Contents
PART 1 AN INTRODUCTION TO ECONOMICS 1
Chapter 1 Economics and the World of Scarcity 3
Facing an Economic Problem: How Much Should Society Pay for an
Additional Year of Life for One Individual? 3
Why Economics? 4
Let's Get One Thing Straight; You Don't Need Very Much 4
Unlimited Wants versus Reality 4
When You Choose, You Give Up an Opportunity 5
Opportunity Cost; The Only Game in Town 5
Solving the Economic Problem: How Much Should Society Pay for an Additional
Year of Life for
One Individual? 6
POLICY APPLICATION: Should We Bring the Draft Back? 7
Every Choice Involves a Trade-Off 7
Trade-Offs Involve Choosing Among Uses of Resources 8
Trade-Offs Create Production Possibilities 8
POLICY APPLICATION: What Is the Cost to the United States of the Being the
World's Cop? 10
Economic Growth Doesn't Eliminate Scarcity 11
Graphing Economic Growth 11
Scarcity Still Exists 12
Looking Out for Number One 12
Rational Self-Interest Is Just an Assumption 12
Defining Self-Interest 13
Summing It All Up 13
Key Terms and Concepts 13
Mastering Economic Concepts: Questions and Problems 14
Thinking Critically 15
Logging On 15
Using the Internet for Economic Analysis 16
Media Resource List 16
Homework Set 16
Appendix A to Chapter 1: Using Graphs 17
Chapter 2 The United States Within the World Economy 23
Facing an Economic Problem: Just How Does Production Get Coordinated in
This Country? 23
Answering Some Basic Questions ; What, How, and For Whom to Produce? 24
What to Produce and in What Quantities? 24
Solving the Economic Problem: How Does Production Get Coordinated in This
Country? 25
How Should We Produce Our Goods and Services? 25
For Whom Will Output Be Produced; Who Gets What? 26
Producing Goods and Services Requires Resources 27
Resource Classification 27
Productivity Is the Result 28
POLICY APPLICATION: Fire a Worker to Increase Measured Productivity
28
Putting the U.S. Economy in Perspective 29
The U.S. Economy Viewed by Itself 29
The United State's Place in the World Economy 31
The United States Is Closely Intertwined with All Other Countries 32
GLOBAL APPPLICATION: Our Increasingly Interconnected World of Trade
The United States Draws on a Potential Global Labor Supply 33
The U.S. Economy Is Huge and Growing 34
POLICY APPLICATION: The Rich Get Richer and the Poor Do, Too (But
NotQuite So Fast) 35
Measuring How Much We Produce 36
Is It All in the Numbers; Gross Domestic Product, or GDP 36
Prices Do Rise; GDP Corrected for Inflation 37
The U.S. Position in the World Economy? 38
Sustaining U.S. Population Growth 39
Immigration Continues to Be the Key 39
The U.S. Population Compared to the Rest of the World 39
India and China; Future Economic Powers 40
Summing It All Up 40
Key Terms and Concepts 41
Mastering Economic Concepts: Questions and Problems 41
Thinking Critically 42
Logging On 42
Using the Internet for Economic Analysis 43
Media Resource List 43
Homework Set 43
PART 2 MICROECONOMICS 45
Chapter 3 Demand and Supply 47
Facing an Economic Problem: Fighting the Rise in Cigarette Smuggling
Worldwide 47
Demand; A Major Role Player in the Market Economy 48
The Law of Demand; It's Famous for a Reason 48
E-COMMERCE APPLICATION: The Need to Reduce Customer Service Costs
48
Why the Law of Demand; The Real Income and Substitution Effects 49
Solving the Economic Problem: Fighting the Rise in Cigarette Smuggling
Worldwide 50
Graphing Individual Demand 51
Many Individuals Make Up the Market 51
Market Demand Can Change; Looking at the Causes 52
Changes in Demand versus Changes in Quantity Demanded 55
Supply; The Other Side of the Picture 57
The Law of Supply: Almost as Famous as the Law of Demand 57
The Supply Schedule 57
The Supply Curve 58
The Determinants of Supply 58
Changes in Supply versus Changes in Quantity Supplied 59
Equilibrium: Putting Demand and Supply Together 60
Combining the Demand and Supply Schedules 60
Graphing Supply and Demand Together 60
Equilibrium 60
The World of Shortages and Surpluses 60
The Rationing Function of Prices 62
Ways the Rationing Function Can Be Frustrated 62
POLICY APPLICATION: Solving the World's Looming Water Crisis 62
'
Other Forms of Rationing 64
Summing It All Up 64
Key Terms and Concepts 65
Mastering Economic Concepts: Questions and Problems 65
Thinking Critically 67
Logging On 68
Using the Internet for Economic Analysis 68
Media Resource List 68
Homework Set 68

Chapter 4 Consumer Decision Making and Consumer Reaction
to Price Changes 69
Facing an Economic Problem: Why Do Newspaper Vending Machines Let You
Have Access to More Than One Paper? 69
If It Doesn't Have Utility, You Won't Buy It 70
It's Hard to Predict What Others Will Like 70
Measuring Utility 70
Of Total and Additional Utility 70
Marginal Utility Falls As You Consume More Units 71
Diminishing Marginal Utility 71
Solving the Economic Problem: Why Do Newspaper Vending Machines Let You
Have Access to More Than One Paper? 71
Measuring Consumer Responsiveness; The Price Elasticity of Demand 73
POLICY APPLICATION: A Crack in the Wall Against Teenage Smoking 73
Elastic versus Inelastic Demand 74
POLICY APPLICATION: Seeking New Businesses by Examining Price
Elasticities 75
The Extremes in Price Elasticity 75
Perfectly Elastic Demand 76
On Doing Elasticity Calculations 77
A Few Formulas First 77
How We Actually Calculate Elasticity in the Real world 78
Price Elasticity Ranges 78
What Determines the Price Elasticity of Demand 79
Economist's Research in the Real World; Estimated Price Elasticities of Demand 80
The Relationship Between Price Elasticity of Demand and Consumer Expenditures
81
Elastic Demand 81
Unit-Elastic Demand 81
Inelastic Demand 82
Summarizing the Elasticity; Consumer Expenditures Relationship 82
Summing It All Up 83
Key Terms and Concepts 84
Mastering Economic Concepts: Questions and Problems 84
Thinking Critically 85
Logging On 86
Using the Internet for Economic Analysis 86
Media Resource List 87
Homework Set 87
Chapter 5 The Firm: Production and Cost 89
Facing an Economic Problem: What Kind of Business Organization Is Right? 89
Types of Business Organizations 90
Sole Proprietorships 90
Partnerships 90
Corporations 91
GLOBAL APPLICATION: The Birth of a Corporation; Merry Old England
91
S Corporations and Limited Liability Companies 92
Solving the Economic Problem: What Kind of Business Organization Is Right?
92
E-COMMERCE APPLICATION: This Kid Is All Right 93
Businesses Combine Factors of Production 94
Relating the Factors of Production and Output; The Production Function 94
Relating Output to Input; A Numerical Example 94
Revisiting the Numbers 96
The Firm Faces Its Costs 97
Fixed versus Variable Costs 97
Graphing Total Costs 97
Average Costs 98
POLICY APPLICATION: Electric Utilities Must Decide When to Use
Expensive
Natural Gas 98
Marginal Costs Are What Matters 99
Graphing Average Costs 99
Graphing Marginal Costs 99
In the Long Run, There Are No Fixed Costs 102
Profits: Accountants versus Economists 102
Accounting Profits 102
Economic Profits 103
Profits Are What Matters 103
Summing It All Up 107
Key Terms and Concepts 108
Mastering Economic Concepts: Questions and Problems 108
Thinking Critically 110
Logging On 110
Using the Internet for Economic Analysis 110
Media Resource List 111
Homework Set 111
Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly 113
Facing an Economic Problem: Should You Shut Down Your Business? 113
The Spectrum of Market Structures 114
The Extremes 114
Imperfect Competition 114
Lots of Firms + One Similar Product = Perfect Competition 115
Defining a Perfect Competitor 115
E-COMMERCE APPLICATION: The Expanding World of Spammers 116
What Kind of Demand Curve Does a Perfect Competitor Face? 116
Okay, You Know the Price, But How Much Should You Produce? 116
Measuring Short-Run Profits 119
Deciding When to Call It a Day 120
When Should a Perfect Competitor Shut Down? 120
Solving the Economic Problem: Should You Shut Down Your Business? 121
Perfect Competitors Generally Make Zero Economic Profits 121
The Other End of the Spectrum; Pure Monopoly 122
There Are Different Types of Monopolies 122
Barriers to Entry 123
International Cartels 124
GLOBAL APPLICATION: Those International Cartels Just Keep Trying 124
The Monopolist Gets to Decide What Price to Charge 125
What Kind of Demand Curve Does the Monopolist Face? 125
Showing Graphically Why Marginal Revenue Is Always Less Than Price for the
Monopolist 127
A Numerical Example; Marginal Revenue for the Monopolist 128
How the Monopolist Maximizes Profits 129
Having a Monopoly Does Not Guarantee Profits 129
Why Monopolies Are Considered "Bad" 130
GLOBAL APPLICATION: Mexico Keeps Those Phone Rates High 130
Summing It All Up 131
Key Terms and Concepts 131
Mastering Economic Concepts: Questions and Problems 132
Thinking Critically 134
Logging On 135
Using the Internet for Economic Analysis 135
Media Resource List 135
Homework Set 135
Chapter 7 In Between the Extremes: Imperfect Competition 137
Facing an Economic Problem: How to Fill Those Empty Airline Seats? 137
Monopolistic Competition Among the Many 138
Characteristics of Monopolistic Competition 138
Comparing Demand Curves for Perfect Competitors, Pure Monopolists,
and Monopolistically Competitive Firms 138
Times Are Tough: Zero Economic Profits in the Long Run 139
Advertising Comes to the Fore 141
Sales Promotion and Advertising 142
Advertising as Signaling Behavior 142
Oligopoly; Competition Among the Few 143
Characteristics of Oligopolistic Industry Structure 144
Looking at Oligopoly via Industry Concentration 144
POLICY APPLICATION: Art Auction Houses; Really Only Two Players 145
How to Make Higher Profits Through Price Discrimination 146
Solving the Economic Problem: How to Fill Those Empty Airplane Seats? 146
Interdependence and Cheating in an Oligopolistic Industry 147
Interdependence and Strategic Dependence 147
Opportunistic Behavior and Cheating 147
The Result of Everyone Engaging in Opportunistic Behavior 148
Price Leadership and Price Wars; They Do Exist 148
GLOBAL APPLICATION: International Chemical Hauling; Boring, but
Profitable for At Least Two Companies 148
Price Leadership 149
Price Wars 149
Summing It All Up 150
Key Terms and Concepts 151
Mastering Economic Concepts: Questions and Problems 151
Thinking Critically 152
Logging On 153
Using the Internet for Economic Analysis 153
Media Resource List 153
Homework Set 153
Chapter 8 Market and Government Failures 155
Facing an Economic Problem: Is There a Relationship Between Increased
Cigarette Taxes and Increased Violence 155
When Social and Private Costs Differ; A Potential Failure of Our Pricing
System 156
Some Potential Sources of Market Failures 156
Knowing the True Opportunity Cost of One's Actions 156
Ignoring Externalities 156
Traffic Congestion and Negative Externalities 157
GLOBAL APPLICATION: Overcoming Congestion the London Way 157
There Can Be Positive Externalities 159
When You Can't Stop People from Consuming; The Case of Public Goods 159
Private Goods 159
The Opposite of Private Goods; Public Goods 160
Regulation: The Government Steps In 160
Economic Regulation 161
Social Regulation 161
Reactions to Regulation; The World of Creative Response 161
Contestable Markets, or Why All the Worry? 162
Striking Before Things Get Messy; The Rationale of Antitrust Laws 163
Antitrust Legislation 163
How Does the Government Enforce Antitrust Laws? 164
Monopoly Power and the Relevant Market 165
POLICY APPLICATION: United States v. Microsoft Corporation 165
Government: Its Financing and Its Failures 167
Paying for the Public Sector; Taxation 167
Government Failures 168
Solving the Economic Problem: Is There a Relationship Between Increased
Cigarette Taxes and Increased Violence? 170
Summing It All Up 171
Key Terms and Concepts 172
Mastering Economic Concepts: Questions and Problems 172
Thinking Critically 173
Logging On 174
Using the Internet for Economic Analysis 174
Media Resource List 175
Homework Set 175
Chapter 9 Labor Economics 177
Facing an Economic Problem: Can We Make Sure That Everyone Earns at
Least a "Living" Wage? 177
The Supply of Labor 178
What Determines the Total Supply of Labor? 178
The Demand for Labor 180
Labor Demand as a Derived Demand 180
The Demand for Labor Also Depends on How Much a Worker Can Produce 180
Deriving the Demand Curve for Labor 181
What Happens When Labor Demand or Supply Changes? 184
Reasons for Labor Demand Curve Shifts 184
Determinants of the Industry Supply of Labor 185
POLICY APPLICATION: Bringing in Foreign Information Technology
Workers 186
Putting a Floor on Wages; The Minimum Wage 187
Effects on the Quantity of Labor Supplied 187
How Is the Quantity of Labor Demanded Affected? 187
The Result: A Surplus of Workers at the Minimum Wage Rate 188
Solving the Economic Problem: Can We Make Sure That Everyone Earns at
Least a "Living" Wage? 189
Organized Labor: Its Effect on Labor Supply and Wages 189
The American Labor Movement 189
GLOBAL APPLICATION: Twelfth-Century German Labor Rules Now Under
Attack 190
Collective Bargaining 190
The Goals of the Union 191
Restricting the Supply of Union Labor Over Time 192
The Benefits of Labor Unions 193
A Positive View of Labor Unions 193
For All That Unions May Do, Union Membership Is Still on the Decline 193
Income Distribution; What Determines How Much You Make? 194
Marginal Productivity 194
Inheritance 195
Discrimination 195
Summing It All Up 196
Key Terms and Concepts 196
Mastering Economic Concepts: Questions and Problems 196
Thinking Critically 198
Logging On 199
Using the Internet for Economic Analysis 199
Media Resource List 199
Homework Set 199
PART 3 MACROECONOMICS 201
Chapter 10 Unemployment, Inflation, and the Business Cycle 203
Facing an Economic Problem: Choosing a Fixed or Variable Rate Mortgage 203
There Are Different Types of Unemployment 204
Looking at Unemployment 204
Frictional Unemployment 204
Structural Unemployment 205
Cyclical Unemployment 206
Seasonal Unemployment 206
How We Measure the Unemployment Rate 207
Who's in the Labor Force and Who's Out? 207
Measuring the Unemployment Rate 207
The Logic of the Unemployment Rate 207
The Discouraged Worker Phenomenon 208
Labor Force Participation 208
POLICY APPLICATION: Can Being Too Generous Lead to Lower Labor
Participation Rates? 209
Inflation and Deflation 209
How Much Purchasing Power Do You Have? 210
How We Measure the Rate of Inflation 210
Anticipated versus Unanticipated Inflation 213
How Inflation Hurts 213
Inflation and Interest Rates 214
Solving the Economic Problem: Choosing a Fixed or Variable Rate Mortgage
215
Deflation: Falling Prices 215
POLICY APPLICATION: Should the Government Be Worried About
Deflation? 216
Business Fluctuations and Business Cycles 217
Expansions and Contractions 217
Recessions and Depressions 218
Typical Business Fluctuations 218
A Historical Picture of National Business Activity in the United States 218
Explaining Business Cycles 219
Summing It All Up 220
Key Terms and Concepts 221
Mastering Economic Concepts: Questions and Problems 221
Thinking Critically 222
Logging On 222
Using the Internet for Economic Analysis 223
Media Resource List 223
Homework Set 223
Chapter 11 Aggregate Demand and Supply 225
Facing an Economic Problem: What Are the Hidden Costs of Terrorism? 225
The Circular Flow of Income and Product 226
The Two Models We Examine 226
The Two Principles of the Circular Flow of Income 226
Distinguishing Between Product and Factor Markets 226
Expanding the Circular Flow Model 228
Watch Out! Aggregate Demand Is Not the Same as Individual Demand 229
Adding It All Up; The Aggregate Demand Curve 229
Going from Aggregate Demand to the Aggregate Demand Curve 229
What Happens When the Price Level Rises? 230
Shifts in the Aggregate Demand Curve 232
POLICY APPLICATION: The Importance of Planned Investment in Creating
Recessions 233
Watch Out! Aggregate Supply Is Not the Same as Individual Supply 234
Adding Everybody Up Again 234
Shifts in the Aggregate Supply Curve 234
E-COMMERCE APPLICATION: Computers, the Information Age, and
Increased Productivity in the United States 235
Determining the Price Level; Putting Aggregate Demand and Aggregate Supply
Together 236
Looking at the National Economy Using Aggregate Demand and Supply Analysis
237
Shifts in Aggregate Demand 237
Changes That Affect Aggregate Supply 239
Summing It All Up 242
Key Terms and Concepts 243
Mastering Economic Concepts: Questions and Problems 243
Thinking Critically 245
Logging On 245
Using the Internet for Economic Analysis 245
Media Resource List 246
Homework Set 246
Chapter 12 The Fiscal Policy Approach to Stabilization 247
Facing an Economic Problem: What to Do When the Federal Government Hits
the Federal Debt Ceiling 247
It Seems to Have Started With a Man Named Keynes 248
The Life and Times of Mr. Keynes 248
Keynes Sought to Understand Why People Spend 249
Relating Consumption to Saving 250
Planned Consumption and Planned Saving 250
How Much Will You Consume Out of the Next Dollar of Income? 251
Investment Is Important, Too 252
Investment and Interest Rates 252
More Bang for Your Buck; Changes in Investment Can Cause a Multiplier Effect 253
Multiplier Formula 254
Use at Your Discretion; Discretionary Fiscal Policy 255
Changing Taxes 256
POLICY APPLICATION: The Disconnect Between Those Who Pay Taxes and
Those Who Vote 257
Changing Government Spending 257
Contractionary Fiscal Policy 258
The Way Increased Government Spending Is Financed Is Important 259
The Thorny Problem of Timing and Time Lags 260
Automatic Stabilizers 260
The Tax System as an Automatic Stabilizer 261
Unemployment Compensation and Welfare Payments 261
Stabilizing Impact 261
POLICY APPLICATION: The Necessity of Greater Taxes to Pay for
Increasing Social Security and Medicare Benefits in the Future 262
Deficit Spending; Fiscal Policy at Its Finest 263
Government Borrowing 263
Solving the Economic Problem: What to Do When the Federal Government Hits
the Federal Debt Ceiling 265
Are We Always in Debt? 266
Summing It All Up 267
Key Terms and Concepts 267
Mastering Economic Concepts: Questions and Problems 268
Thinking Critically 269
Logging On 270
Using the Internet for Economic Analysis 270
Media Resource List 270
Homework Set 270
Chapter 13 Money and Our Banking System 271
Facing an Economic Problem: Reverting to Barter in Modern Times; How
Could It Happen? 271
The Functions of Money 272
The Origins of Money 272
Money as a Medium of Exchange 272
Solving the Economic Problem: Reverting to Barter in Modern Times; How
Could It Happen? 273
Money as a Unit of Accounting 274
More Than Water Is Liquid; The Concept of Liquidity 275
What Backs Money? 275
POLICY APPLICATION: The Profits to Be Made in Offering Free Checking
276
How We Define the Money Supply in Circulation 277
Defining the Money Supply as M1 277
A Broader Definition of Money; M2 278
The Federal Reserve System; Our Central Bank 278
Organization of the Federal Reserve System 279
The Federal Reserve System Has Many Functions 279
Money Creation, Reserves, and the Money Multiplier 281
Fractional Reserve Banking 281
The Expansion of the Money Supply 281
The Money Multiplier 282
E-Money Eventually Will Be Here to Stay 283
Smart Cards 283
Digital Cash 284
E-COMMERCE APPLICATION: The Move Toward an Electronic Payment
System 284
Summing It All Up 285
Key Terms and Concepts 286
Mastering Economic Concepts: Questions and Problems 286
Thinking Critically 287
Logging On 287
Using the Internet for Economic Analysis 288
Media Resource List 288
Homework Set 288
Chapter 14 The Monetary Policy Approach to Stabilization 289
Facing an Economic Problem: Why Do Interest Rates Sometimes Go Up During
Periods of "Loose" Monetary Policy? 289
Loose and Tight Monetary Policies 290
Solving the Economic Problem: Why Do Interest Rates Sometimes Go Up
During Periods of "Loose" Monetary Policy 291
The Traditional Tools of Monetary Policy 292
Changing the Money Supply via Open Market Operations 292
Changing the Money Supply via Changes in the Discount Rate 293
Changing the Money Supply via Changes in Reserve Requirements 294
Changes in the Money Supply May Lead to Changes in Aggregate Demand 294
Direct Effect 295
Indirect Effect 295
Using Aggregate Supply/Aggregate Demand Analysis 295
Monetary Policy, Production, and Unemployment 297
Monetary Policy and Inflation 297
Using Supply and Demand for Money Analysis 298
Distinguishing Between the Long Run and the Short Run 298
Monetary Policy in Action 299
The Keynesian Transmission Mechanism 300
The Monetarists' Transmission Mechanism 300
Criticism of Monetary Policy 301
POLICY APPLICATION: How Good Has the Fed Been at Countercyclical
Monetary Policy Throughout Its History? 301
GLOBAL APPLICATION: Inflation Targeting 303
The Way Federal Reserve Policy Is Currently Announced 303
Summing It All Up 304
Key Terms and Concepts 305
Mastering Economic Concepts: Questions and Problems 305
Thinking Critically 306
Logging On 306
Using the Internet for Economic Analysis 307
Media Resource List 307
Homework Set 307
Chapter 15 How Economies Grow 309
Facing an Economic Problem: Why Doesn't Foreign Aid Seem to Help Raise
Living Standards? 309
How Do We Define Economic Growth? 310
We Do Not Just Measure Growth in Total Output 310
There Are Problems with Our Definition of Economic Growth 310
Economic Growth and the Magic of Compounding 311
Small Differences Make for Big Changes 311
Putting It All in a Table 312
Saving: An Important Determinant of Economic Growth 313
A Basic Economic Growth Proposition 313
Comparing Saving Rates and Growth Rates Worldwide 314
Productivity Increases; That's What Economic Growth Is All About 315
Separating Different Rates of Growth of Production Inputs 315
The Growth in Technology; A Key Element 315
Research and Development 316
Innovation and Knowledge 317
Investing in Yourself; The Importance of Human Capital 318
How You Can Invest in Human Capital 318
Schooling Is Important 319
GLOBAL APPLICATION: What Happens When Human Capital Is Destroyed
by an AIDS Epidemic? 319
Property Rights and Entrepreneurship 320
Well-Defined Property Rights Are Important 320
A Nation's Legal Structure Affects Entrepreneurship 321
Solving the Economic Problem: Why Doesn't Foreign Aid Seem to Help Raise
Living Standards? 321
GLOBAL APPLICATION: The Formula for Economic Growth in Iraq and
Afghanistan 322
Summing It All Up 322
Key Terms and Concepts 323
Mastering Economic Concepts: Questions and Problems 323
Thinking Critically 324
Logging On 325
Using the Internet for Economic Analysis 325
Media Resource List 325
Homework Set 326
PART 4 INTERNATIONAL 327
Chapter 16 Trading with Other Nations 329
Facing an Economic Problem: The Effect of Boycotting French Goods 329
The Importance of World Trade 330
Imports; What We Buy from Abroad 330
Exports; What We Sell to Other Countries 330
World Trade; It Just Keeps Growing 331
Absolute Advantage, Comparative Advantage, and The Gains from Specialization
332
Doing It Better Than Everyone Else; Absolute Advantage 322
It's Comparative Advantage That Counts 322
International Trade Is Really a Choice Between Two Ways of Producing a Good or
Service 335
Will the United States Ever Be Forced Out of All Export Markets? 335
International Trade Leads to the Transmission of Ideas Among Nations 335
There is a Relationship Between Imports and Exports 336
Imports and Exports Are Related 336
The Impact of Restrictions on Imports 337
Solving the Economic Problem: The Effect of Boycotting French Goods 337
The Arguments Against Unrestricted International Trade 338
Protecting American Jobs 388
POLICY APPLICATION: The High Cost of Saving U.S. Jobs 339
Remember That Imports and Exports Are Related 339
Protecting the Infants 340
POLICY APPLICATION: Protecting an Undesirable Domestic Industry 341
The Foreign Subsidization Argument 341
The Dumping Argument 342
Quota, Tariffs, and Free Trade Zones 342
Quotas 342
Tarifs 343
The World Trade Organization (WTO) 345
Free Trade Areas and Common Markets; The Opposite of Restricting Trade 346
Summing It All Up 346
Key Terms and Concepts 347
Mastering Economic Concepts: Questions and Problems 347
Thinking Critically 348
Logging On 349
Using the Internet for Economic Analysis 349
Media Resource List 349
Homework Set 349
Chapter 17 Financing World Trade 351
Facing an Economic Problem: Do U.S. Residents Buy Too Many Goods and
Services from Other Countries? 351
Trading Currencies in Foreign Exchange Markets 352
The Demand for and Supply of Foreign Currencies 352
Shifts in the Demand for Foreign Currencies 354
Shifts in the Supply of Foreign Currencies 356
What Determines Exchange Rates 357
Floating versus Fixed Exchange Rates 358
The Meaning of Floating Exchange Rates 359
Fixing the Exchange Rate 359
Currency Crises 360
The Pros and Cons of a Fixed Exchange Rate System 360
The Balance of Trade and the Balance of Payments; They're More than Just
Numbers 362
Looking at the Balance of Trade; It Never Seems to Balance 362
GLOBAL APPLICATION: U.S. Trash Helps Our Trade Deficit with China 363
Now on to the Balance of Payments 364
Current Account versus Capital Account Transactions 365
The Relationship Between the Current Account and the Capital Account 367
"Bad" versus "Good" Current Account Deficits 368
Solving the Economic Problem: Do U.S. Residents Buy Too Many Goods and
Services from Other Countries? 368
GLOBAL APPLICATION: The European Union's "Favorable" Balance of
Trade Means Trouble on the Horizon 369
Summing It All Up 370
Key Terms and Concepts 371
Mastering Economic Concepts: Questions and Problems 371
Thinking Critically 372
Logging On 372
Using the Internet for Economic Analysis 373
Media Resource List 373
Homework Set 373
Mastering Economic Concepts; Answers to Odd-Numbered Problems 000
Glossary 000
Index 000
Homework Sets 000




Library of Congress Subject Headings for this publication: Economics