Macroeconomics

722 Pages·2013·5.027 MB·English

by  Stephen D. Williamson

Macroeconomics
Fifth Edition
STEPHEN D. WILLIAMSON
Washington University in St. Louis
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LibraryofCongressCataloging-in-PublicationData
Williamson,StephenD.
Macroeconomics/StephenD.Williamson.–5thed.
p.cm.
ISBN-13:978-0-13-299133-9
ISBN-10:0-13-299133-0
1. Macroeconomics.I.Title.
HB172.5.W552014
339–dc23
2012041186
10 9 8 7 6 5 4 3 2 1
ISBN-10:0-13-299133-0
www.pearsonhighered.com ISBN-13:978-0-13-299133-9
CONTENTS
PART I Introduction and Measurement Issues 1
Chapter1 Introduction 2
WhatIsMacroeconomics? 2
GrossDomesticProduct,EconomicGrowth,
andBusinessCycles 3
MacroeconomicModels 7
MicroeconomicPrinciples 10
DisagreementinMacroeconomics 11
WhatDoWeLearnfromMacroeconomicAnalysis? 12
UnderstandingRecentandCurrentMacroeconomicEvents 15
ChapterSummary 33 Problems 35
KeyTerms 33 WorkingwiththeData 36
QuestionsforReview 34
Chapter2 Measurement 37
MeasuringGDP:TheNationalIncomeandProductAccounts 37
NominalandRealGDPandPriceIndices 46
MACROECONOMICS INACTION:ComparingRealGDPAcross
CountriesandthePennEffect 54
MACROECONOMICS INACTION:HousePricesandGDP
Measurement 55
Savings,Wealth,andCapital 57
LaborMarketMeasurement 58
MACROECONOMICS INACTION:AlternativeMeasuresofthe
UnemploymentRate 60
ChapterSummary 62 Problems 64
KeyTerms 62 WorkingwiththeData 67
QuestionsforReview 64
Chapter3 Business Cycle Measurement 68
RegularitiesinGDPFluctuations 68
iii
iv Contents
MACROECONOMICS INACTION:EconomicForecastingandthe
FinancialCrisis 71
Comovement 72
TheComponentsofGDP 78
NominalVariables 81
LaborMarketVariables 84
MACROECONOMICS INACTION:JoblessRecoveries 86
SeasonalAdjustment 88
MACROECONOMICS INACTION:TheGreatModerationandthe
2008–2009Recession 89
ComovementSummary 91
ChapterSummary 92 Problems 94
KeyTerms 92 WorkingwiththeData 94
QuestionsforReview 93
PART II A One-Period Model of the Macroeconomy 95
Chapter4 Consumer and Firm Behavior: The Work–Leisure
Decision and Profit Maximization 96
TheRepresentativeConsumer 97
TheRepresentativeFirm 116
MACROECONOMICS INACTION:HowElasticisLabor
Supply? 117
MACROECONOMICS INACTION:HenryFordandTotalFactor
Productivity 127
THEORYCONFRONTS THEDATA:TotalFactorProductivityandthe
U.S.AggregateProductionFunction 128
ChapterSummary 131 Problems 134
KeyTerms 132 WorkingwiththeData 136
QuestionsforReview 133
Chapter5 A Closed-Economy One-Period Macroeconomic
Model 137
Government 138
CompetitiveEquilibrium 138
Optimality 145
WorkingwiththeModel:TheEffectsofaChangeinGovernment
Purchases 151
THEORYCONFRONTS THEDATA:GovernmentSpendinginWorld
WarII 153
WorkingwiththeModel:AChangeinTotalFactor
Productivity 154
Contents v
THEORYCONFRONTS THEDATA:TotalFactorProductivity,Real
GDP,andEnergyPrices 159
MACROECONOMICS INACTION:GovernmentExpendituresandthe
AmericanRecoveryandReinvestmentActof2009 162
ADistortingTaxonWageIncome,TaxRateChanges,andtheLaffer
Curve 166
AModelofPublicGoods:HowLargeShouldtheGovernment
Be? 173
ChapterSummary 177 Problems 179
KeyTerms 177 WorkingwiththeData 181
QuestionsforReview 178
Chapter6 Search and Unemployment 182
LaborMarketFacts 183
MACROECONOMICS INACTION:UnemploymentandEmployment
intheUnitedStatesandEurope 187
ADiamond-Mortensen-PissaridesModelofSearch
andUnemployment 189
WorkingwiththeDMPModel 199
MACROECONOMICS INACTION:UnemploymentInsuranceand
Incentives 201
THEORYCONFRONTS THEDATA:Productivity,Unemployment,and
RealGDPintheUnitedStatesandCanada:The2008–2009
Recession 207
AKeynesianDMPModel 209
MACROECONOMICS INACTION:TheNaturalRateof
Unemploymentandthe2008–2009Recession 213
ChapterSummary 214 Problems 216
KeyTerms 215 WorkingwiththeData 217
QuestionsforReview 215
PART III Economic Growth 219
Chapter7 Economic Growth: Malthus and Solow 220
EconomicGrowthFacts 221
TheMalthusianModelofEconomicGrowth 226
TheSolowModel:ExogenousGrowth 237
THEORYCONFRONTS THEDATA:TheSolowGrowthModel,
InvestmentRates,andPopulationGrowth 250
MACROECONOMICS INACTION:ResourceMisallocationandTotal
FactorProductivity 252
vi Contents
MACROECONOMICS INACTION:RecentTrendsinEconomic
GrowthintheUnitedStates 253
GrowthAccounting 254
MACROECONOMICS INACTION:DevelopmentAccounting 261
ChapterSummary 263 Problems 265
KeyTerms 264 WorkingwiththeData 267
QuestionsforReview 264
Chapter8 Income Disparity Among Countries and Endogenous
Growth 268
Convergence 269
THEORYCONFRONTS THEDATA:IsIncomePerWorkerConverging
intheWorld? 274
MACROECONOMICS INACTION:MeasuringEconomicWelfare:Per
CapitaIncome,IncomeDistribution,Leisure,
andLongevity 275
EndogenousGrowth:AModelofHumanCapital
Accumulation 276
MACROECONOMICS INACTION:EducationandGrowth 285
ChapterSummary 287 Problems 288
KeyTerms 287 WorkingwiththeData 289
QuestionsForReview 287
PART IV Savings, Investment, and Government Deficits 291
Chapter9 A Two-Period Model: The Consumption–Savings
Decision and Credit Markets 292
ATwo-PeriodModeloftheEconomy 293
THEORYCONFRONTS THEDATA:ConsumptionSmoothingandthe
StockMarket 309
TheRicardianEquivalenceTheorem 321
MACROECONOMICS INACTION:TheEconomicGrowthandTax
ReliefReconciliationActandNationalSaving 331
THEORYCONFRONTS THEDATA:GovernmentFinancing
Arithmetic:AreGovernmentBudgetDeficitsSustainable? 333
ChapterSummary 336 Problems 339
KeyTerms 337 WorkingwiththeData 341
QuestionsforReview 338
Chapter10 Credit Market Imperfections: Credit Frictions,
Financial Crises, and Social Security 342
CreditMarketImperfectionsandConsumption 344
Contents vii
CreditMarketImperfections,AsymmetricInformation,andthe
FinancialCrisis 347
THEORYCONFRONTS THEDATA:AsymmetricInformationand
InterestRateSpreads 349
CreditMarketImperfections,LimitedCommitment,
andtheFinancialCrisis 351
THEORYCONFRONTS THEDATA:TheHousingMarket,Collateral,
andConsumption 354
THEORYCONFRONTS THEDATA:LowRealInterestRatesandthe
FinancialCrisis 361
SocialSecurityPrograms 363
MACROECONOMICS INACTION:TransitionsfromPay-As-You-Go
toFullyFundedSocialSecurity 369
ChapterSummary 370 Problems 372
KeyTerms 371 WorkingwiththeData 374
QuestionsforReview 371
Chapter11 A Real Intertemporal Model with Investment 375
TheRepresentativeConsumer 376
TheRepresentativeFirm 382
THEORYCONFRONTS THEDATA:InvestmentandtheInterestRate
Spread 394
Government 396
CompetitiveEquilibrium 397
TheEquilibriumEffectsofaTemporaryIncreaseinG:Stimulus,the
Multiplier,andCrowdingOut 408
MACROECONOMICS INACTION:TheTotalGovernmentSpending
Multiplier:Barrovs.Romer 412
TheEquilibriumEffectsofaDecreaseintheCurrentCapital
StockK 414
TheEquilibriumEffectsofanIncreaseinCurrentTotalFactor
Productivityz 415
TheEquilibriumEffectsofanIncreaseinFutureTotalFactor
œ
Productivity,z :NewsAbouttheFutureandAggregate
EconomicActivity 418
THEORYCONFRONTS THEDATA:News,theStockMarket,and
InvestmentExpenditures 419
CreditMarketFrictionsandtheFinancialCrisis 421
THEORYCONFRONTS THEDATA:InterestRateSpreadsand
AggregateEconomicActivity 423
SectoralShocksandLaborMarketMismatch 425
viii Contents
THEORYCONFRONTS THEDATA:TheBehaviorofRealGDP,
Employment,andLaborProductivityinthe1981–1982and
2008–2009Recessions 428
ChapterSummary 431 Problems 433
KeyTerms 432 WorkingwiththeData 435
QuestionsforReview 432
PART V Money and Business Cycles 437
Chapter12 Money, Banking, Prices, and Monetary Policy 438
WhatIsMoney? 439
AMonetaryIntertemporalModel 440
ALevelIncreaseintheMoneySupplyandMonetary
Neutrality 454
ShiftsinMoneyDemand 457
THEORYCONFRONTS THEDATA:InstabilityintheMoneyDemand
Function 460
TheShort-RunNon-NeutralityofMoney:Friedman–LucasMoney
SurpriseModel 462
TheZeroLowerBoundandQuantitativeEasing 472
MACROECONOMICS INACTION:EmpiricalEvidenceon
QuantitativeEasing 475
ChapterSummary 478 Problems 481
KeyTerms 479 WorkingwiththeData 482
QuestionsforReview 480
Chapter13 Business Cycle Models with Flexible Prices and
Wages 483
TheRealBusinessCycleModel 485
AKeynesianCoordinationFailureModel 493
MACROECONOMICS INACTION:BusinessCycleModelsandthe
GreatDepression 494
ANewMonetaristModel:FinancialCrisesandDeficient
Liquidity 504
MACROECONOMICS INACTION:UncertaintyandBusiness
Cycles 514
ChapterSummary 515 Problems 517
KeyTerms 516 WorkingwiththeData 518
QuestionsforReview 516
Chapter14 New Keynesian Economics: Sticky Prices 519
TheNewKeynesianModel 521
TheNonneutralityofMoneyintheNewKeynesianModel 523
Contents ix
THEORYCONFRONTS THEDATA:CantheNewKeynesianModel
UnderFluctuationsintheInterestRateTargetExplainBusiness
Cycles? 525
THEORYCONFRONTS THEDATA:KeynesianAggregateDemand
ShocksasCausesofBusinessCycles 526
TheRoleofGovernmentPolicyintheNewKeynesianModel 528
TotalFactorProductivityShocksintheNewKeynesian
Model 531
MACROECONOMICS INACTION:TheTimingoftheEffectsofFiscal
andMonetaryPolicy 532
TheLiquidityTrapandStickyPrices 535
MACROECONOMICS INACTION:NewKeynesianModels,theZero
LowerBound,andQuantitativeEasing 537
CriticismsofKeynesianModels 539
MACROECONOMICS INACTION:HowStickyAreNominal
Prices? 540
ChapterSummary 541 Problems 543
KeyTerms 542 WorkingwiththeData 544
QuestionsforReview 542
PART VI International Macroeconomics 545
Chapter15 International Trade in Goods and Assets 546
ATwo-PeriodSmallOpen-EconomyModel:TheCurrent
Account 547
THEORYCONFRONTS THEDATA:IsaCurrentAccountDeficitaBad
Thing? 551
Production,Investment,andtheCurrentAccount 555
MACROECONOMICS INACTION:TheWorld“SavingsGlut” 562
ChapterSummary 563 Problems 565
KeyTerms 564 WorkingwiththeData 566
QuestionsforReview 564
Chapter16 Money in the Open Economy 567
TheNominalExchangeRate,theRealExchangeRate,
andPurchasingPowerParity 568
THEORYCONFRONTS THEDATA:ThePPPRelationshipforthe
UnitedstatesandCanada 570
FlexibleandFixedExchangeRates 570
AMonetarySmallOpen-EconomyModelwithaFlexibleExchange
Rate 573