Macroeconomics

586 |

I N D E X

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for investment. See Investment

demand

for money. See Money demand

Demand deposits, 84

Demand-pull inflation, 391

Demand shocks, 278, 279f, 279–280

AD-AS model and, 427–428, 428f,

429f

Democracy in Deficit (Buchanan and

Wagner), 487

Denmark

Big Mac price and exchange rate in,

148t

devaluation by, 354

government debt of, 468t

inflation in, 145f

population growth and income per

person in, 215f

Depreciation, 136, 529

capital stock and, 195

in national income accounts, 30

Depreciation rate, 196

Depressions, 5, 6. See also Great

Depression

potential for, 331–332

Devaluation, 354

Dickens, William T.,  106n

Diminishing marginal product, 52

Discounting, budget constraint and, 501

Discount rate, 553

Discouraged workers, 36, 179

Discretionary policy, time inconsistency

of, 454–456, 463–465

Discretion for conducting economic

policy, 453–459

Disinflation, rational expectations and,

396–398

Disposable income, 61

Disposable personal income, 31

Di Tella, Rafael, 184n

Dollarization, 364

Dominated assets, 557

Dominguez, Kathryn M., 449n

Dornbusch, Rudiger, 109n

Double coincidence of wants, 81

Douglas, Paul, 57

DRI. See Data Resources Incorporated

(DRI) model

DSGE. See Dynamic, stochastic, general

equilibrium (DSGE) models

Dual mandates, 435

Dulberger, Ellen, 35

Dynamic, stochastic, general equilib-

rium (DSGE) models, 439

Dynamic aggregate demand curve

(DAD), 420f, 420–421

Dynamic aggregate supply curve

(DAS), 418–419, 419f

Earned income tax credit, 171

East Asian Tigers. See Hong Kong;

Singapore; South Korea; Taiwan

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| 587

Council of Economic Advisers, 446

Country risk, interest rate differentials

and, 356

CPI. See Consumer price index (CPI)

Credit cards, 85

Credit conditions, inventory investment

and, 543–544

Credit crunches, 538–539

Credit risk, interest rates and, 64

Crowding out, 69

Currencies

appreciation of, 136

of China, fixing of, 350

depreciation of, 136

devaluation of, 354

exchange rates and. See Exchange

rates; Fixed exchange rates;

Floating exchange rates

Mexican fall in value of, 358–360

monetary unions and, 362–363

revaluation of, 354

underground economy and, 58

Currency, 84

Currency boards, 364

Currency-deposit ratio, 551

Current Population Survey, 36, 39,

171–172

Cyclically adjusted budget deficit, 476

Cyclical unemployment, 388

Czech Republic

Big Mac price and exchange rate in,

148t

government debt of, 468t

DAD. See Dynamic aggregate demand

curve (DAD)

DAS. See Dynamic aggregate supply

curve (DAS)

Data Resources Incorporated (DRI)

model, 317–318, 318t

Day of Reckoning (Friedman), 488

Debit cards, 85

Debt. See Budget deficits; Government

debt; Mortgage market

Debt finance, 69

Debt-inflation theory, 329–330

Deficits. See Budget deficits; Trade

deficits

Deflation, 6

destabilizing effects of, 329–331, 331f

stabilizing effects of, 329

Delta (

d

), 196

Demand

in AD-AS model, 410–411

aggregate. See Aggregate demand (AD)

consumption function and, 194–195

determinants of, 60–65

at equilibrium. See Equilibrium

for factors of production, 51–54

for goods and services, 60–65

for housing, residential investment

and, 540–541, 541f, 542f

Conference Board, 263, 264

Congressional Budget Office (CBO),

446, 471

TARP and, 475

Consols, 70

Constant returns to scale, 48

Consumer(s), future taxes and, 480–483

Consumer price index (CPI), 32–34

GDP deflator versus, 33–34, 34f

overstatement of inflation y, 35

price of basket of goods and, 32–33

Consumption, 27, 61–62, 62f, 495–522

average propensity to consume and,

496

of elderly, 512–513

of fixed capital, 30

instant gratification and, 519–521

intertemporal choice and. See

Intertemporal choice

life-cycle hypothesis of, 509–513

marginal propensity to consume and,

496

permanent-income hypothesis and,

514–516

predictable changes in income and,

518

random-walk hypothesis and,

516–518

Consumption function, 61–62, 62f,

496–500

consumption puzzle and, 498–500,

499f

demand for goods and, 194–195

early empirical successes with,

497–498

Keynes’s conjectures and, 496–497,

497f

secular stagnation and, 498

Consumption puzzle, 498–500, 499f

Consumption smoothing, 506

Continental Congress, 93

Contingent liabilities, 474

Convergence, 226–227

conditional, 227

Core inflation, 33

Corporate income tax, investment and,

532–533

Cost(s)

of capital. See Cost of capital

of expected inflation, 102–103

of holding money, 98

of hyperinflation, 106–107

of inflation, 572–573

of reducing inflation, 572–573

social, of inflation, 100–105

of unexpected inflation, 103–104

Costa Rica, population growth and

income per person in, 215f

Cost of capital, 528–529

real, 530

Cost-push inflation, 391

Cote d’Ivoire, population growth and

income per person in, 215f

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East Asian Tigers, economic growth in,

251–252

ECB. See European Central Bank

(ECB)

Economic fluctuations, 257–284. See

also Business cycle(s); Depressions;

Great Depression; Real-business-

cycle theory; Recessions

aggregate demand and, 269–271

aggregate supply and, 271–277

banking crises and, 538–539

stabilization policy and, 278–283

time horizons and, 265–269

Economic forecasting, 448–450

mistakes in, 449–450, 450f

Economic growth, 221–245

accounting for sources of. See

Growth accounting

allocating investment and, 232–233

in East Asian Tigers, 251–252

endogenous growth theory and. See

Endogenous growth theory

free trade and, 228–229

in Germany, 200, 201

institutions and, 234–235

in Japan, 200, 201

long-run, AD-AS model and, 423f,

423–424

promotion of, 570–571

saving and, 200–201, 201f

saving rate and, 230–232

Solow growth model and. See Capital

accumulation; Solow growth

model

in United States, 251, 251t

worldwide slowdown during 

1972-1995, 236–238, 237t

Economic indicators. See also Leading

indicators

stock market as, 534–536, 535f

Economic models, 7–13, 8f –10f. See

also specific models

big, comprehensive, 405–408, 407f

endogenous and exogenous variables

and, 8, 8f

microeconomics and, 13

multiple, 12

policy analysis with, 317–318, 318t

simplifying assumptions and, 11–12

Economic policy. See also Fiscal policy;

Monetary policy; Public policy;

Stabilization policy; Trade policy

distrust of policymakers and political

process and, 453–454

historical record and, 451–452

lags in implementation and effects of,

447–448

Lucas critique and, 450–451

rule versus discretion for conducting,

453–459

stabilization. See Stabilization policy

Economic profit, 56

definition of, 55

Economies

closed, 61

open, 61, 119–150. See also Exchange

rates; International flows of capi-

tal and goods; Large open

economies; Mundell-Fleming

model; Small open economies

of POW camps, 82

underground, 23, 58

Economists

tools of, 7–13

view of inflation, 101

Ecuador

inflation and money growth in, 92f

investment rate in, 202f

Edward III, King of England, 488

Efficiency of labor, 222–223

Efficiency wages, 174–175

Efficient markets hypothesis, 536–537

Egypt, Big Mac price and exchange

rate in, 148t

Eichengreen, Barry, 354n

Elderly people, consumption and saving

of, 512–513

El Salvador, investment rate in, 202f

Employment Act of 1946, 446

Endogenous growth theory, 238–243

basic model for, 239–240

creative destruction and, 242–243

research and development and,

241–242

two-sector model for, 240–241

Endogenous variables, 8, 8f

England. See also United Kingdom

default of, 488

Equilibrium, 65–73

changes in, 10f, 10–11

in financial markets, 67–68, 68f

fiscal policy and, 68–70

investment demand and, 72–73, 73f

Keynesian cross and, 291f, 291–292,

292f

long-run. See Long-run equilibrium

in market for goods and services, 66

short-run. See Short-run equilibrium

Equity finance, 69

Errors-in-variables problem, 515

Essay on the Funding System (Ricardo),

484

An Essay on the Principle of Population as

It Affects the Future Improvement of

Society (Malthus), 216–217

Ethiopia

investment rate in, 202f, 203

population growth and income per

person in, 215f

Euler’s theorem, 55

Euro, 363

Euro Area. See also Europe; specific

countries

Big Mac price and exchange rate in,

148t

inflation and money growth in, 92f

Euro-Barometer Survey Series, 183

Europe. See also Euro Area; specific

countries

Black Death in, factor prices and, 56

rise of leisure in, 184f, 184–186

unemployment in, 180–184, 181f

European Central Bank (ECB), Fed

versus, 435

Ex ante real interest rate, 96–97

Excess reserves, 553

Exchange, money as medium of, 81

Exchange rates, 135–149

Big Mac prices and, 147–149, 148t

comparison of regimes, 361–366

expected changes in, interest rate dif-

ferentials and, 356–357

fixed. See Fixed exchange rates

floating. See Floating exchange rates

nominal. See Nominal exchange rates

purchasing power parity and,

145–147, 146f

real. See Real exchange rates

trade policies and, 141–143, 143f

Exogenous variables, 8, 8f

Expectations, adaptive, 390–391

AD-AS model and, 413

Expected inflation

AD-AS model and, 413

costs of, 102–103

Expenditure

circular flow and, 18–20, 19f

components of, 27–29, 29t

planned, Keynesian cross and,

289–291, 290f

Exports, net. See Net exports

Ex post real interest rate, 97

Factor prices, 49–50, 50f

Black Death and, 56

Factors of production. See also Capital;

Capital accumulation; Labor

accumulation of, production effi-

ciency versus, 227–228

decisions facing competitive firm

and, 50–51

definition of, 47

firm’s demand for, 51–54

increases in, economic growth and,

247–249

inventories as, 543

national income distribution to,

49–60

price level and, 89

prices of, 49–50, 50f, 56

Fair, Ray C., 449n

Fair Labor Standards Act of 1938, 170

Fama, Eugene, 537n

Fazzari, Steven M., 538n

Federal Deposit Insurance Corporation,

554

Federal funds rate, 320–321

Taylor rule and, 415–416, 416f