Macroeconomics / Rudiger Dornbusch, Stanley Fischer, Richard Startz.

RUDI DORNBUSCH is a Ford Professor of Economics and International Management at MIT. He did his undergraduate work in Switzerland and holds a Ph.D. from the University of Chicago. He has taught at Chicago, at Rochester, and since 1975 at MIT. His research is primarily in international economics, with a major macroeconomic component. His special research interests are the behavior of exchange rates, high inflation and hyperinflation, and the problems and opportunities that high capital mobility poses for developing economies. He visits and lectures extensively in Europe and in Latin America, where he takes an active interest in problems of stabilization policy, and has held visiting appointments in Brazil and Argentina. His writing includes Open Economy Macroeconomics and, with Stanley Fischer and Richard Schmalensee, Economics. His interests in public policy take him frequently to testify before Congress and to participate in international conferences. He regularly contributes newspaper editorials on current policy issues here and abroad

Includes bibliographical references and index.

CONTENTS
Preface xvii
PART
1 INTRODUCTION AND NATIONAL INCOME ACCOUNTING 1
1. INTRODUCTION 2
1-1 Macroeconomics Encapsulated in Three Models 4
1-2 To Reiterate . . . 11
1-3 Outline and Preview of the Text 17
1-4 Prerequisites and Recipes 18
2. NATIONAL INCOME ACCOUNTING 21
2-1 The Production of Output and Payments to Factors of
Production 22
2-2 Outlays and Components of Demand 25
2-3 Some Important Identities 30
2-4 Measuring Gross Domestic Product 35
2-5 Inflation and Price Indexes 37
2-6 Unemployment 42
2-7 Interest Rates and Real Interest Rates 43
2-8 Exchange Rates 45
2-9 Where to Grab a Look at the Data 46
PART
2 GROWTH, AGGREGATE SUPPLY AND DEMAND, AND POLICY
51
3. GROWTH AND ACCUMULATION 52
3-1 Growth Accounting 54
3-2 Empirical Estimates of Growth 57
3-3 Growth Theory: The Neoclassical Model 61
4. GROWTH AND POLICY 76
4-1 Growth Theory: Endogenous Growth 77
4-2 Growth Policy 85
5. AGGREGATE SUPPLY AND DEMAND 94
5-1 The Aggregate Supply Curve 98
5-2 The Aggregate Demand Curve 101
5-3 Aggregate Demand Policy under Alternative Supply
Assumptions 103
5-4 Supply-Side Economics 106
5-5 Putting Aggregate Supply and Demand Together in the Long Run 108
6. Aggregate Supply: Wages, Prices, and Unemployment 111
6-1 The Aggregate Supply Curve and the Price Adjustment Mechanism 112
6-2 Inflation and Unemployment 116
6-3 Stagflation, Expected Inflation, and the Inflation-Expectations-
Augmented Phillips Curve 120
6-4 The Rational Expectations Revolution 124
6-5 The Wage-Unemployment Relationship: Why Are Wages Sticky? 126
6-6 From Phillips Curve to the Aggregate Supply Curve 131
6-7 Supply Shocks 134
7. The Anatomy of Inflation and Unemployment 142
7-1 Unemployment 145
7-2 Inflation 146
7-3 The Anatomy of Unemployment 147
7-4 Full Employment 152
7-5 The Costs of Unemployment 161
7-6 The Costs of Inflation 162
7-7 Inflation and Indexation: Inflation-Proofing the Economy 168
7-8 Is a Little Inflation Good for the Economy? 171
7-9 Political Business Cycle Theory 172
8. Policy Preview 180
8-1 A Media Level View of Practical Policy
8-2 Policy as a Rule
8-3 Interest Rates and Aggregate Demand
Part
3 First Models 213
9. Income and Spending 214
9-1 Aggregate Demand and Equilibrium Output 215
9-2 The Consumption Function and Aggregate Demand 216
9-3 The Multiplier 222
9-4 The Government Sector 225
9-5 The Budget 230
9-6 The Full-Employment Budget Surplus 233
10. MONEY, INTEREST, AND INCOME 239
10-1 The Goods Market and the IS Curve 244
10-2 The Money Market and the LM Curve 252
10-3 Equilibrium in the Goods and Money Markets 259
10-4 Deriving the Aggregate Demand Schedule 261
10-5 A Formal Treatment of the IS-LM Model 263
11. Monetary and Fiscal Policy 268
11-1 Monetary Policy 270
11-2 Fiscal Policy and Crowding Out 279
11-3 The Composition of Output and the Policy Mix 284
11-4 The Policy Mix in Action 288
12. International Linkages 298
12-1 The Balance of Payments and Exchange Rates 300
12-2 The Exchange Rate in the Long Run 307
12-3 Trade in Goods, Market Equilibrium, and the Balance of Trade 310
12-4 Capital Mobility 313
12-5 The Mundell-Fleming Model: Perfect Capital Mobility under Fixed
Exchange Rates 317
12-6 Perfect Capital Mobility and Flexible Exchange Rates 320
Part
4 Behavioral Foundations 333
13. Consumption and Saving 334
13-1 The Life-Cycle ? Permanent-Income Theory of Consumption and Saving
339
13-2 Consumption under Uncertainty: The Modern Approach 344
13-3 Further Aspects of Consumption Behavior 348
14. Investment Spending 360
14-1 The Stock Demand for Capital and the Flow of Investment 364
14-2 Investment Subsectors ? Business Fixed, Residential, and Inventory
373
14-3 Investment and Aggregate Supply 384
15. The Demand for Money 390
15-1 Components of the Money Stock 391
15-2 The Functions of Money 394
15-3 The Demand for Money: Theory 396
15-4 Empirical Evidence 400
15-5 The Income Velocity of Money 404
16. The Fed, Money, and Credit 411
16-1 Money Stock Determination: The Money Multiplier 413
16-2 The Instruments of Monetary Control 416
16-3 The Money Multiplier and Bank Loans 422
16-4 Control of the Money Stock and Control of the Interest Rate 423
16-5 Money Stock and Interest Rate Targets 424
16-6 Money, Credit, and Interest Rates 427
16-7 Which Targets for the Fed? 430
17. Policy
17-1 Lags in the Effects of Policy
17-2 Expectations and Reactions
17-3 Uncertainty and Economic Policy
17-4 Targets, Instruments, and Indicators: A Taxonomy
17-5 Activist Policy
17-6 Which Target? ? A Practical Application
17-7 Dynamic Inconsistency and Rules Versus Discretion
18. Financial Markets and Asset Prices 434
18-1 Interest Rates: Long and Short Term 435
18-2 The Random Walk of Stock Prices 441
18-3 Exchange Rates and Interest Rates 446
PART
5 Big Events, International Adjustments, and Advanced Topics
451
19. BIG EVENTS: THE ECONOMICS OF DEPRESSION, HYPERINFLATION, AND
DEFICITS 452
19-1 The Great Depression: The Facts 453
19-2 The Great Depression: The Issues and Ideas 458
19-3 Money and Inflation in Ordinary Business Cycles 461
19-4 Hyperinflation 466
19-5 Deficits, Money Growth, and the Inflation Tax 474
19-6 Budget Deficits: Facts and Issues 480
19-7 Social Security 487
20. INTERNATIONAL ADJUSTMENT AND INTERDEPENDENCE 495
20-1 Adjustment under Fixed Exchange Rates 496
20-2 Exchange Rate Changes and Trade Adjustment: Empirical Issues 508
20-3 The Monetary Approach to the Balance of Payments 512
20-4 Flexible Exchange Rates, Money, and Prices 515
20-5 Interest Differentials and Exchange Rate Expectations 521
20-6 Exchange Rate Fluctuations and Interdependence 524
20-7 The Choice of Exchange Rate Regimes 531
21. ADVANCED TOPICS 538
21-1 An Overview of the New Macroeconomics 539
21-2 The Rational Expectations Revolution 544
21-3 The Microeconomics of the Imperfect Information Aggregate Supply
Curve 552
21-4 The Random Walk of GDP: Does Aggregate Demand Matter, or Is It All
Aggregate Supply? 556
21-5 Real Business Cycle Theory 560
21-6 A New Keynesian Model of Sticky Nominal Prices 563
21-7 Bringing It All Together 566
Glossary 571
INDEX 593

Dornbusch, Fischer, and Startz has been a long-standing, leading intermediate macroeconomic theory text since its introduction in 1978. This revision retains most of the text’s traditional features, including a middle-of-the-road approach and very current research, while updating and simplifying the exposition. This revision focuses on making the text even easier to teach from. The only pre-requisite continues to be principles of economics.