Principles of Macroeconomics (2-downloads)

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4 TENTH EDITION. Principles of Macroeconomics Karl E. Case Wellesley College Ray C. Fair Yale University Sharon M. Oster Yale University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Dedicated To Professor Richard A. Musgrave and Professor Robert M. Solow and Professor Richard Caves Editor in Chief: Donna Battista Image Manager: Rachel Youdelman AVP/Executive Editor: David Alexander Photo Researcher: Diahanne Lucas Dowridge Editorial Project Managers: Melissa Pellerano, Lindsey Full-Service Project Management/Composition: GEX. Sloan Publishing Services Editorial Assistant: Megan Cadigan Typeface: 10/12 Minion AVP/Executive Marketing Manager: Lori DeShazo Text Permission Project Supervisor: Michael Joyce Marketing Assistant: Kimberly Lovato Director of Media: Susan Schoenberg Managing Editor: Nancy Fenton Content Lead, MyEconLab: Noel Lotz Senior Production Project Manager: Nancy Freihofer Senior Media Producer: Melissa Honig Senior Manufacturing Buyer: Carol Melville Supplements Production Coordinator: Alison Eusden Senior Art Director: Jonathan Boylan Printer/Binder: Courier, Kendallville Cover Design: Jonathan Boylan Cover Printer: Lehigh Phoenix Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text.

5 Copyright 2012, 2009, 2007, 2004, 2003, Pearson Education, Inc. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Rights and Contracts Department, 501 Boylston Street, Suite 900, Boston, MA 02116, fax your request to 617 671-3447, or e-mail at Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Case, Karl E.

6 Principles of Macroeconomics / Karl E. Case, Ray C. Fair, Sharon M. Oster. 10th ed. p. cm. Includes index. ISBN-13: 978-0-13-139140-6. 1. Macroeconomics . I. Fair, Ray C. II. Oster, Sharon M. III. Title. 2012. 339 dc22. 2010049926. 10 9 8 7 6 5 4 3 2 1. ISBN 13: 978-0-13-139140-6. ISBN 10: 0-13-139140-2. About the Authors Karl E. Case is Professor of Economics Emeritus at Wellesley College where he has taught for 34. years and served several tours of duty as Department Chair. He is a Senior Fellow at the Joint Center for Housing Studies at Harvard University and a founding partner in the real estate research firm of Fiserv Case Shiller Weiss, which produces the S&P Case-Shiller Index of home prices. He serves as a member of the Index Advisory Committee of Standard and Poor's, and along with Ray Fair he serves on the Academic Advisory Board of the Federal Reserve Bank of Boston. Before coming to Wellesley, he served as Head Tutor in Economics (director of undergradu- ate studies) at Harvard, where he won the Allyn Young Teaching Prize.

7 He was Associate Editor of the Journal of Economic Perspectives and the Journal of Economic Education, and he was a member of the AEA's Committee on Economic Education. Professor Case received his from Miami University in 1968; spent three years on active duty in the Army, and received his in Economics from Harvard University in 1976. Professor Case's research has been in the areas of real estate, housing, and public finance. He is author or coauthor of five books, including Principles of Economics, Economics and Tax Policy, and Property Taxation: The Need for Reform, and he has published numerous articles in profes- sional journals. For the last 25 years, his research has focused on real estate markets and prices. He has authored numerous professional articles, many of which attempt to isolate the causes and consequences of boom and bust cycles and their relationship to regional and national economic performance. Ray C. Fair is Professor of Economics at Yale University.

8 He is a member of the Cowles Foundation at Yale and a Fellow of the Econometric Society. He received a in Economics from Fresno State College in 1964 and a in Economics from MIT in 1968. He taught at Princeton University from 1968 to 1974 and has been at Yale since 1974. Professor Fair's research has primarily been in the areas of Macroeconomics and econometrics, with particular emphasis on macroeconometric model building. He also has done work in the areas of finance, voting behavior, and aging in sports. His publications include Specification, Estimation, and Analysis of Macroeconometric Models (Harvard Press, 1984); Testing Macroeconometric Models (Harvard Press, 1994); and Estimating How the Macroeconomy Works (Harvard Press, 2004). Professor Fair has taught introductory and intermediate Macroeconomics at Yale. He has also taught graduate courses in macroeconomic theory and macroeconometrics. Professor Fair's and multicountry models are available for use on the Internet free of charge.

9 The address is Many teachers have found that having stu- dents work with the model on the Internet is a useful complement to an introductory Macroeconomics course. Sharon M. Oster is the Dean of the Yale School of Management, where she is also the Frederic Wolfe Professor of Economics and Management. Professor Oster joined Case and Fair as a coau- thor in the ninth edition of this book. Professor Oster has a in Economics from Hofstra University and a in Economics from Harvard University. Professor Oster's research is in the area of industrial organization. She has worked on problems of diffusion of innovation in a number of different industries, on the effect of regulations on business, and on competitive strategy. She has published a number of articles in these areas and is the author of several books, including Modern Competitive Analysis and The Strategic Management of Nonprofits. Prior to joining the School of Management at Yale, Professor Oster taught for a number of years in Yale's Department of Economics.

10 In the department, Professor Oster taught introductory and intermediate microeconomics to undergraduates as well as several graduate courses in indus- trial organization. Since 1982, Professor Oster has taught primarily in the Management School, where she teaches the core microeconomics class for MBA students and a course in the area of com- petitive strategy. Professor Oster also consults widely for businesses and nonprofit organizations and has served on the boards of several publicly traded companies and nonprofit organizations. v Brief Contents PART I Introduction to Economics 1 PART IV Further Macroeconomics 1 The Scope and Method of Economics 1 Issues 287. 2 The Economic Problem: Scarcity and Choice 25 15 Financial Crises, Stabilization, and Deficits 287. 3 Demand, Supply, and Market Equilibrium 47 16 Household and Firm Behavior in the Macroeconomy: A Further Look 303. 4 Demand and Supply Applications 79. 17 Long-Run Growth 323. PART II Concepts and Problems in 18 Alternative Views in Macroeconomics 337.