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For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. THE REAL ECONOMY IN THE LONG RUN 12 Production and Growth 13 Saving, Investment, and the Financial System These chapters describe the forces that in the long run determine key real variables, including growth in GDP, saving, investment, 14 The Basic Tools of Finance real interest rates, and unemployment. 15 Unemployment MONEY AND PRICES IN THE LONG RUN 16 The Monetary System The monetary system is crucial in determining the long-run behavior of the price level, the inflation rate, and other 17 Money Growth and Inflation nominal variables. THE MACROECONOMICS OF OPEN ECONOMIES 18 Open-Economy Macroeconomics: A nation’s economic interactions with other nations are described Basic Concepts by its trade balance, net foreign investment, and exchange rate.
19 A Macroeconomic Theory of the A long-run model of the open economy explains the determinants Open Economy of the trade balance, the real exchange rate, and other real variables. SHORT-RUN ECONOMIC FLUCTUATIONS 20 Aggregate Demand and Aggregate Supply The model of aggregate demand and aggregate supply explains 21 The Influence of Monetary and Fiscal Policy short-run economic fluctuations, the short-run effects of monetary on Aggregate Demand and fiscal policy, and the short-run linkage between real and 22 The Short-Run Trade-off nominal variables. between Inflation and Unemployment FINAL THOUGHTS A capstone chapter presents both sides of six major debates 23 Six Debates over Macroeconomic Policy over economic policy. Principles of Macroeconomics, 6E © 2012, 2009 South-Western, Cengage Learning N.
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For your course and learning solutions, visit www.com Purchase any of our products at your local college store or at our preferred online store www.com Printed in the United States of America 1 2 3 4 5 6 7 14 13 12 11 Principles of Macroeconomics Sixth Edition N. Gregory Mankiw HARVARD UNIVERSITY This page intentionally left blank To Catherine, Nicholas, and Peter, my other contributions to the next generation about the author N. Gregory Mankiw is professor of economics at Harvard University. As a student, he studied economics at Princeton University and MIT.
As a teacher, he has taught macroeconomics, micro- economics, statistics, and principles of economics. He even spent one summer long ago as a sailing instructor on Long Beach Island. Professor Mankiw is a prolific writer and a regu- lar participant in academic and policy debates. His work has been published in scholarly journals, such as the American Economic Review, Journal of Political Economy, and Quarterly Journal of Economics, and in more popular forums, such as The New York Times and The Wall Street Journal.
He is also author of the best-selling intermediate-level textbook Macroeconomics (Worth Publishers). In addition to his teaching, research, and writing, Professor Mankiw has been a research associate of the National Bureau of Economic Research, an adviser to the Congressional Budget Office and the Federal Reserve Banks of Boston and New York, and a member of the ETS test development committee for the Advanced Placement exam in economics. From 2003 to 2005, he served as chairman of the President’s Council of Economic Advisers. Professor Mankiw lives in Wellesley, Massachusetts, with his wife, Deborah, three children, Catherine, Nicholas, and Peter, and their border terrier, Tobin.
vi brief contents t Part I Introduction 1 Part VI Money and Prices in the Long Run 321 1 Ten Principles of Economics 3 16 The Monetary System 323 2 Thinking Like an Economist 21 17 Money Growth and Inflation 347 3 Interdependence and the Gains from Trade 49 Part VII The Macroeconomics of Open Economies 373 Part II How Markets Work 63 18 Open-Economy Macroeconomics: Basic Concepts 375 4 The Market Forces of Supply and Demand 65 19 A Macroeconomic Theory of the Open Economy 399 5 Elasticity and Its Application 89 6 Supply, Demand, and Government Policies 111 Part VIII Short-Run Economic Fluctuations 421 20 Aggregate Demand and Aggregate Supply 423 Part III Markets and Welfare 133 21 The Influence of Monetary and Fiscal Policy on 7 Consumers, Producers, and the Efficiency of Markets 135 Aggregate Demand 461 8 Application: The Costs of Taxation 155 22 The Short-Run Trade-off between Inflation and 9 Application: International Trade 171 Unemployment 489 Part IV The Data of Macroeconomics 193 Part IX Final Thoughts 513 10 Measuring a Nation’s Income 195 23 Six Debates over Macroeconomic Policy 515 11 Measuring the Cost of Living 217 Part V The Real Economy in the Long Run 233 12 Production and Growth 235 13 Saving, Investment, and the Financial System 259 14 The Basic Tools of Finance 281 15 Unemployment 297 vii preface ttoo the the student s E “ conomics is a study of mankind in the ordinary business of life.” So wrote Alfred Marshall, the great 19th-century economist, in his textbook, Principles of Economics. Although we have learned much about the economy since Marshall’s time, this definition of economics is as true today as it was in 1890, when the first edition of his text was published. Why should you, as a student at the beginning of the 21st century, embark on the study of economics? There are three reasons. The first reason to study economics is that it will help you understand the world in which you live.
There are many questions about the economy that might spark your curiosity. Why are apartments so hard to find in New York City? Why do airlines charge less for a round-trip ticket if the traveler stays over a Saturday night? Why is Johnny Depp paid so much to star in movies? Why are living stan- dards so meager in many African countries? Why do some countries have high rates of inflation while others have stable prices? Why are jobs easy to find in some years and hard to find in others? These are just a few of the questions that a course in economics will help you answer. The second reason to study economics is that it will make you a more astute participant in the economy. As you go about your life, you make many economic decisions.
While you are a student, you decide how many years to stay in school. Once you take a job, you decide how much of your income to spend, how much to save, and how to invest your savings. Someday you may find yourself running a small business or a large corporation, and you will decide what prices to charge for your products. The insights developed in the coming chapters will give you a new perspective on how best to make these decisions.
Studying economics will not by itself make you rich, but it will give you some tools that may help in that endeavor. The third reason to study economics is that it will give you a better understand- ing of both the potential and the limits of economic policy. Economic questions are always on the minds of policymakers in mayors’ offices, governors’ mansions, and the White House. What are the burdens associated with alternative forms of taxation? What are the effects of free trade with other countries? What is the best way to protect the environment? How does a government budget deficit affect the economy? As a voter, you help choose the policies that guide the allocation of society’s resources.
An understanding of economics will help you carry out that responsibility. And who knows: Perhaps someday you will end up as one of those policymakers yourself. Thus, the principles of economics can be applied in many of life’s situations. Whether the future finds you reading the newspaper, running a business, or sit- ting in the Oval Office, you will be glad that you studied economics.
Gregory Mankiw December 2010 viii Experience Mankiw The Art of Instruction, The Power of Engagement, The Spark of Discovery / iÊ*ÜiÀÊv Engagement Self-Study Resources INTERACTIVE QUIZZING, VIDEOS AND MORE! Economics CourseMate: Engaging, Trackable, Affordable Economics CourseMate brings course concepts to life with interactive learning and study tools that support the printed textbook. Economics CourseMate goes beyond the book to deliver what you need! INTERACTIVE LEARNING TOOLS: Economics CourseMate includes interactive learning tools including: UÊ+ÕââiÃÊ Ê Ê Ê UÊ>à V>À`à UÊ6`iÃÊ Ê Ê Ê UÊÀ>« }Ê/ÕÌÀ>à UÊ iÜÃ]Ê iL>ÌiÃ]Ê>`Ê >Ì> INTERACTIVE EBOOK: Ê>``ÌÊÌÊÌiÀ>VÌÛiÊi>À}ÊÌÃ]Ê VVÃÊ ÕÀÃi >ÌiÊ VÕ`iÃÊ>ÊÌiÀ>VÌÛiÊi °Ê9ÕÊV>ÊÌ>iÊÌiÃ]Ê } } Ì]ÊÃi>ÀV Ê and interact with embedded media specific to your book. Use it as >ÊÃÕ««iiÌÊÌÊÌ iÊ«ÀÌi`ÊÌiÝÌ]ÊÀÊ>ÃÊ>ÊÃÕLÃÌÌÕÌipÌ iÊV ViÊÃÊ up to you with CourseMate. /Ê«ÕÀV >ÃiÊ>VViÃÃÊÌÊ ÕÀÃi >ÌiÊ>`ÊÌ iÃiÊÌiÀ>VÌÛiÊÌÃ]ÊÛÃÌÊ www.
ix Maximize your efforts — and results — when you Experience Mankiw’s engaging learning tools. With Economics CourseMate, you’ll quickly reinforce chapter concepts and sharpen your skills with interactive, hands-on applications online. If a printed Study Guide better suits your needs and study habits, the Mankiw 6e Study Guide is unsurpassed in its careful attention to accuracy, concise language, and practice that enhances your study time. Mankiw 6e Study Guide «iÌiÞÊÀiÛÃi`ÊvÀÊÌ iÊ-ÝÌ Ê `Ì]ÊÌ ÃÊ-ÌÕ`ÞÊÕ`iÊVÛiÀÃÊV >«ÌiÀÊ>ÌiÀ>ÊV«Ài iÃÛiÞÊpÊ>`Ê>VVÕÀ>ÌiÞ°Ê6iÀÞÊ >`Ã]Êi>V ÊV >«ÌiÀÊÌ ÀÕ} ÞÊVÛiÀÃÊÌ iÊ>ÌiÀ>ÊÊÌ iÊVÀÀië`}ÊV >«ÌiÀÊvÊ >Ü°Ê ÛiÀÞÊiÞÊÜÀ`Ê>`ÊV- Vi«ÌÊÃÊ>``ÀiÃÃi`ÊÜÌ ÊÌ iÊ-ÌÕ`ÞÊÕ`iÊV >«ÌiÀÊpÊi>}ÊÞÕ½ÊviiÊVw`iÌÊÌ >ÌÊvÊÞÕÊV>Ê`ÊÌ iÊÃÌÕ`ÞÊ}Õ`i]ÊÞÕÊ will understand all of the material in that chapter of Mankiw.
/ iʺÌÞ«iûÊvʵÕiÃÌÃÊÕÃi`ÊÊÌ iÊ-ÌÕ`ÞÊÕ`iÊÀiyiVÌÊÜ >ÌÊÞÕÊw`ÊÃÌÊÕÃivÕÊÜ iÊÃÌÕ`Þ}°Ê"ÕÀÊÃÌÕ`iÌÊÃÕÀÛiÞÃÊ Ã ÜÊÌ >ÌÊÃÌÕ`iÌÃÊiÊÞÕÊviÌÊÌ >ÌÊwÌ iL>ʵÕiÃÌÃ]Ê>ÌV }ʵÕiÃÌÃ]Ê>`ʵÕiÃÌÃÊÜÌ ÕÌÊëiVwVÊÃ}iÊ >ÃÜiÀÃÊÜiÀiÊ>ÊivwViÌÊÕÃiÊvÊÌ iÀÊÌiÊpÊ>`ÊÌ iÊ >ÜÊ-ÌÕ`ÞÊÕ`iÊ>Û`ÃÊÌ iÃiÊ`ÃÊvʵÕiÃÌð /Ê«ÕÀV >ÃiÊ>ÊÃÌÕ`ÞÊ}Õ`i]ÊÛÃÌÊwww. acknowledgments I n writing this book, I benefited from the input of many talented people. Indeed, the list of people who have contributed to this project is so long, and their contributions so valuable, that it seems an injustice that only a single name appears on the cover. Let me begin with my colleagues in the economics profession.
The six editions of this text and its supplemental materials have benefited enormously from their input. In reviews and surveys, they have offered suggestions, identified challeng- es, and shared ideas from their own classroom experience.
