Baumol & Blinder MACROECONOMICS (11th ed)

Fiscal policy The government’s fiscal policy is its plan for spending and taxation. It can be used to steer aggregate demand in the desired direction. (pp. 95, 221, 301)

Fixed exchange rates Fixed exchange rates are rates set by government decisions and maintained by government actions. (p. 369)

Fixed taxes Fixed taxes are taxes that do not vary with the level of GDP. (p. 235)

Floating exchange rates Floating exchange rates are rates determined in free markets by the law of supply and demand. (p. 363)

Foreign direct investment Foreign direct investment is the purchase or construction of real business assets—such as factories, offices, and machinery—in a foreign country. (p. 147)

45° line Rays through the origin with a slope of 1 are called 45° lines because they form an angle of 45° with the horizontal axis. A 45° line marks off points where the variables measured on each axis have equal values. (p. 17)

45° line diagram An income-expendi- ture diagram, or 45° line diagram, plots total real expenditure (on the vertical axis) against real income (on the horizontal axis). The 45° line marks off points where income and expenditure are equal. (p. 180)

Fractional reserve banking Fractional reserve banking is a system under which bankers keep as reserves only a fraction of the funds they hold on deposit. (p. 248)

Frictional unemployment Frictional unemployment is unemployment that is due to normal turnover in the labor market. It includes people who are temporarily between jobs because they are moving or changing occupations, or are unemployed for similar reasons. (p. 114)

Full employment Full employment is a situation in which everyone who is willing and able to work can find a job. At full employment, the measured unemployment rate is still positive. (p. 115)

GDP deflator The price index used to deflate nominal GDP is called the GDP deflator. It is a broad measure of economywide inflation; it includes the prices of all goods and services in the economy. (p. 129)

Gold standard The gold standard is a way to fix exchange rates by defining

each participating currency in terms of gold and allowing holders of each participating currency to convert that currency into gold. (p. 371)

Government purchases Government purchases (G) refer to the goods (such as airplanes and paper clips) and services (such as school teaching and police protection) purchased by all levels of government. (p. 155)

Gross domestic product (GDP) Gross domestic product (GDP) is the sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year. (pp. 23, 88, 168)

Gross national product (GNP) Gross national product (GNP) is a measure of all final production, making no adjustment for the fact that some capital is used up each year and thus needs to be replaced. (p. 171)

Gross private domestic investment (I)

Gross private domestic investment includes business investment in plant, equipment, and software; residential construction; and inventory investment. (p. 169)

Growth policy Growth policy refers to government policies intended to make the economy grow faster in the long run. (p. 106)

Human capital Human capital is the amount of skill embodied in the workforce. It is most commonly measured by the amount of education and training. (p. 136)

Income-expenditure diagram An incomeexpenditure diagram, or 45° line diagram, plots total real expenditure (on the vertical axis) against real income (on the horizontal axis). The 45° line marks off points where income and expenditure are equal. (p. 180)

Indexing Indexing refers to provisions in a law or a contract whereby monetary payments are automatically adjusted whenever a specified price index changes. Wage rates, pensions, interest payments on bonds, income taxes, and many other things can be indexed in this way, and have been. Sometimes such contractual provisions are called escalator clauses. (p. 332)

Index number An index number expresses the cost of a market basket of goods relative to its cost in some “base”

period, which is simply the year used as a basis of comparison. (p. 127)

Index number problem When relative prices are changing, there is no such thing as a “perfect price index” that is correct for every consumer. Any statistical index will understate the increase in the cost of living for some families and overstate it for others. At best, the index can represent the situation of an “average” family. (p. 127)

Induced increase in consumption An induced increase in consumption is an increase in consumer spending that stems from an increase in consumer incomes. It is represented on a graph as a movement along a fixed consumption function. (p. 189)

Induced investment Induced investment is the part of investment spending that rises when GDP rises and falls when GDP falls. (p. 179)

Infant-industry argument The infantindustry argument for trade protection holds that new industries need to be protected from foreign competition until they develop and flourish. (p. 352)

Inflation Inflation refers to a sustained increase in the general price level. Inflation occurs when prices in an economy rise rapidly. The rate of inflation is calculated by averaging the percentage growth rate of the prices of a selected sample of commodities. (p. 87)

Inflationary gap The inflationary gap is the amount by which equilibrium real GDP exceeds the full-employment level of GDP. (pp. 183, 205)

Innovation Innovation is the process that begins with invention and includes improvement to prepare the invention for practical use and marketing of the invention or its products. (p. 142)

Inputs Inputs or factors of production are the labor, machinery, buildings, and natural resources used to make outputs. (pp. 22, 42, 105)

Intermediate good An intermediate good is a good purchased for resale or for use in producing another good. (p. 89)

International capital flows International capital flows are purchases and sales of financial assets across national borders. (p. 384)

Invention Invention is the act of discovering new products or new ways of making products. (p. 142)

Investment Investment is the flow of resources into the production of new capital. It is the labor, steel, and other inputs devoted to the construction of factories, warehouses, railroads, and other pieces of capital during some period of time. (p. 138)

Investment spending Investment spending (I) is the sum of the expenditures of business firms on new plant and equipment and households on new homes. Financial “investments” are not included, nor are resales of existing physical assets. (p. 155)

Invisible hand The invisible hand is a phrase used by Adam Smith to describe how, by pursuing their own self-interests, people in a market system are “led by an invisible hand” to promote the wellbeing of the community. (p. 56)

Labor force The labor force is the number of people holding or seeking jobs. (p. 108)

Labor productivity Labor productivity is the amount of output a worker turns out in an hour (or a week, or a year) of labor. If output is measured by GDP, it is GDP per hour of work. (p. 107)

Law of supply and demand The law of supply and demand states that in a free market the forces of supply and demand generally push the price toward the level at which quantity supplied and quantity demanded are equal. (p. 66)

Liability A liability of an individual or business firm is an item of value that the individual or firm owes. Many liabilities are known as debts. (p. 251)

Liquidity An asset’s liquidity refers to the ease with which it can be converted into cash. (p. 247)

M1 The narrowly defined money supply, usually abbreviated M1, is the sum of all coins and paper money in circulation, plus certain checkable deposit balances at banks and savings institutions. (p. 247)

M2 The broadly defined money supply, usually abbreviated M2, is the sum of all coins and paper money in circulation, plus all types of checking account balances, plus most forms of savings account balances, plus shares in money market mutual funds. (p. 247)

Marginal propensity to consume (MPC)

The marginal propensity to consume (MPC) is the ratio of changes in consumption relative to changes in disposable income that produce the change in

consumption. On a graph, it appears as the slope of the consumption function. (p. 160)

Market system A market system is a form of economic organization in which resource allocation decisions are left to individual producers and consumers acting in their own best interests without central direction. (p. 50)

Medium of exchange The medium of exchange is the object or objects used to buy and sell other items such as goods and services. (p. 244)

Mercantilism Mercantilism is a doctrine that holds that exports are good for a country, whereas imports are harmful. (p. 348)

Mixed economy A mixed economy is one with some public influence over the workings of free markets. There may also be some public ownership mixed in with private property. (p. 36)

Monetarism Monetarism is a mode of analysis that uses the equation of exchange to organize and analyze macroeconomic data. (p. 281)

Monetary policy Monetary policy refers to actions taken by the Federal Reserve to influence aggregate demand by changing interest rates. (pp. 97, 261, 301)

Monetize the deficit The central bank is said to monetize the deficit when it purchases bonds issued by the government. (p. 309)

Money Money is the standard object used in exchanging goods and services. In short, money is the medium of exchange. (p. 244)

Money-fixed asset A money-fixed asset is an asset whose value is a fixed number of dollars. (p. 162)

Money multiplier The money multiplier is the ratio of newly created bank deposits to new reserves. (p. 256)

Moral hazard Moral hazard refers to the tendency of insurance to discourage policyholders from protecting themselves from risk. (p. 250)

Multinational corporations Multinational corporations are corporations, generally large ones, which do business in many countries. Most, but not all, of these corporations have their headquarters in developed countries. (p. 147)

Multiplier The multiplier is the ratio of the change in equilibrium GDP (Y) divided

by the original change in spending that causes the change in GDP. (p. 185)

National debt The national debt is the federal government’s total indebtedness at a moment in time. It is the result of previous budget deficits. (p. 303)

National income National income is the sum of the incomes that all individuals in the country earn in the forms of wages, interest, rents, and profits. It includes indirect business taxes, but excludes transfer payments and makes no deduction for income taxes. (p. 155, 170)

National income accounting The system of measurement devised for collecting and expressing macroeconomic data is called national income accounting. (p. 168)

Natural rate of unemployment The economy’s self-correcting mechanism always tends to push the unemployment rate back toward a specific rate of unemployment that we call the natural rate of unemployment. (p. 323)

Near moneys Near moneys are liquid assets that are close substitutes for money. (p. 247)

Net exports Net exports, or X 2 IM, is the difference between exports (X) and imports (IM). It indicates the difference between what we sell to foreigners and what we buy from them. (pp. 155, 380)

Net national product (NNP) Net national product (NNP) is a measure of production. NNP is conceptually identical to national income. However, in practice, national income accountants estimate income and production independently; and so the two measures are never precisely equal. (p. 170)

Net worth Net worth is the value of all assets minus the value of all liabilities. (p. 252)

Nominal GDP Nominal GDP is calculated by valuing all outputs at current prices. (p. 88)

Nominal rate of interest The nominal rate of interest is the percentage by which the money the borrower pays back exceeds the money that was borrowed, making no adjustment for any decline in the purchasing power of this money that results from inflation. (p. 121)

On-the-job training On-the-job training refers to skills that workers acquire while at work, rather than in school or in formal vocational training programs. (p. 141)

Open economy An open economy is one that trades with other nations in goods and services, and perhaps also trades in financial assets. (pp. 24, 379)

Open-market operations Open-market operations refer to the Fed’s purchase or sale of government securities through transactions in the open market. (p. 265)

Opportunity cost The opportunity cost of some decision is the value of the next best alternative that must be given up because of that decision (for example, working instead of going to school). (pp. 4, 41)

Optimal decision An optimal decision is one that best serves the objectives of the decision maker, whatever those objectives may be. It is selected by explicit or implicit comparison with the possible alternative choices. The term optimal connotes neither approval nor disapproval of the objective itself. (p. 42)

Origin (of a graph) The “0” point in the lower-left corner of a graph where the axes meet is called the origin. Both variables are equal to zero at the origin. (p. 13)

Outputs The outputs of a firm or an economy are the goods and services it produces. (pp. 22, 42, 105)

Phillips curve A Phillips curve is a graph depicting the rate of unemployment on the horizontal axis and either the rate of inflation or the rate of change of money wages on the vertical axis. Phillips curves are normally downward sloping, indicating that higher inflation rates are associated with lower unemployment rates. (p. 319)

Potential GDP Potential GDP is the real GDP that the economy would produce if its labor and other resources were fully employed. (p. 108)

Price ceiling A price ceiling is a maximum that the price charged for a commodity cannot legally exceed. (p. 70)

Price floor A price floor is a legal minimum below which the price charged for a commodity is not permitted to fall. (p. 73)

Principle of increasing costs The principle of increasing costs states that as the production of a good expands, the opportunity cost of producing another unit generally increases. (p. 44)

Production function The economy’s production function shows the volume of

output that can be produced from given inputs (such as labor and capital), given the available technology. (p. 108)

Production indifference map A production indifference map is a graph whose axes show the quantities of two inputs that are used to produce some output. A curve in the graph corresponds to some given quantity of that output, and the different points on that curve show the different quantities of the two inputs that are just enough to produce the given output. (p. 18)

Production possibilities frontier The production possibilities frontier is a curve that shows the maximum quantities of outputs it is possible to produce with the available resource quantities and the current state of technological knowledge. (p. 43)

Productivity Productivity is the amount of output produced by a unit of input. (p. 202)

Progressive tax A progressive tax is one in which the average tax rate paid by an individual rises as income rises. (p. 35)

Property rights Property rights are laws and/or conventions that assign owners the rights to use their property as they see fit (within the law)—for example, to sell the property and to reap the benefits (such as rents or dividends) while they own it. (p. 140)

Purchasing power The purchasing power of a given sum of money is the volume of goods and services that it will buy. (p. 117)

Quantity demanded The quantity demanded is the number of units of a good that consumers are willing and can afford to buy over a specified period of time. (p. 57)

Quantity supplied The quantity supplied is the number of units that sellers want to sell over a specified period of time. (p. 61)

Quantity theory of money The quantity theory of money assumes that velocity is (approximately) constant. In that case, nominal GDP is proportional to the money stock. (p. 279)

Quota A quota specifies the maximum amount of a good that is permitted into the country from abroad per unit of time. (p. 348)

Rational expectations Rational expectations are forecasts that, while not neces-

sarily correct, are the best that can be made given the available data. Rational expectations, therefore, cannot err systematically. If expectations are rational, forecasting errors are pure random numbers. (p. 328)

Ray through the origin (or Ray) Lines whose Y-intercept is zero have so many special uses in economics and other disciplines that they have been given a special name: a ray through the origin, or a ray. (p. 16)

Real GDP Real GDP is calculated by valuing outputs of different years at common prices. Therefore, real GDP is a far better measure than nominal GDP of changes in total production. (p. 88)

Real GDP per capita Real GDP per capita is the ratio of real GDP divided by population. (p. 92)

Real rate of interest The real rate of interest is the percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing. It indicates the increased ability to purchase goods and services that the lender earns. (p. 121)

Real wage rate The real wage rate is the wage rate adjusted for inflation. Specifically, it is the nominal wage divided by the price index. The real wage thus indicates the volume of goods and services that the nominal wages will buy. (p. 117)

Recession A recession is a period of time during which the total output of the economy declines. (pp. 24, 87)

Recessionary gap The recessionary gap is the amount by which the equilibrium level of real GDP falls short of potential GDP. (pp. 183, 205)

Relative price An item’s relative price is its price in terms of some other item rather than in terms of dollars. (p. 119)

Required reserves Required reserves are the minimum amount of reserves (in cash or the equivalent) required by law. Normally, required reserves are proportional to the volume of deposits. (p. 251)

Research and development (R&D) Research and development (R&D) is the activity of firms, universities, and government agencies that seeks to invent new products and processes and to improve those inventions so that they are ready for the market or other users. (p. 142)

Resources Resources are the instruments provided by nature or by people that are used to create goods and services. Natural resources include minerals, soil, water, and air. Labor is a scarce resource, partly because of time limitations (the day has only 24 hours) and partly because the number of skilled workers is limited. Factories and machines are resources made by people. These three types of resources are often referred to as land, labor, and capital. They are also called inputs or factors of production. (p. 40)

Revaluation A revaluation is an increase in the official value of a currency. (p. 363)

Run on a bank A run on a bank occurs when many depositors withdraw cash from their accounts all at once. (p. 242)

Scatter diagram A scatter diagram is a graph showing the relationship between two variables (such as consumer spending and disposable income). Each year is represented by a point in the diagram, and the coordinates of each year’s point show the values of the two variables in that year. (p. 158)

Self-correcting mechanism The economy’s self-correcting mechanism refers to the way money wages react to either a recessionary gap or an inflationary gap. Wage changes shift the aggregate supply curve and therefore change equilibrium GDP and the equilibrium price level. (pp. 209, 322)

Shift in a demand curve A shift in a demand curve occurs when any relevant variable other than price changes. If consumers want to buy more at any and all given prices than they wanted previously, the demand curve shifts to the right (or outward). If they desire less at any given price, the demand curve shifts to the left (or inward). (p. 59)

Shortage A shortage is an excess of quantity demanded over quantity supplied. When there is a shortage, buyers cannot purchase the quantities they desire at the current price. (p. 65)

Slope of a curved line The slope of a curved line at a particular point is defined as the slope of the straight line that is tangent to the curve at that point. (p. 15)

Slope of a straight line The slope of a straight line is the ratio of the vertical change to the corresponding horizontal change as we move to the right along the

line or, as it is often said, the ratio of the “rise” over the “run.” (p. 14)

Specialization Specialization means that a country devotes its energies and resources to only a small proportion of the world’s productive activities. (p. 341)

Stabilization policy Stabilization policy is the name given to government programs designed to prevent or shorten recessions and to counteract inflation (that is, to stabilize prices). (p. 99)

Stagflation Stagflation is inflation that occurs while the economy is growing slowly (“stagnating”) or in a recession. (pp. 96, 210, 318)

Store of value A store of value is an item used to store wealth from one point in time to another. (p. 244)

Strategic argument for protection The strategic argument for protection holds that a nation may sometimes have to threaten protectionism to induce other countries to drop their own protectionist measures. (p. 353)

Structural budget deficit or surplus

The structural budget deficit or surplus is the hypothetical deficit or surplus we would have under current fiscal policies if the economy were operating near full employment. (p. 306)

Structural unemployment Structural unemployment refers to workers who have lost their jobs because they have been displaced by automation, because their skills are no longer in demand, or because of similar reasons. (p. 114)

Supply curve A supply curve is a graphical depiction of a supply schedule. It shows how the quantity supplied of some product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity supplied constant. (p. 62)

Supply-demand diagram A supply-demand diagram graphs the supply and demand curves together. It also determines the equilibrium price and quantity. (p. 64)

Supply schedule A supply schedule is a table showing how the quantity supplied of some product changes as the price of that product changes during a specified period of time, holding all other determinants of quantity supplied constant. (p. 61)

Supply-side inflation Supply-side inflation is a rise in the price level caused by

slow growth (or decline) of aggregate supply. (p. 318)

Surplus A surplus is an excess of quantity supplied over quantity demanded. When there is a surplus, sellers cannot sell the quantities they desire to supply at the current price. (p. 65)

Tangent A tangent to the curve is straight line that touches, but does not cut, the curve at a particular point. (p. 15)

Tariff A tariff is a tax on imports. (p. 348)

Theory A theory is a deliberate simplification of relationships used to explain how those relationships work. (p. 9)

Trade adjustment assistance Trade adjustment assistance provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition. (p. 351)

Trade deficit A country’s trade deficit is the excess of its imports over its exports. If, instead, exports exceed imports, the country has a trade surplus. (p. 387)

Trade surplus A country’s trade surplus is the excess of its exports over its imports. If, instead, imports exceed exports, the country has a trade deficit. (p. 387)

Transfer payments Transfer payments are sums of money that the government gives certain individuals as outright grants rather than as payments for services rendered to employers. Some common examples are Social Security and unemployment benefits. (pp. 35, 157)

Unemployment insurance Unemployment insurance is a government program that replaces some of the wages lost by eligible workers who lose their jobs. (p. 116)

Unemployment rate The unemployment rate is the number of unemployed people, expressed as a percentage of the labor force. (p. 111)

Unit of account The unit of account is the standard unit for quoting prices. (p. 244)

Value added The value added by a firm is its revenue from selling a product minus the amount paid for goods and services purchased from other firms. (p. 171)

Variable A variable is something measured by a number; it is used to analyze what happens to other things when the size of that number changes (varies). (p. 13)

Variable taxes Variable taxes are taxes that vary with the level of GDP. (p. 235)

Velocity Velocity indicates the number of times per year that an “average dollar” is spent on goods and services. It is the ratio of nominal gross domestic product (GDP) to the number of dollars in the money stock. That is:

Velocity 5 Nominal GDP (p. 278)

Vertical (long-run) Phillips curve The vertical (long-run) Phillips curve shows the menu of inflation/unemployment choices available to society in the long run. It is a vertical straight line at the natural rate of unemployment. (p. 323)

Y-intercept The Y-intercept of a line or a curve is the point at which it touches the vertical axis (the Y-axis). The X-intercept is defined similarly. (p. 16)

458 line, 17, 179, 183, 185

458 line diagram, 179–180, 181

A

Absolute advantage, 343, 345 Abstraction, 7–9, 84

Africa, 138, 140, 149 African Americans, 113

Aggregate demand. see also Aggregate demand curve

2008 presidential campaign, 222 balanced with aggregate supply,

300–301 composition of, 302 equilibrium of, 203–204 excess of, 210

and exchange rates, 380–383 fiscal policy. see Fiscal policy fluctuations in, 213–214

gross domestic product and national income, 153–155

growth, 302, 318 international trade, 380–382

macroeconomic policy, 105–106 and monetary policy, 272, 301 predictability of, 166

and unemployment, 99–100

Aggregate demand curve definition, 86

demand-side equilibrium, 180–182 and economic fluctuations, 319

effect on real GDP and prices, 200, 228 and inflation, 204–205

in Keynesian model, 273–274 and multiplier, 190–191

Aggregate supply. see also Aggregate supply curve

2008 presidential campaign, 222 balanced with aggregate demand,

300–301 equilibrium of, 203–204 and exchange rates, 382

fluctuations in, 200, 214–215 and growth, 302 macroeconomic policy, 105 and monetary policy, 273

in open economy, 382

Aggregate supply curve definition, 86

and exchange rates, 382 and inflation, 204–205, 273 shape of, 287–289

shifts in, 201–203

and supply shock, 321–322 upward slope, 200–201 vertical, 326–328

Aggregate supply-demand model, 87, 212–216, 229–230

Aggregation, 84–85 AIDS epidemic, 149 Airbus, 349

Allocation of resources, 47–49 “American exceptionalism,” 362 Anticounterfeiting features of money, 245 Antitrust laws, 33–34

Appreciate (currency), 362. see also

Exchange rates

Argentina, 361, 369, 372, 373, 374 Asset, 251–252

Australia, 26, 363

Automatic stabilizers, 225 Autonomous increase in consumption,

188, 191 Auxiliary restrictions, 75

B

Balance of payments deficit, 369–370, 372 Balance of payments surplus, 369–370 Balance sheet, 252

Balanced budget, 307. see also Budget deficit

Bank of England, 293

Bank reserves market, 216, 265–266 Banking system

central banks, 263–265 discretion over money supply,

248–249 European Union, 264 examinations, 250

Great Depression, 258 history of, 248–249 management principles, 250 money creation, 252–258 panics, 263

profitability, 248 regulation of, 242, 250–251 run on a bank, 242, 249 supervision, 250

U.S. bank failures, 243 of various nations, 265

Barter, 243–244 Bastiat, Frédéric, 355 Belarus, 138

Benchmark Company LLC, The, 68 Bernanke, Ben, 262, 263, 317

Big Macs, and purchasing power parity theory, 368

Black market, 71 Boeing Corporation, 349 Bonds, 162, 268, 269

Booms, 190, 380. see also Business cycles BP Plc, 68–69

Brazil, 140, 148, 265, 361, 373, 374 Bretton Woods system, 371 Browne, John, 69

Budget deficit

and automatic stabilizers, 225 and Clinton, 40, 97–98

and debt, 303–305 definition, 303 economics of, 314

and Federal Reserve System, 386–387 future prospects, 314

and inflation, 308–310 interpretation of, 305–307 in long run, 301–303 monetization, 309–310 official deficit, 306 politics of, 314

and recession, 314

reduction, international aspects of, 386–388

in short run, 300–301 size of, 300, 312–313 structural, 305–306

supply-side economics, 231 trade deficit link, 387–388 U.S. budget, 40, 46

Budget surplus in 1990s, 40 definition, 303

interpretation of, 305–307 in long run, 301–303

on-budget vs. off-budget, 307 quickly turned to deficit, 314 in short run, 300–301 structural, 305–307

Bureau of Labor Statistics, 113–114 Burundi, 138

Bush, George H.W., 25, 34, 40, 93, 97, 232 Bush, George W.

Bernanke appointment, 263 budget deficits, 40, 46 business regulation, 34 capital gains tax, 139 economic growth, 93

fiscal policy, 228

No Child Left Behind, 141 spending surge, 313 supply-side economics, 229–233

tax cuts, 98–99, 222, 226, 228, 292–293, 300, 305, 313

tax rebates, 154, 163–164 tax share under, 35

Business and professional services, 28 Business confidence, 165

Business cycles, 24–25, 190, 293–294, 380. see also Booms; Recession

Business firms

price advantage for, 350 role of, 31–32

C

Canada

currency, 362, 363 educational attainment in, 148 GDP of, 22

investor protection, 140 labor costs, 341 openness of economy, 24 taxes in, 35

trade with U.S., 345 unemployment, 26, 113

Capital

in developing countries, 147 earnings of, 30

formation of, 138–140, 142 human, 136

international flows, 384–386 mobility impediments, 342–343 and productivity growth, 135 supply of, 202–203

Capital account, 370 Capital account plus, 385 Capital account surplus, 376

413

Inflation targeting, 97, 100, 293, 325–326 Inflationary gap, 183–184, 205–207,

209–211, 227, 322–323 Information Age, 29, 145 Information technology (IT), 144–145 Infrastructure, public, 34

Innovation, 142–143

Inputs, 30, 32, 42, 63, 105, 108–109. see also Labor

Interest, 34. see also Interest rates

Interest rate differentials, 365–366

Interest rates

behavior of, 1979–1985, 287 compounding, 107

cuts, 98–99

debt, 303–305, 310–311 exchange rates, 365–366, 372

Federal Reserve System, 284–287 fiscal policy, 281–283

history of, 56

international capital flows, 384–386 monetary policy, 271 monetization, 309–310

multiplier, 282–283 open-market operations, 268 real, 120–122, 138–139, 162–163 velocity, 278–283

Intermediate goods, 89, 170, 171–172 International Business Machines (IBM), 148

International capital flows, 384–386 International Monetary Fund (IMF),

124, 374

International monetary system, 361–377 adjustment mechanisms, 372 balance of payments, 369–370, 372 Bretton Woods system, 371

current “nonsystem,” 373–376 euro, 375–376

exchange rates. see Exchange rates gold standard, 370–371 International Monetary Fund (IMF),

124, 374

volatile dollar, 374–375

International trade. see also Exports

“cheap foreign labor,” 339–340, 347–348, 354

and comparative advantage, 343–348 deficit, 382, 387–390

dumping, 353–356

and exchange rates, 342, 380–382 gains from, 345–346 globalization, 339–340

vs. intranational trade, 342–343 multiplier, 195–196

mutual gains, 341–342 political factors, 342 prices, 358–360

and real GDP, 381 reasons for, 341–342

reasons to inhibit, 350–353 and recessions, 380

supply, demand, and pricing, 358–360 tariffs and quotas, 348–353, 359–360 unfair foreign competition, 355

Internet, 145 Internet bubble, 376

Intranational trade, 342–343

Invention, 142–143 Inventory, 168

Investment. see also Bonds business, 271

coordination with savings, 183–184