Acknowledgements ............................................... ix
Introduction .................................................... 1
Part I Understanding the Macro Economy
1 Output ....................................................... 7
Measuring National Output 8 Exchange of Output across
Countries 1I What Makes Output Go Up and Down? .............. 18
Isn't Wealth More Important Than Output? .................... 27
2 Money ....................................................... 33
Money and Its Effect on Interest Rates, Exchange Rates,
and Inflation ............................................... 34
Nominal versus Real ......................................... 39
Money and Banking ........................................... 55
The Art and Science of Central Banking ...................... 58
3 Expectations ................................................ 67
Expectations and Inflation .................................. 68
Expectations and Output ..................................... 73
Expectations and Other Macro Variables ...................... 83
Part II Selected Topics-Background and Mechanics
4 A Short History of Money and Monetary Policy in the United
States ...................................................... 89
Defining the Unit of Account and the Price of Money ......... 90
The Gold Standard: A Self-Regulating Mechanism? ............. 91
The Creation of the Federal Reserve ......................... 93
Finding the Right Monetary Rule under a Floating Exchange
Rate ........................................................ 95
The Transformation of American Monetary Policy .............. 98
5 The Fundamentals of GDP Accounting ......................... 101
Three Measurement Approaches ............................... 102
The Nuts and Bolts of the Expenditure Method ............... 103
Depreciation ............................................... 106
GDP versus GNP ............................................. 107
Historical and Cross-Country Comparisons ................... 108
Investment, Savings, and Foreign Borrowing ................. 111
6 Reading a Balance of Payments Statement .................... 117
A Typical Balance of Payments Statement .................... 118
Understanding Credits and Debits ........................... 120
The Power and Pitfalls of BOP Accounting ................... 124
7 Understanding Exchange Rates ............................... 131
The Current Account Balance ................................ 131
Inflation and Purchasing Power Parity ...................... 133
Interest Rates ............................................. 134
Making Sense of Exchange Rates ............................. 135
Conclusion ................................................. 139
Output ..................................................... 139
Money ...................................................... 140
Expectations ............................................... 143
Uses and Misuses of Macroeconomics ......................... 146
Epilogue ...................................................... 149
Glossary ...................................................... 159
Notes ......................................................... 183
Index ......................................................... 191
About the Author .............................................. 211
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