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of aggregate demand, 318 real consumer income, 180“181
Labor
aggregate demand as determinant taxation, 188, 222“225, 230, 235
Interest, 34. see also Interest rates
of, 302 vs. wealth, 180“181
Interest rate differentials, 365“366
of aggregate supply, 302 Income security programs, 34
aggregate supply-demand model, 87, Income-expenditure diagram, 179“180 Interest rates
behavior of, 1979“1985, 287
212“216, 229“230 Incomplete specialization, 347
compounding, 107
in China, 133, 138, 147, 355 Increasing costs, principle of, 44
cuts, 98“99
convergence hypothesis, 136“138 Index number, 127
debt, 303“305, 310“311
of demand, 139 Indexing, 332“333
exchange rates, 365“366, 372
in developing countries, 147“149 India, 138, 140, 148, 355
Federal Reserve System, 284“287
as economic goal, 106“111 Individual Retirement Accounts (IRA), 163
fiscal policy, 281“283
investment, 302 Indonesia, 361, 390
history of, 56
long run vs. short run, 149 Induced increase in consumption, 188
international capital flows, 384“386
in Mexico, 138 Induced investment, 178“179, 311
monetary policy, 271
national debt, 311“312 Industry, 31, 62“63, 350“351
Inefficiency, 47. see also Efficiency monetization, 309“310
as part of economic fluctuations, 24“25,
multiplier, 282“283
91“93 Infant-industry argument, 352“353
open-market operations, 268
of potential GDP, 109“110 Infinite slope, 14
Inflation. see also Inflationary gap real, 120“122, 138“139, 162“163
production capacity, 108“109
velocity, 278“283
productivity growth, 106“107, in 1960s and 1970s, 96
Intermediate goods, 89, 170, 171“172
134“136, 145 aggregate demand curve, 204“205
International Business Machines (IBM), 148
productivity rates, 143“147 aggregate supply curve, 204“205, 273
International capital flows, 384“386
rate of, 25, 92“93, 108, 109“111, 136“138 average level of, 123
International Monetary Fund (IMF),
and real GDP, 92 and budget deficits, 308“310
124, 374
in Russia, 133, 138 combating, 100
International monetary system, 361“377
slow down (1973“1995), 143“144 Consumer Price Index (CPI), 128
adjustment mechanisms, 372
slow down, 2006“2007, 84 as coordination failure, 184“185
balance of payments, 369“370, 372
trade deficit, 382, 387“390 costs of, 122“124, 325
Bretton Woods system, 371
deficit spending, 309
Growth policy
current “nonsystem,” 373“376
capital formation, 138“140, 142 definition, 87
euro, 375“376
definition, 106, 133 and deflation, 93“94, 207“209
exchange rates. see Exchange rates
education and training, 140“142 of demand, 210“211
gold standard, 370“371
technological change, 142“143 demand-side, 318
International Monetary Fund (IMF),
demand-side vs. supply-side, 318
H 124, 374
distortions of, 121“122
volatile dollar, 374“375
and economic fluctuations, 93“94
Haiti, 138
International trade. see also Exports
as economic goal to keep low, 116“125
Hamilton, Alexander, 352
“cheap foreign labor,” 339“340,
exchange rates, 367“368, 372
Hammurabi, 56
347“348, 354
expectations and the Phillips curve,
Hashimoto, Ryutaro, 300“301
and comparative advantage, 343“348
326“328
Health, in developing countries, 149
deficit, 382, 387“390
expected rate of, 120“121, 332
Health care costs, 34
dumping, 353“356
hyperinflation, 123“124, 282
Health services, 28
and exchange rates, 342, 380“382
and income, 120
Hemingway, Ernest, 147
gains from, 345“346
index numbers for, 127
Hemmerdinger, H. Dale, 46
globalization, 339“340
and monetary policy, 273
Hong Kong, 136
vs. intranational trade, 342“343
and money growth, 282
Hoover, Herbert, 94, 299
multiplier, 195“196
and the multiplier, 204“205
“Hooverville,” 94
mutual gains, 341“342
myths, 117“120, 125
Hot money, 365
political factors, 342
predictable, 123
Housing bubble, 99, 251
prices, 358“360
pure, 119
Hugo, Victor, 83
and real GDP, 381
real vs. nominal interest rates, 120“121
Human capital, 136
reasons for, 341“342
and real wages, 117“118
Human Genome Project, 143
reasons to inhibit, 350“353
real world, 119
Hungary, 123
and recessions, 380
as redistributor of income and
Hyperinflation, 123“124, 282
supply, demand, and pricing, 358“360
wealth, 120
Hypothesis, 9
tariffs and quotas, 348“353, 359“360
and relative prices, 119“120
I unfair foreign competition, 355
statistical measurements of, 127“129
Internet, 145
supply-side, 214“215, 318“319, 321“322
IBM (International Business Machines), 148
Internet bubble, 376
unemployment, 6, 199, 324
IMF (International Monetary Fund),
Intranational trade, 342“343
unemployment trade-off, 317“333
124, 374
Invention, 142“143
unexpected, 120“121
Imports, 23“24, 194“197, 353“356, 381.
Inventory, 168
unpredictable, 123
see also International trade
Investment. see also Bonds
using price index to measure, 128“129
Income
business, 271
variability of, 123
and circular flow, 155“157
coordination with savings, 183“184
Inflation premium, 332
and consumer spending, 157“160


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Index 417



labor costs, 341
foreign direct, 147“148 division of, 48“49, 50
openness of economy, 24
in Germany, 144 as input, 26“30
trade with U.S., 346
in government budget, 283 mobility impediments, 342“343
wages, 340“341
growth, 138“140, 302 quality of, 136
Microeconomics, vs. macroeconomics,
in housing, 271 supply of, 202“203
84“85
induced, 178“179, 311 Labor force, 108“109
Military spending, 45
lagging, 144 Labor productivity, 107, 109“110, 146
Milk consumption, 67
monetary policy, 271“272 Labor Statistics, Bureau of, 113“114
Mill, John Stuart, 241
and savings, 183“184 Lags, 229, 283“284, 291“295
Minimum wage, 115
surge in, 144“145 Latin America, and property rights, 140
Misallocation of resources, 75“76. see also
Law of supply and demand. see Supply
trade deficit, 382, 387“390
Resource allocation
variability of, 164“165 and demand
Mixed economy, 36
Investment in human capital, 136 Liability, 251“252
Mobility impediments, 342“343
Investment spending, 155, 164“165 Liquidity, 247
Monetarism, 277, 281, 282, 286“287
Living standards, 347“348
Investor protection, 140
Monetary control. see Monetary policy
Invisible hand, 56, 70 London School of Economics, 11
IRA (Individual Retirement Accounts), 163 Lucas, Robert E., Jr., 133 Monetary policy
aggregate demand, influence on,
Iran, 352
M 272, 301
Iraq, 211, 307, 313, 352
M1, 246“247. see also Money aggregate supply, 273
IT (Information technology), 144“145
M2, 247. see also Money changing reserve requirements, 270
Italy, 22, 26, 35, 113, 140, 148, 363
Maastricht Treaty, 264
It˜s a Wonderful Life (Capra), 249 contractionary, 270
Macroeconomic policy, goals of, 105“130 definition, 6, 261“262
Ivory trade, 76
economic growth, 106“111 expansionary, 268, 270, 272“273,
J low inflation, 116“125 309“310, 314, 324, 372
low unemployment, 111“116 Federal Reserve System, 263“265
Jackson, Andrew, 245
Macroeconomics, 83“101. see also specific vs. fiscal policy, 270, 283“284, 301
Japan
topics inflation, 273
central bank of, 264
and aggregate demand, 105“106 inflation targeting, 97, 100, 293,
deflation, 209
and aggregate supply, 105 325“326
educational attainment in, 148
and aggregation, 84“85 and inflationary effects of deficit
exchange rates, 363, 383
exchange rates. see Exchange rates spending, 309
GDP of, 22
fluctuations, economic. see interest rates, 271
investment in, 144
Fluctuations, economic international capital flows, 384“386
investor protection, 140
gross domestic product, 87“91 investment, 271“272
labor, 136, 341
vs. microeconomics, 84“85 Keynesian model, 272“274, 281
living standards, 347“348
stabilization policy, 99“101 lending to banks, 269“270
openness of economy, 24
supply and demand in, 85“87 methods of monetary control, 268“270
productivity, 106“107
Managed float, 374 money vs. income, 262
taxation, 35, 300“301
Manufacturing, 28, 30, 340“341 multiplier, 272
trade with U.S., 165“166, 343“345,
Maps, 8“9, 17“18 need for, 259
346“347, 388
Marginal analysis, 125 in open economy, 384“386
unemployment rates, 26
Marginal propensity to consume (MPC), open-market operations, 265“268
wages, 341
160“161 policy debates, 274
Jefferson, Thomas, 34
Market economy, 48. see also Free markets; total expenditure, 271“272
Job market for college graduates, 211
Free trade; Price system trade deficit, 382, 387“390
Job placement, 331“332
Market exchange, 50 unemployment, 324
K Market failure. see Free markets workings of, 270“272
Market power. see also Antitrust laws; Monetary union, 375
Kelly, Richard, 55
Regulation Monetizing the deficit, 309“310
Kennedy, John F., 115, 221
Market price, 41 Money, 50. see also Money supply
Kenya, 76
Market system, 50“52 anticounterfeiting features, 245
Kerry, John, 232
Market value of time, 42 vs. barter, 243“244
Keynes, John Maynard, 153, 165, 175
Markets, 32. see also Free markets creation of, 252“258
Bretton Woods system, 371

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