Macroeconomics for Managers,9781405101448

Macroeconomics for Managers

by
Edition: 1st
ISBN13: 9781405101448
ISBN10: 140510144X
Format: Hardcover
Pub. Date: 2003-11-07
Publisher(s): Wiley-Blackwell
List Price: $180.21

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Summary

This text offers business school students an excellent practical explanation of the short-term linkages in the macroeconomic arena. While the underlying theoretical constructs are not ignored, emphasis is placed on the empirical underpinnings and managerial implications of macroeconomics. The text begins by introducing key concepts such as the GDP, National and Personal Income, and the various measures of inflation and unemployment. Building on this foundation it then analyzes the following aspects of macroeconomics: aggregate supply and demand, international financial markets, cyclical fluctuations, policy analysis, and forecasting. Engages the reader with detailed case studies and "Manager's Briefcase" discussions. Focuses on the short-term linkages in macroeconomics. Uses an empirically oriented approach, while also explaining underlying theoretical constructs. Includes chapter summaries, key concepts, and practice questions.

Author Biography

Michael K. Evans formerly taught at the Kellogg School at Northwestern University. Since 1981 he has headed Evans, Carroll & Associates (formerly Evans Economics), and has generated thousands of forecasts at the macroeconomic, financial, industry, and individual company level. He was awarded the Annual Blue Chip Economic Forecasting Award in 1999 for the most accurate macroeconomic forecasts over the past four years.

Table of Contents

Preface and Acknowledgments xv
Part I: Introductory Concepts 1(104)
Chapter 1: The Importance of Macroeconomics
3(25)
Introduction
3(2)
1.1 What is Macroeconomics?
5(3)
1.2 Links Between Macroeconomics and Microeconomics
8(2)
1.3 Current Core of Macroeconomic Theory
10(1)
1.4 Macroeconomics - an Empirical Discipline
11(2)
1.5 The Importance of Policy Applications
13(1)
1.6 Positive and Normative Economics: Why Macroeconomists Disagree
14(3)
1.7 Roadmap of this Book
17(2)
Key Terms and Concepts
19(1)
Summary
19(1)
Questions and Problems
20(2)
Appendix: Thumbnail Sketch of the Development of Macroeconomics
22(5)
Notes
27(1)
Chapter 2: National Income and Product Accounts (NIPA)
28(37)
Introduction
28(1)
2.1 How the National Income and Product Accounts are Constructed
28(2)
2.2 Components of GDP: Final Goods and Services
30(6)
2.3 Differences Between Final and Intermediate Goods and Services
36(1)
2.4 Components of National Income
37(9)
2.5 Balancing Items Linking GDP, NI, PI, and DI
46(5)
2.6 Value Added by Stages of Production: An Example
51(1)
2.7 Inclusions and Exclusions in the NIPA Data
52(4)
2.8 Circular Flow Between Aggregate Demand and Production
56(1)
Key Terms and Concepts
57(1)
Summary
58(1)
Questions and Problems
59(3)
Appendix: Key Macroeconomic Identities
62(1)
Notes
63(2)
Chapter 3: Key Data Concepts: Inflation, Unemployment, and Labor Costs
65(40)
Introduction
65(1)
3.1 Measuring Inflation: Three Different Types of Indexes
65(3)
3.2 Factors Causing the Inflation Rate to be Overstated
68(7)
3.3 Could the Inflation Rate be Understated?
75(3)
3.4 Different Measures of Unemployment
78(2)
3.5 Collecting the Employment and Unemployment Data
80(6)
3.6 The Concept of Full Employment
86(5)
3.7 Unit Labor Costs
91(5)
3.8 Summarizing the Economic Data: Indexes of Leading and Coincident Indicators
96(1)
3.9 Methods and Flaws of Seasonally Adjusted Data
97(2)
3.10 Preliminary and Revised Data
99(1)
Key Terms and Concepts
100(1)
Summary
100(1)
Questions and Problems
101(3)
Notes
104(1)
Part II: Aggregate Demand and Joint Determination of Output and Interest Rates 105(156)
Chapter 4: The Consumption Function
107(44)
Introduction
107(1)
4.1 Principal Determinants of Consumption
108(3)
4.2 Short-Term Links Between Consumption and Disposable Income: The Marginal Propensity to Consume
111(3)
4.3 Long-Term Links Between Consumption and Income: The Permanent Income Hypothesis
114(1)
4.4 Consumer Spending and Changes in Tax Rates
115(4)
4.5 Importance of Cost and Availability of Credit in the Consumption Function
119(3)
4.6 Consumption, Housing Prices, and Mortgage Rates
122(2)
4.7 Other Links Between Consumer Spending, the Rate of Interest, and the Rate of Return
124(2)
4.8 Credit Availability and the Stock of Debt
126(3)
4.9 The Role of Demographic Factors and the Life Cycle Hypothesis
129(1)
4.10 The Relationship Between Consumption and Household Net Worth
130(5)
4.11 The Effect of Changes in Consumer Confidence
135(2)
4.12 Review
137(1)
Key Terms and Concepts
138(1)
Summary
138(1)
Questions and Problems
139(2)
Appendix: Historical Development of the Consumption Function
141(8)
Notes
149(2)
Chapter 5: Investment and Saving
151(44)
Introduction
151(1)
5.1 The Equivalence of Investment and Saving
151(2)
5.2 Long-Term Determinants of Capital Spending
153(2)
5.3 The Basic Investment Decision
155(2)
5.4 The Cost of Capital
157(2)
5.5 The Availability of Credit
159(3)
5.6 The Role of Expectations
162(1)
5.7 Lags in the Investment Function
163(1)
5.8 The Effect of Changes in Tax Policy on Capital Spending Decisions
164(9)
5.9 Determinants of Exports and Imports
173(9)
5.10 The Role of Government Saving
182(1)
5.11 Recap: Why Investment Always Equals Saving on an Ex Post Basis
183(1)
Key Terms and Concepts
184(1)
Summary
184(1)
Questions and Problems
185(2)
Appendix: The Theory of Optimal Capital Accumulation
187(7)
Notes
194(1)
Chapter 6: Determination of Interest Rates and Introduction to Monetary Policy
195(39)
Introduction
195(2)
6.1 Definitions of Key Interest Rates and Yield Spreads
197(5)
6.2 The Role of Monetary Policy
202(2)
6.3 The Federal Reserve System
204(2)
6.4 Determination of the Federal Funds Rate
206(6)
6.5 Effect of Federal Reserve Policy on the Availability of Credit
212(1)
6.6 Determinants of Long-Term Interest Rates
213(3)
6.7 The Difference Between Changes in Monetary Conditions and Monetary Policy
216(1)
6.8 Factors Causing the Yield Spread to Fluctuate
217(4)
6.9 Transmission of Monetary Policy
221(3)
6.10 The Importance of the Yield Spread as a Predictive Tool
224(3)
6.11 Why Targeting Interest Rates Doesn't Always Work: The Conundrum
227(1)
Key Terms and Concepts
228(1)
Summary
229(1)
Questions and Problems
230(2)
Notes
232(2)
Chapter 7: Joint Determination of Income and Interest Rates: The IS/LM Diagram
234(27)
Introduction
234(1)
7.1 Review of the Effect of Changes in Interest Rates and Income on Saving and Investment
235(2)
7.2 Equilibrium in the Goods Market
237(1)
7.3 Derivation of the IS Curve
238(4)
7.4 Slope of the IS Curve under Varying Economic Conditions
242(1)
7.5 Factors that Shift the IS Curve
242(2)
7.6 The Demand for Money: Liquidity Preference and Loanable Funds
244(2)
7.7 Equilibrium in the Assets Market: Derivation of the LM Curve
246(1)
7.8 Slope of the LM Curve under Varying Economic Conditions
247(3)
7.9 The IS/LM Diagram and Introduction to Monetary and Fiscal Policy
250(2)
7.10 The IS/ LM Diagram in Booms and Recessions
252(1)
7.11 Factors that Shift the IS and LM Curves
253(1)
7.12 A Numerical Example: Solving for Income and Interest Rates using the IS/LM Model
254(8)
Key Terms and Concepts
262(1)
Summary
262(1)
Questions and Problems
263(3)
Notes
266
Part III: Aggregate Supply: Inflation, Unemployment, and Productivity 261(138)
Chapter 8: Causes of and Cures for Inflation
269(47)
Introduction
269(2)
8.1 In the Long Run, Inflation is a Monetary Phenomenon
271(1)
8.2 In the Short Run, Inflation is Determined by Unit Labor Costs: The Price Markup Equation
272(8)
8.3 Monetary Policy and the Role of Expectations
280(4)
8.4 Determinants of Changes in Unit Labor Costs
284(7)
8.5 Malign and Benign Supply Shocks
291(4)
8.6 Lags in Determining Wages and Prices
295(2)
8.7 The Beginnings and Ends of Hyperinflation
297(3)
8.8 Summary of Why Inflation Remained Low in the 1990's - and What Might Occur in the Future
300(4)
Key Terms and Concepts
304(1)
Summary
304(1)
Questions and Problems
305(2)
Appendix: Historical Explanations of Inflation: The Rise and Fall of the Phillips Curve
307(7)
Notes
314(2)
Chapter 9: Why High Unemployment Persists
316(47)
Introduction
316(1)
9.1 The Basic Labor Market Model
317(5)
9.2 Real Growth and Unemployment: Okun's Law
322(2)
9.3 Why Stimulatory Monetary and Fiscal Policy Might Not Reduce Unemployment
324(2)
9.4 Theories Based on Labor Market Imperfections: Summary
326(3)
9.5 Sticky Prices and Nominal Wage Rates
329(3)
9.6 Sticky Real Wage Rates: Efficiency Wages
332(2)
9.7 Sticky Real Wage Rates: Insider/Outsider Relationships
334(3)
9.8 Barriers to Market-Clearing Wages: The Minimum Wage
337(11)
9.9 The Wedge Between Private and Social Costs of Labor
348(3)
9.10 High Unemployment Rates and Hysteresis
351(1)
9.11 The Structuralist School
352(5)
Key Terms and Concepts
357(1)
Summary
357(1)
Questions and Problems
358(3)
Notes
361(2)
Chapter 10: Aggregate Supply, the Production Function, and the Neoclassical Growth Model
363(36)
Introduction
363(1)
10.1 Productivity Growth and the Standard of Living
364(4)
10.2 The Long-Term Historical Growth Record
368(4)
10.3 The Aggregate Production Function and Returns to Scale
372(1)
10.4 The Cobb-Douglas Production Function
373(1)
10.5 Why Growth Differs among Nations: The Importance of Saving and Investment
374(2)
10.6 Other Factors Affecting Growth: The Framework of Growth Accounting
376(2)
10.7 Causes of Growth in the US Economy
378(3)
10.8 The Worldwide Slowdown in Productivity after 1973
381(6)
10.9 The Neoclassical Growth Model and the Slowdown of Mature Economies
387(1)
10.10 Endogenous Growth Theory and Convergence Models
388(4)
10.11 Additional Importance of Saving and Investment
392(2)
Key Terms and Concepts
394(1)
Summary
394(1)
Questions and Problems
395(2)
Notes
397(2)
Part IV: The International Economy 399(160)
Chapter 11: Basic Determinants of Exports and Imports
403(42)
11.1 The Balance Between Current and Capital Accounts
403(5)
11.2 Fixed and Flexible Exchange Rates
408(3)
11.3 US Exports and Imports: Empirical Review
411(2)
11.4 Income and Price Elasticities of US Exports and Imports
413(6)
11.5 The Repercussion Effect
419(2)
11.6 How Serious is the Burgeoning Trade Deficit?
421(7)
11.7 Recent Progress Toward Free Trade
428(6)
11.8 Arguments For and Against a Trade Deficit
434(3)
11.9 Foreign Purchases of US Assets: A Non-Event
437(2)
Key Terms and Concepts
439(1)
Summary
439(2)
Questions and Problems
441(1)
Appendix: The Theory of Comparative Advantage and the Modern Theory of International Trade
442(2)
Note
444(1)
Chapter 12: International Financial Markets and Foreign Exchange Policy
445(42)
Introduction
445(1)
12.1 The World Dollar Standard and Major Trends in Other Key Currencies
446(6)
12.2 Nominal and Real Exchange Rates
452(1)
12.3 Measuring International Labor Costs
453(2)
12.4 The Concept of Purchasing Power Parity
455(5)
12.5 Factors that Determine Foreign Exchange Rates
460(10)
12.6 Why Foreign Exchange Markets Overshoot Equilibrium: The J-Curve Effect
470(5)
12.7 Other Factors Causing Currency Rates to Diverge from Equilibrium
475(2)
12.8 Managed Exchange Rates: Bands and Crawling Pegs
477(4)
12.9 Optimal Trade and Foreign Exchange Rate Policy
481(2)
Key Terms and Concepts
483(1)
Summary
483(1)
Questions and Problems
484(2)
Notes
486(1)
Chapter 13: The Mundell-Fleming Model: Joint Determination of Outlot, Interest Rates, Net Exports, and the Value of the Currency
487(30)
13.1 Links Between Domestic and International Saving and Investment
487(2)
13.2 The Basic Model: Joint Determination of Real Interest Rates, Output, Currency Value, and the Current Account Balance
489(3)
13.3 The Mundell-Fleming Model for a Small Open Economy
492(2)
13.4 The Repercussion Effect in the Mundell-Fleming Model
494(2)
13.5 The Depreciation Effect in the Mundell-Fleming Model
496(3)
13.6 Shifts in the NX and NFI Curves Caused by Changes in Inflation and Productivity
499(1)
13.7 Effects of the Reagan and Clinton Fiscal and Monetary Policies
500(4)
13.8 Economic Impact of an Exogenous Change in Net Exports
504(3)
13.9 Short- and Long-Run Effects of an Exogenous Change in the Value of the Currency
507(4)
Key Terms and Concepts
511(1)
Summary
511(2)
Questions and Problems
513(3)
Notes
516(1)
Chapter 14: Case Studies in International Trade
517(42)
Introduction
517(1)
14.1 International Trade in the European Economy
517(10)
14.2 International Trade in the Asian Economy
527(12)
14.3 International Trade in Latin America
539(6)
14.4 Pros and Cons of Free Trade in an Imperfect World
545(6)
14.5 What Factors Will Determine World Leaders of the Twenty-First Century?
551(3)
Summary
554(1)
Questions and Problems
555(2)
Note
557(2)
Part V: Cyclical Fluctuations 559(122)
Chapter 15: Business Cycles
561(44)
Introduction
561(1)
15.1 The Long-Term Historical Record
562(2)
15.2 Measuring the Business Cycle: The Indexes of Leading, Coincident, and Lagging Indicators
564(3)
15.3 Cyclical Behavior: Recurring but Not Regular
567(5)
15.4 The Phases of the Business Cycle
572(5)
15.5 The Role of Exogenous Shocks in the Business Cycle
577(5)
15.6 The Role of Technology in the Business Cycle
582(4)
15.7 The Role of Fiscal Policy in the Business Cycle
586(4)
15.8 The Role of Monetary Policy in the Business Cycle
590(3)
15.9 Global Transmission of Business Cycles
593(1)
15.10 Could the Great Depression Happen Again?
594(4)
15.11 Recap: Are Business Cycles Endogenous or Exogenous?
598(2)
Key Terms and Concepts
600(1)
Summary
600(1)
Questions and Problems
601(1)
Notes
602(3)
Chapter 16: Cyclical Fluctuations in Components of Aggregate Demand
605(38)
Introduction
605(1)
16.1 The Stock Adjustment Principle
606(2)
16.2 Empirical Review: The Components of Capital Spending
608(1)
16.3 The Role of Business Sentiment in Capital Spending
608(4)
16.4 Investment in Residential Construction
612(10)
16.5 The Role of Inventory Investment in the Business Cycle
622(5)
16.6 Inventory Production and Control Mechanisms
627(2)
16.7 Cyclical Patterns in Purchases of Motor Vehicles
629(5)
16.8 Cyclical Patterns in Other Components of Consumption
634(1)
16.9 Recap: What Determines Cyclical Fluctuations in Aggregate Demand
635(2)
Key Terms and Concepts
637(1)
Summary
637(1)
Questions and Problems
638(3)
Notes
641(2)
Chapter 17: Financial Business Cycles
643(38)
Introduction
643(1)
17.1 Cyclical Patterns of Monetary and Credit Aggregates
644(3)
17.2 Cyclical Patterns in the Yield Spread
647(2)
17.3 Cyclical Patterns of Stock Market Prices
649(4)
17.4 The Present Discounted Value of Stock Prices and the Equilibrium Price/Earnings Ratio
653(2)
17.5 Determinants of the Risk Factor
655(10)
17.6 Impact of the Budget Ratio on Bond and Stock Returns
665(4)
17.7 Impact of Changes in the Expected Rate of Inflation on Bond and Stock Returns
669(1)
17.8 Impact of Changes in Capital Gains Taxes on Stock Prices
670(2)
17.9 Long-Term Performance of Stocks, Bonds, and Liquid Assets
672(2)
17.10 Cyclical Fluctuations in Returns on Stocks, Bonds, and Liquid Assets
674(1)
17.11 Recap: The Importance of Financial Markets and Asset Allocation
675(1)
Key Terms and Concepts
676(1)
Summary
676(1)
Questions and Problems
677(2)
Notes
679(2)
Part VI: Policy Analysis and Forecasting 681(107)
Chapter 18: Fiscal Policy and Its Impact on Productivity Growth
683(36)
Introduction
683(1)
18.1 Automatic and Discretionary Stabilizers
684(5)
18.2 Components of the Federal Government Budget
689(5)
18.3 Advantages and Disadvantages of Federal Budget Surpluses and Deficits
694(5)
18.4 The Concept of the Fiscal Dividend
699(3)
18.5 The Role of Fiscal Policy in Determining Productivity Growth
702(3)
18.6 Simplifying the Tax Code
705(2)
18.7 "Saving" Social Security and Medicare
707(6)
18.8 Recap: Fiscal Policy and Productivity Growth
713(2)
Key Terms and Concepts
715(1)
Summary
715(1)
Questions and Problems
716(2)
Notes
718(1)
Chapter 19: Monetary Policy and Its Impact on Inflation and Growth
719(32)
Introduction
719(1)
19.1 The Overall Goals of Monetary Policy: Insure Adequate Liquidity, Reduce Business Cycle Fluctuations, and Keep Inflation Low and Stable
720(4)
19.2 The Negative Effects of Higher Inflation
724(2)
19.3 The Optimal Rate of Inflation is Not Zero
726(4)
19.4 The Role of Monetary Policy in Financial Crises
730(3)
19.5 Demand-Side Policies: Punchbowls and Preemptive Strikes
733(3)
19.6 Supply-Side Shocks and Sticky Prices and Wages: How the Fed Should React
736(1)
19.7 Why Targeting Interest Rates Doesn't Always Work: The Conundrum Revisited
737(1)
19.8 Budget Deficits and Monetary Policy
738(2)
19.9 Monetary Policy in an Open Economy
740(1)
19.10 Why Higher Inflation Leads to Lower Productivity
741(2)
19.11 Recap: The Case for Active Monetary Policy and Optimal Policy Rules
743(3)
Key Terms and Concepts
746(1)
Summary
747(1)
Questions and Problems
748(2)
Notes
750(1)
Chapter 20: Macroeconomic Forecasting: Methods and Pitfalls
751(37)
Introduction
751(1)
20.1 Sources of Forecasting Error in Econometric Models: Summary
751(1)
20.2 Inadequate and Incorrect Data and the Tendency to Cluster
752(4)
20.3 Examining Exogenous Shocks: Impulse and Propagation Revisited
756(3)
20.4 Market Reaction to Economic Data
759(2)
20.5 Unknown Lag Structures and the Conservatism Principle
761(4)
20.6 Summary of Noneconometric Forecasting Methods
765(1)
20.7 Naive Models and Consensus Surveys of Macro Forecasts
766(5)
20.8 Using the Index of Leading Economic Indicators to Predict the Economy
771(3)
20.9 Survey Methods for Individual Sectors
774(7)
20.10 Recap: How Managers Should Use Forecasting Tools
781(3)
Key Terms and Concepts
784(1)
Summary
784(1)
Questions and Problems
785(2)
Notes
787(1)
Bibliography and Further Reading 788(2)
Index 790

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