUATIONS 2:Sticky
Inflation and Adjustment 652
FUNDAMENTALS OF FLUCTUATIONS 3: Short-Run
Inflation, Monetary Policy, and Spending 653
FUNDAMENTALS OF FLUCTUATIONS 4: Inflation,
CASE IN POINT:Inflation Targeting 655
Linking the Four Key Concepts 656
REVIEW AND PRACTICE 657
Trang 30CHAPTER 30 AGGREGATE EXPENDITURES AND
Aggregate Expenditures and the Real Interest Rate683
THINKING LIKE AN ECONOMIST:Incentives and
REVIEW AND PRACTICE 685
The Fed’s Policy Rule 692 What Can Shift the ADI Curve? 694
INTERNATIONAL PERSPECTIVE:How Do Other
Other Factors That Can Shift the ADI Curve 696
Output Effects of a Shift in the ADI Curve 698
CASE IN POINT:The Volcker Disinflation 700
Trang 31An Expansionary Shift in the ADI Curve 701
CASE IN POINT:The Kennedy Tax Cut 701
THINKING LIKE AN ECONOMIST:Tough
Macroeconomic Policy and Shifts in the ADI Curve 703
Changes in Energy Prices 704
CASE IN POINT:Oil Price Shocks of the 1970s 705
A Shift in Potential GDP 705
CASE IN POINT:The 1990s 707
e-INSIGHT:Productivity Growth and the Punch Bowl708
INTERNET CONNECTION:The FOMC 710
REVIEW AND PRACTICE 711
A Day at the Trading Desk 716 The Demand for Reserves 718 The Supply of Reserves 719 Open Market Operations 719 Equilibrium in the Federal Funds Market 720
Inflation, Money Supply, and the Nominal Rate of Interest 722
REVIEW AND PRACTICE 724
The Old Inflation-Unemployment Trade-Off 728 The New Trade-Off: Output Stability–Inflation Stability 429
Automatic Stabilizers 729 Discretionary Policy Actions 731
INTERNET CONNECTION:The Economic Report of
The Full-Employment Deficit 733
Trang 32INTERNATIONAL PERSPECTIVE:Fiscal Transfers734
Behind the ADI Curve—The Role of Monetary Policy 736
INTERNET CONNECTION:The Beige Book 738
CASE IN POINT:Announcing the Fed’s Decisions 738
THINKING LIKE AN ECONOMIST:Real Values
CASE IN POINT:The Interest Rate Cut of January 3,
CASE IN POINT:September 11, 2001 743
e-INSIGHT:The Dot-Com Bubble and Macroeconomic
REVIEW AND PRACTICE 752
PART 8 THE GLOBAL ECONOMY
755
Supply and Demand in the Foreign Exchange Market 759
THINKING LIKE AN ECONOMIST:Incentives and
INTERNATIONAL PERSPECTIVE:Global Financial
CASE IN POINT:Currency Boards and Dollarization772
REVIEW AND PRACTICE 775
Trang 33CHAPTER 35 POLICY IN THE OPEN ECONOMY
779
Inflation, the Interest Rate, and the Exchange Rate 780 The Exchange Rate and Aggregate Expenditures 781
Imported Inputs 783
THINKING LIKE AN ECONOMIST:Interest Parity
Consumer Price Inflation and the Exchange Rate 784
INTERNET CONNECTION:Foreign Exchange Rates785
Comparing Monetary and Fiscal Policies in the Open
Monetary Policy with Flexible Exchange Rates 785
e-INSIGHT:New Technology and the Integration of
Fiscal Policy with Flexible Exchange Rates 787
INTERNATIONAL PERSPECTIVE:Is a Strong Dollar
REVIEW AND PRACTICE 790
CASE IN POINT:A Historical Perspective on
e-INSIGHT:Indian Engineers in Silicon Valley and
The Prognosis for Development 807
Trang 34PART 9 FURTHER TOPICS IN
MACROECONOMICS 817
819
The Role of Expectations: Shifts in the Short-Run Inflation Adjustment Curve 824
THINKING LIKE AN ECONOMIST:Distributional
CASE IN POINT:Nobel Views on Inflation and
INTERNET CONNECTION:Winners of the Nobel
CASE IN POINT:The Baby Boomers and the Natural
FUNDAMENTALS OF INFLATION:Cyclical
Combining the Aggregate Demand–Inflation and Inflation
Alternative Views 841
The Noninterventionist Perspective 844
THINKING LIKE AN ECONOMIST:Trade-Offs and
The Interventionist Perspective 847
Inflation Targeting and Policy Trade-Offs 849
Trang 35CASE IN POINT:Fed Policy Statements—Balancing
INTERNET CONNECTION:Banks and Inflation
INTERNATIONAL PERSPECTIVE:Central Bank
Demand Versus Supply Disturbances and Policy Offs 857
Trade-e-INSIGHT:e-Time and Macroeconomic Policy 858
REVIEW AND PRACTICE 860 APPENDIX:Price Level Targeting 862
865
Bank Deposits 866 Housing 866
INTERNET CONNECTION:Calculating Interest Rates867
Bonds 867 Shares of Stock 868 Mutual Funds 869
INTERNET CONNECTION:Index Funds 870
e-INSIGHT:Investing in the New Economy 872
CASE IN POINT:PG&E Employees Learn Why
Risk 874 Tax Considerations 876 Liquidity 877
THINKING LIKE AN ECONOMIST:The Distribution
Forming Expectations 880
Efficiency and the Stock Market 882 Efficient Markets or Random Noise? 884
REVIEW AND PRACTICE 887
Trang 36GLOSSARY A-1
Trang 37remember a more exciting or important time in the discipline Think
of today’s major economic issues—the huge American trade and budget
deficits, global warming, the debate between proponents of conservation and energy
exploration, ensuring adequate health care, ending global poverty, reforming Social
Security, outsourcing, rethinking the nature of competition and regulation in the
Internet age, and copyright protection in a digital, “downloadable” world The list
goes on and on To understand these issues, the core insights of economics are
invaluable
Exciting new theoretical advances are allowing economists to better understand
how individuals, families, and businesses make decisions about what to buy, what
to sell, how much to save, and how to invest their savings These advances affect
the way governments design policies to protect the environment, promote educational
opportunities, and deal with the changes in our economy brought about by
innova-tions in information technologies and the increasingly global economic marketplace
in which we all participate
There has never been a time in which the need to be informed about economic
issues has been more acute Nor is it any less critical for students to acquire the
tools that will enable them to think critically about the economic decisions they face
in their personal lives and the issues they must decide on as engaged citizens Even
something as basic to the study of economics as the concept of trade-offs helps
pro-vide students with a tool that can inform the way they think about issues at the
per-sonal, local, state, national, and even global level Whereas the Principles of Economics
course has always been popular among business students, now most students
real-ize that everyone needs to be conversant with the fundamentals of economics We
have written our book, and revised it for the Fourth Edition, keeping this very
impor-tant concept of the politically engaged student in mind
Preparing the Fourth Edition of this textbook has provided us with the
oppor-tunity to make several fundamental improvements over the previous edition We
still emphasize the five core concepts of modern economics, which are the importance
of trade-offs, incentives, exchange, information, and distribution Yet, economic
research is continuously yielding new, interesting, and important insights, and we
believe that these exciting new developments should be conveyed to students in
introductory courses While the textbook has always offered the most integrated
coverage of information economics, in this new edition we introduce students to
some of the results from new research in behavioral economics We have also made
several changes to the organization of the book that will give instructors increased
flexibility in structuring their courses
Trang 38Mission Statement for the Fourth Edition
Our text has always strived for two goals: One, to be transparently accessible and esting, dare we say a “good read,” for the student reader; and two, to not shy awayfrom teaching students the latest exciting insights of the discipline, to teach them thesubstance of economics as a field of study Many books seem to take the stance thatstudents cannot “handle” the new topics—we believe that it is just a matter of explain-ing the ideas simply and clearly
inter-To achieve these goals, the four main objectives of previous editions continued
to guide us These objectives are to provide students with a clear presentation ofthe basic competitive model, to present macroeconomics in its modern form con-sistent with the way active researchers and economists in policy-making institu-tions analyze the economy, to structure the textbook in ways that are conducive togood teaching and to student learning, and to ensure that the textbook reflects thecontemporary scene, stressing the core insights economics provides for understand-ing the ever-changing economy
Changes to the Fourth Edition—Microeconomics
The hallmark of this textbook, its emphasis on information, imperfect markets, tion, and technology, remain in the new edition New material on behavioral economicshas been incorporated into the chapters on consumer choice and capital markets
innova-KEY CHANGES FOR THE FOURTH EDITION:For the Fourth Edition, we worked hard to streamline the text Chapters in earliereditions that many students found too long or too dense have been significantlyrestructured In some cases, material has been divided into separate chapters,making chapters shorter on average and more focused
Important changes made to the microeconomic sections include:
the core concepts of economics
competition into two separate chapters This helps make the presentationmore student-friendly as well as giving instructors increased flexibility indeciding what material to include in their courses
markets and public policy issues Because strategic behavior is at the heart
Trang 39of the economist’s approach to imperfect competition, the chapter on
strategic behavior has been moved into Part 3 (Chapter 14)
the theme of public policy, rather than simply including a set of “topics.”
Part 4 includes chapters on the public sector (Chapter 17), environmental
policy (Chapter 18), and international trade and trade policy (Chapter 19)
Changes to the Fourth
Edition—Macroeconomics
The new edition maintains the modern approach to macroeconomics, one that
rec-ognizes that the Federal Reserve and other central banks implement monetary policy
through interest rates rather than through the explicit control of the money supply
By providing a more realistic treatment of monetary policy, the modern approach
also allows students to understand and discuss the types of policy actions they read
about in newspapers While the general approach developed in the Third Edition is
maintained, our treatment of macroeconomics in the new edition aims to streamline
the presentation, moving more advanced material into the “Topics” chapters
KEY CHANGES FOR THE FOURTH EDITION:
Important changes made to the macroeconomic sections include:
reflect new developments since the Third Edition
treated in a separate chapter (Chapter 23)
Separate chapters are now devoted to government finance (Chapter 25)
and the open economy (Chapter 26) This allows these two important topics
to be treated individually, allowing instructors greater choice in deciding
how to organize their course, as well as reducing the number of new
concepts introduced in each chapter
combined in Chapter 25 rather than split between Part 6 and Part 8 as in
the previous edition
the end of Part 6 (Chapter 28) This improves the flow of the full-employment
section, with Chapter 24 providing the basic framework for the determination
of real output, real wages, and the real interest rate, Chapter 25 adding the
Trang 40government, Chapter 26 extending the results to the case of the openeconomy, and Chapter 27 providing a discussion of economic growth Thematerial on money and prices then follows in Chapter 28.
improve the exposition Many users of the Third Edition felt that too muchmaterial was introduced in the chapters on the aggregate demand–inflationrelationship and the short-run inflation adjustment relationship To addressthis concern, we have moved the extended discussion of inflation andunemployment into Part 9 (Further Topics in Macroeconomics) Part 7begins with an overview (Chapter 29), covers the basics of aggregateexpenditures (Chapter 30), and then develops the aggregate
demand–inflation relationship in Chapter 31
new Part 8, with chapters dealing with the international financial system(Chapter 34), policy in the open economy (Chapter 35), and economicdevelopment and transition (Chapter 36)
In making these changes, we have continued to be motivated by the desire to write
a modern, student-friendly textbook that reflects the way economists approach theirsubject today
The Organization of the Text
The text is organized to work for both students and instructors For students, we lize the five core concepts of trade-offs, incentives, exchange, information, and distri-bution throughout the text, in both the chapters on microeconomics and those onmacroeconomics These concepts anchor the wide range of topics we cover, linkingall the topics to a core set of basic principles to which students can always refer We alsoprovide a firm grounding in basic concepts first, but we do not stop there We alsoensure that students are able to understand the tremendous insights offered by thebasic economic model of competitive markets and its limitations This prepares thestudent for understanding the lessons offered by modern economics for study of imper-fect competition, information, growth, and economic fluctuations We show how theseinsights help one understand economic phenomena that classical economics cannot
uti-By exposing students to modern economics—from the economics of information andinnovation to behavioral economics—the text helps them obtain a sense of the rich-ness of the discipline and its value for understanding the world around them The text is designed to offer solid coverage of traditional topics, combined with aflexible structure that allows it to be tailored to fit with the individual needs of theinstructor In covering both microeconomics and macroeconomics, the basic mate-rial of competitive markets and the full-employment economy are presented first.Then, the sections dealing with imperfect markets and fluctuations each begin with
an overview chapter that allows students to gain insight into the basic institutionsand key issues that are addressed in more detail in subsequent chapters This struc-