Macro economics

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Macro

economics

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Macro

economics

Charles I. J o n e s

University of California, Berkeley

W. w. Norton & Company

New York London

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W. W. Norton & Company has been independent since its founding in 1923, when

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To Tei •ey and Charlie

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BRIEF CONTENTS

P a rt 1: P re lim in arie s

1 Introduction to Macroeconomics 3

2 Measuring the Macroeconomy 17

P a rt 2: Th e L on g Run

3 An Overview of Long-Run Economic Growth 39

4 A Model of Production 65

5 The Solow Growth Model 95

6 Growth and Ideas 129

7 The Labor Market, Wages, and Unemployment

8 Inflation 189

P a rt 3: Th e Sho rt Run

9 An Introduction to the Short Run 217

10 The IS Curve 237

11 Monetary Policy and the Phillips Curve 265

12 Stabilization Policy and the AS/AD

Framework 297

P a rt 4: A pp lica t ion s

13 The Government and the Macroeconomy 337

14 International Trade 36i

15 Exchange Rates and International Finance 387

165

IB Parting Thoughts 417

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CONTENTS

Preface xvii

A cknow ledgm ents xxiii

A bout the A uthor xxv

P a rt 1: P re lim in arie s

1 Introduction to

Macroeconomics 3

1.1 W h at Is M acroeconom ics? 4

1.2 How M acroeconom ics S tu d ies

Key Q u estio n s 7

1.3 A n O verview of th e Book 9

The Long Run 9

The Short Run 10

Issues for the Future 11

S u m m ary 12

K ey C oncepts 12

Review Q u estio n s 13

E x ercises 13

W orked E x ercise 15

2 M easuring the

Macroeconomy 17

2.1 In tro d u ctio n 18

2.2 M easu rin g th e S ta te of th e

E conom y 18

Production = Expenditure = Income 19

The Expenditure Approach to GDP 20

The Income Approach to GDP 23

The Production Approach to GDP 24

W hat Is Included in GDP and W hat Is

Not? 25

2.3 M easu rin g C h an g es over T im e 26

A Simple Example: W here Real GDP

Doesn’t Change 27

A Second Example: W here Real GDP

Changes 28

Q uantity Indexes: Laspeyres, Paasche, and

Chain W eighting 29

Price Indexes and Inflation 30

U sing Chain-W eighted D ata 30

2.4 C o m p arin g Econom ic P erfo rm an ce

A cross C o u n trie s 31

S u m m ary 33

K ey C oncepts 34

R eview Q u estio n s 34

E x ercises 34

W orked E x ercise 36

IX

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x Contents

P a rt 2: The L o n g Run

3 An Overview of Long-Run

Econom ic Growth 39

3.1 In tro d u ctio n 40

3.2 G row th over th e V ery Long R u n 40

3.3 M odern Econom ic G row th 42

The Definition of Economic Growth 43

A Population Growth Example 44

The Rule of 70 and the Ratio Scale 45

U.S. GDP on a Ratio Scale 47

Calculating Growth Rates 48

3.4 M odern G row th aro u n d th e W orld 49

A Broad Sample of Countries 51

3.5 Som e U seful P ro p erties of G row th

R ates S3

3.6 T he C osts of Econom ic G row th 56

3.7 A L ong-R un R oadm ap 56

3.8 A dditional R esources 58

S u m m ary 58

Key C oncepts 59

Review Q u estio n s 59

E x ercises 60

W orked E xercises 63

4 A Model of Production 65

4.1 In tro d u ctio n 66

4.2 A M odel of P ro d u ctio n 67

Setting Up the Model 67

Allocating Resources 68

Solving the Model: General

Equilibrium 71

Interpreting the Solution 73

4.3 A n alyzing th e P ro d u ctio n M odel 76

Com paring Models w ith D ata 76

The Empirical F it of th e Production

Model 77

Productivity Differences: Im proving th e Fit

of the Model SO

4.4 U n d e rsta n d in g T F P D ifferences 84

H um an C apital 84

Technology 85

Institutions 85

4.5 E v a lu a tin g th e P ro d u ctio n M odel 88

S u m m ary 89

K ey C oncepts 90

R eview Q u estio n s 90

E x ercises 90

W orked E x ercises 92

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Contents xi

5 The Solow Growth Model 95

5.1 In tro d u ctio n 96

5.2 S e ttin g U p th e Model 97

Production 97

Capital Accumulation 97

Labor 99

Investm ent 99

The Model Sum m arized 100

5.3 P rices an d th e R eal In te re st R ate 101

5.4 Solving th e Solow M odel 102

Using the Solow Diagram 103

O utput and Consumption in the

Solow D iagram 104

Solving M athem atically for the

Steady S tate 104

5.5 L ooking a t D ata th ro u g h th e L ens of

th e Solow M odel 106

The C apital-O utput Ratio 106

Differences in Y/L 108

5.6 U n d e rsta n d in g th e S tead y S ta te 109

5.7 Econom ic G row th in th e

Solow M odel 109

Meanwhile, Back on the Fam ily Farm 110

5.8 Som e Econom ic E x p erim en ts 111

An Increase in the Investm ent Rate 111

A Rise in the Depreciation Rate 113

E xperim ents on Your Own 114

5.9 T he P rin cip le of T ran sitio n

D ynam ics 115

U nderstanding Differences in Growth

Rates 116

5.10 S tre n g th s a n d W eak n esses of th e

Solow M odel 119

S u m m ary 121

K ey C oncepts 121

R eview Q u estio n s 121

E x ercises 122

W orked E x ercises 125

G Growth and Ideas 129

6.1 In tro d u ctio n 130

6.2 T he Econom ics of Id eas 131

Ideas 131

Nonrivalry 132

Increasing R eturns 133

Problems w ith Pure Com petition 135

6.3 T he R om er M odel 138

Solving the Romer Model 140

Why Is There Growth in the Romer

Model? 142

Balanced Growth 143

Experim ents in the Romer Model 144

Growth Effects versus Level Effects 145

Recapping Romer 147

6.4 C om bining Solow an d Rom er:

O verview 147

6.5 G row th A ccounting 148

6.6 C oncluding O u r S tu d y of Long-R un

G row th 150

6.7 A P o stscrip t on Solow a n d R om er 151

6.8 A d d itio n al R esources 152

S u m m ary 153

Key C oncepts 153

R eview Q u estio n s 154

E x ercises 154

W orked E x ercises 156

6.9 APPENDIX: C om bining Solow a n d R om er

(A lgebraically) 158

Setting up the Combined Model 158

Solving the Combined Model 158

Long-Run Grow th 159

O utput per Person 161

T ransition Dynamics 162

More Exercises 163

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xii Contents

7 The Labor Market, Wages,

and Unemployment 165

7.1 In tro d u ctio n 166

7.2 T he U .S. L abor M ark et 166

The Dynamics of the Labor M arket 168

7.3 S upply an d D em and 170

A Change in Labor Supply 171

A Change in Labor Demand 172

Wage Rigidity 172

Different Kinds of Unemployment 174

7.4 L abor M a rk ets aro u n d th e W orld 175

Hours of Work 177

7.5 How M uch Is Y our H u m an C ap ital

W orth? 178

P resent Discounted Value 179

Your H um an Capital 180

7.6 T he R ising R e tu rn to E du catio n 181

S u m m ary 184

Key C oncepts 184

R eview Q u estio n s 184

E x ercises 185

W orked E xercises 187

8 Inflation 189

8.1 In tro d u ctio n 190

8.2 T he Q u a n tity T heory of M oney 193

M easures of the Money Supply 193

The Q uantity Equation 194

The Classical Dichotomy, C onstant

Velocity, and the C entral B ank 195

The Q uantity Theory for the Price

Level 196

The Q uantity Theory for Inflation 196

Revisiting the Classical Dichotomy 198

8.3 R eal an d N om inal In te re s t R a te s 200

8.4 C osts of Inflatio n 202

8.5 T he Fiscal C au ses o f H igh

In flation 204

The Inflation Tax 205

8.6 T he G re a t Inflatio n of th e 1970s 208

S u m m ary 208

K ey C oncepts 209

Review Q u estio n s 209

E xercises 210

W orked E x ercises 213

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Contents xiii

P a rt 3: The Short Run

9 An Introduction to the

Short Run 2 17

9.1 In tro d u ctio n 218

9.2 T he Long R un, th e S h o rt Run,

an d Shocks 218

Trends and Fluctuations 219

Short-Run O utput in the

United States 220

M easuring Potential O utput 223

The Inflation Rate 224

9.3 T he S h o rt-R u n M odel 224

A G raph of the Short-Run Model 225

How the Short-Run Model Works 227

The Empirical Fit of the Phillips

Curve 227

9.4 O k u n ’s Law: O u tp u t and

U n em p lo y m en t 228

9.5 F illin g in th e D etails 231

S u m m ary 231

Key C oncepts 232

R eview Q u estio n s 232

E x ercises 233

W orked E xercise 235

10 The IS Curve 237

10.1 In tro d u ctio n 238

10.2 S e ttin g U p th e Econom y 239

Consumption and Friends 240

The Investm ent Equation 241

10.3 D eriving th e IS C urve 242

10.4 U sing th e IS C urve 244

The Basic IS Curve 244

The Effect of a Change in the Interest

Rate 245

An Aggregate Demand Shock 246

A Shock to Potential O utput 248

O ther Experim ents 249

10.5 M icrofoundations of th e IS C urve 249

Consumption 249

M ultiplier Effects 252

Investm ent 254

Government Purchases 255

N et Exports 258

10.6 C onclusion 259

S u m m ary 259

Key C oncepts 260

Review Q u estio n s 260

E x ercises 260

W orked E xercises 263

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xiw Contents

11 Monetary Policy and the

Phillips Curve 265

11.1 In tro d u ctio n 266

11.2 T he M P C urve: M o netary Policy and

In te re s t R ates 267

From Nominal to Real Interest Rates 268

The IS-MP Diagram 269

Example: The End of a Housing

Bubble 270

11.3 T he P h illip s C urve 272

Price Shocks and the Phillips Curve 275

Cost-Push and Demand-Pull Inflation 275

11.4 U sin g th e S ho rt-R u n M odel 277

The Volcker Disinflation 277

The G reat Inflation of the 1970s 280

The Short-Run Model in a N utshell 282

11.5 M icrofoundations: U n d e rstan d in g Sticky

Inflation 283

The Classical Dichotomy in the Short

Run 284

11.6 M icrofoundations: How C e n tra l B anks

C ontrol N om inal In te re st R ates 286

C hanging the Interest Rate 287

Why i, instead of Mp. 288

11.7 C onclusion 290

S u m m ary 291

Key C oncepts 292

R eview Q uestions 292

E x ercises 292

W orked E xercises 295

12 Stabilization Policy and th e

AS/AD Framework 297

12.1 In tro d u ctio n 298

12.2 M o n etary Policy R ules a n d A g g regate

D em an d 298

The AD Curve 299

Moving along the AD Curve 301

Shifts of the AD Curve 301

12.3 T he A g gregate S u p p ly C u rv e 302

12.4 T he AS/AD F ram ew o rk 303

The Steady State 303

The AS/AD G raph 304

12.5 M acroeconom ic E v en ts in th e AS/AD

F ram ew o rk 305

Event #1: An Inflation Shock 305

Event #2: Disinflation 309

Event #3: A Positive AD Shock 311

F u rth er Thoughts on Aggregate Dem and

Shocks 315

12.6 E m p irical E vidence 316

Predicting the Fed Funds Rate 316

Inflation-O utput Loops 318

12.7 M odem M o n etary Policy 320

More Sophisticated M onetary Policy

Rules 322

Rules versus Discretion 322

The Paradox of Policy and Rational

Expectations 323

M anaging Expectations in the AS/AD

Model 324

Inflation Targeting 326

Conclusion 327

S u m m ary 328

K ey C oncepts 329

R eview Q u estio n s 329

E x ercises 329

WTork ed E x ercises 333

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Contents xv

P a rt 4: A pp lica t ion s

13 The Government and

the Macroeconomy 337

13.1 In tro d u ctio n 338

13.2 U .S. G o v ern m en t S p ending

an d R evenue 338

Spending and Revenue over Time 340

The Debt-GDP Ratio 340

13.3 In tern a tio n a ] E vidence on Spending and

D ebt 342

13.4 T he G o v ern m en t B udget

C o n stra in t 342

The Intertem poral Budget C onstraint 344

13.5 How M uch C an th e G overnm ent

Borrow ? 346

Economic Growth and the Debt-GDP

Ratio 346

High Inflation and Default 347

G enerational Accounting 348

Deficits and Investm ent 349

13.6 T he F iscal P roblem of th e T w en ty -F irst

C e n tu ry 351

The Problem 352

Possible Solutions 354

13.7 C onclusion 357

S u m m ary 357

Key C oncepts 358

R eview Q u estio n s 358

E x ercises 358

W orked E xercise 360

14 International Trade 36i

14.1 In tro d u ctio n 362

14.2 Som e B asic F acts ab o u t T rad e 363

14.3 A B asic R eason for T rad e 365

14.4 T rad e across Tim e 366

14.5 T rad e w ith P ro d u ctio n 368

Autarky 369

Free Trade 371

Lessons from the Apple-Computer

Example 372

14.6 T rad e in In p u ts 373

Moving Capital versus Moving Labor 374

14.7 T he C osts of T rad e 375

14.8 T he T rad e Deficit an d Foreign

D ebt 377

Trade and Growth around the World 378

The Twin Deficits 379

Net Foreign Assets and Foreign Debt 380

14.9 C onclusion 382

S u m m ary 382

Key C oncepts 383

Review Q u estio n s 383

E xercises 383

W orked E xercise 386

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xvi Contents

15 Exchange Rates and

International Finance 387

15.1 In tro d u ctio n 388

15.2 E xchange R ates in th e Long R un 388

The Nominal Exchange Rate 388

The Law of One Price 389

The Real Exchange Rate 392

Sum m ary 393

15.3 E xchange R ates in th e S h o rt R un 393

The Nominal Exchange Rate 393

The Real Exchange Rate 394

15.4 Fixed E xchange R ates 395

15.5 T he O pen Econom y in th e S h ort-R un

M odel 396

The New IS Curve 397

Event #1: Tightening Domestic M onetary

Policy and the IS Curve 398

Event #2: A Change in Foreign Interest

Rates 399

15.6 E xchange R ate R egim es 401

15.7 T he Policy T rilem m a 403

Which Side of the Triangle to

Choose? 405

The Future of Exchange Rate

Regimes 409

15.8 T he A d ju stm en t of th e U .S. T rad e

B alance 410

A djustm ent in the Short-Run Model 410

S u m m ary 411

Key C oncepts 412

Review Q u estio n s 412

E x ercises 413

W orked E xercises 4/5

15 Parting Thoughts 4 17

16.1 W h at W e’ve L earn ed 418

16.2 Significant R em ain in g Q u estio n s 420

16.3 C onclusion 422

Glossary 425

Index 437

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P R E F A C E

Interm ediate macroeconomics is one of my fa￾vorite classes to teach. To the new student, the

macroeconomic world is a complicated place, full

of arcane statistics. It is a great pleasure to w it￾ness the moments of understanding th at occur

throughout a course in macroeconomics: when

students appreciate the trem endous economic

growth th a t has occurred over the last century;

when they first understand the state-of-the-art

theories of why such growth occurs.

B ut there is also a practical lesson to be learned.

Macroeconomics m atters. G reat depressions, hy￾perinflations, and growth miracles—enormous

w ealth is created, lost, and transferred by macro￾economic events. U nderstanding macreconomics

is not, therefore, a purely intellectual endeavor.

Lives and livelihoods are at stake.

I’m extrem ely excited about this new macroeco￾nomics text. I hope you will find it engaging and

illum inating.

Innovations

(This section will m ake the most sense to readers

w ith some fam iliarity w ith macroeconomics, espe￾cially instructors. Students new to the subject

m ight skip to the Guided Tour.)

The most popular textbooks for teaching interm e￾diate macroeconomics were first w ritten fifteen or

tw enty years ago. O ur understanding of the

macroeconomv has improved substantially since

then, and the tim e is ripe for a new, more mod￾ern treatm ent.

Of course, this book is by no m eans a revolution.

Its order and structure will feel fam iliar to in￾structors. But the execution, examples, and peda￾gogy all have been updated to incorporate the best

th at macroeconomics instruction has to offer.

W hat’s special about this book? Innovations occur

throughout, but the key ones are described below.

RICH TR EA TM EN T OF ECO N O M IC GROW TH

Economic growth is the first major topic explored

in the book. After an overview chapter describes

the facts and some tools, C hapter 4 presents a

(static) model based on a Cobb-Douglas produc￾tion function. Students learn w hat a model is

with this simple structure, and they see it ap￾plied to understanding the 50-fold differences in

per capita GDP th a t we see across countries.

C hapter 5 presents the Solow model—bu t w ith

no technological change or population growth,

which simplifies the presentation. Instead, stu ­

dents learn Robert Solow’s insight th a t capital

accum ulation cannot serve as the engine for

long-run economic growth.

C hapter 6 then offers som ething absent in most

(all?) other interm ediate macro books: a thorough

exposition of the economics of ideas and of Paul

Romer’s insight th a t the discovery of new ideas

can drive long-run growth.

FA M ILIA R VET U PDA TED S H O R T -R U N MODEL

W hen I began this book, I was confident I had

new, better ways to present the grow th m aterial.

I was less sure about how to improve the presen￾tation of short-run macroeconomics. W ith help

from students, reviewers, and colleagues, how￾ever. I am now extrem ely excited about the

short-run presentation.

xvii

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