Macroeconomics for Managers

Michael K. Evans

Publisher: Blackwell, 2004, 825 pages

ISBN: 1-4051-0144-X

Keywords: Macroeconomics

Last modified: July 10, 2021, 12:32 a.m.

This text offers business managers and business school students an excellent practical explanation of the short-term linkages that impact the performance of the overall economy. While the underlying theoretical constructs are not ignored, emphasis is placed on the empirical underpinnings and managerial implications of macroeconomics. The text begins by introducing key concepts such as the GDP, National and Personal Income, and the various measures of inflation and unemployment. Building on this foundation it then analyzes the following aspects of macroeconomics: aggregate supply and demand, international financial markets, cyclical fluctuations, policy analysis, and forecasting.

Engaging the reader through many features, the text includes detailed case studies and “Manager's Briefcase” discussions, which provide practical applications of macroeconomic concepts to real-world situations. Additionally, each chapter ends with a list of key concepts, a chapter summary, and practice questions. Its short-term,empirically oriented approach makes this text a distinctive and practical resource for better understanding macroeconomics.

  • Part I: Introductory Concepts
    • Chapter 1: The Importance of Macroeconomics
      • Introduction
      • 1.1 What is Macroeconomics?
      • 1.2 Links Between Macroeconomics and Microeconomics
      • 1.3 Current Core of Macroeconomic Theory
      • 1.4 Macroeconomics – an Empirical Discipline
      • 1.5 The Importance of Policy Applications
      • 1.6 Positive and Normative Economics: Why Macroeconomists Disagree
      • 1.7 Roadmap of this Book
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: Thumbnail Sketch of the Development of Macroeconomics
      • Notes
    • Chapter 2: National Income and Product Accounts (NIPA)
      • Introduction
      • 2.1 How the National Income and Product Accounts are Constructed
      • 2.2 Components of GDP: Final Goods and Services
      • 2.3 Differences Between Final and Intermediate Goods and Services
      • 2.4 Components of National Income
      • 2.5 Balancing Items Linking GDP, NI, PI, and DI
      • 2.6 Value Added by Stages of Production: An Example
      • 2.7 Inclusions and Exclusions in the NIPA Data
      • 2.8 Circular Flow Between Aggregate Demand and Production
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: Key Macroeconomic Identities
      • Notes
    • Chapter 3: Key Data Concepts: Inflation, Unemployment, and Labor Costs
      • Introduction
      • 3.1 Measuring Inflation: Three Different Types of Indexes
      • 3.2 Factors Causing the Inflation Rate to be Overstated
      • 3.3 Could the Inflation Rate be Understated
      • 3.4 Different Measures of Unemployment
      • 3.5 Collecting the Employment and Unemployment Data
      • 3.6 The Concept of Full Employment
      • 3.7 Unit Labor Costs
      • 3.8 Summarizing the Economic Data: Indexes of Leading and Coincident Indicators
      • 3.9 Methods and Flaws of Seasonally Adjusted Data
      • 3.10 Methods and Revised Data
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
  • Part II: Aggregate Demand and Joint Determination of Output and Interest Rates
    • Chapter 4: The Consumption Function
      • Introduction
      • 4.1 Principal Determinants of Consumption
      • 4.2 Short-Term Links Between Consumption and Disposable Income: The Marginal Propensity to Consume
      • 4.3 Long-Term Links Between Consumption and Income: The Permanent Income Hypothesis
      • 4.4 Consumer Spending and Changes in Tax Rates
      • 4.5 Importance of Cost and Availability of Credit in the Consumption Function
      • 4.6 Consumption, Housing Prices, and Mortgage Rates
      • 4.7 Other Links Between Consumer Spending, the Rate of Interest, and the Rate of Return
      • 4.8 Credit Availability and the Stock of Debt
      • 4.9 The Role of Demographic Factors and the Life Cycle Hypothesis
      • 4.10 The Relationship Between Consumption and Household Net Worth
      • 4.11 The Effect of Changes in Consumer Confidence
      • 4.12 Review
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: Historical Development of the Consumption Function
      • Notes
    • Chapter 5: Investment and Saving
      • Introduction
      • 5.1 The Equivalkence of Investment and Savings
      • 5.2 Long-Term Determinants of Capital Spending
      • 5.3 The Basic Investment Decision
      • 5.4 The Cost of Capital
      • 5.5 The Availability of Credit
      • 5.6 The Role of Expectations
      • 5.7 Lags in the Investment Function
      • 5.8 The Effect of Changes in Tax Policy on Capital Spending Decisions
      • 5.9 Determinants of Exports and Imports
      • 5.10 The Role of Goverment Savings
      • 5.11 Recap: Why Investment Always Equals Saving on an Ex Post Basis
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: The Theory of Optimal Capital Accumulation
      • Notes
    • Chapter 6: Determination of Interest Rates and Introduction to Monetary Policy
      • Introduction
      • 6.1 Definitions of Key Interest Rates and Yield Spreads
      • 6.2 The Role of Monetary Policy
      • 6.3 The Federal Reserve System
      • 6.4 Determination of the Federal Funds Rate
      • 6.5 Effect of Federal Reserve Policy on the Availability of Credit
      • 6.6 Determinants of Long-Term Interest Rates
      • 6.7 The Difference Between Changes in Monetary Conditions and Monetary Policy
      • 6.8 Factors Causing the Yield Spread to Fluctuate
      • 6.9 Transmission of Monetary Policy
      • 6.10 The Importance of the Yield Spread as a Predictive Tool
      • 6.11 Why Targeting Interest Rates Doesn't Always Work: The Conundrum
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 7: Joint Determination of Income and Interest Rates: The IS/LM Diagram
      • Introduction
      • 7.1 Review of the Effect of Changes in Interest Rates and Income on Saving and Investment
      • 7.2 Equilibrium in the Goods Market
      • 7.3 Derivation of the IS Curve
      • 7.4 Slope of the IS Curve under Varying Economic Conditions
      • 7.5 Factors that Shift the IS Curve
      • 7.6 The Demand for Money: Liquidity Preference and Loanable Funds
      • 7.7 Equilibrium in the Assets Market: Derivation of the LM Curve
      • 7.8 Slope of the LM Curve under Varying Economic Conditions
      • 7.9 The IS/LM Diagram and the Introduction to Monetary and Fiscal Policy
      • 7.10 The IS/LM Diagram in Booms and Recessions
      • 7.11 Factors that Shift the IS and LM Curves
      • 7.12 A Numerical Example: Solving for Income and Interest Rates using the IS/LM Model
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
  • Part III: Aggregate Supply: Inflation, Unemployment, and Productivity
    • Chapter 8: Causes of and Cures for Inflation
      • Introduction
      • 8.1 In the Long Run, Inflation is a Monetary Phenomenon
      • 8.2 In the Short Run, Inflation is Determined by Unit Labor Costs: The Price Markup Equation
      • 8.3 Monetary Policy and the Role of Expectations
      • 8.4 Determinants of Changes in Unit Labor Costs
      • 8.5 Malign and Benign Supply Shocks
      • 8.6 Lags in Determining Wages and Prices
      • 8.7 The Beginnings and Ends of Hyperinflation
      • 8.8 Summary of Why Inflation Remained Low in the 1990s – and What Might Occur in the Future
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: Historical Explanations of Inflation: The Rise and Fall of the Philips Curve
      • Notes
    • Chapter 9: Why High Unemployment Persists
      • Introduction
      • 9.1 The Basic Labor Market Model
      • 9.2 Real Growth and Unemployment: Okun's Law
      • 9.3 Why Stimulatory Monetary and Fiscal Policy Might Not Reduce Unemployment
      • 9.4 Theories Based on Labor Market Imperfections; Summary
      • 9.5 Sticky Prices and Nominal Wage Rates
      • 9.6 Sticky Real Wage Rates: Efficiency Wages
      • 9.7 Sticky Real Wage Rates: Insider/Outsider Relationships
      • 9.8 Barriers to Market-Clearing Wages; The Minimum Wage
      • 9.9 The Wedge Between Private and Social Costs of Labor
      • 9.10 High Unemployment Rates and Hysteresis
      • 9.11 The Structuralist School
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 10: Aggregate Supply, the Production Function, and the Neoclassical Growth Model
      • Introduction
      • 10.1 Productivity Growth and the Standard of Living
      • 10.2 The Long-Term Historical Growth Record
      • 10.3 The Aggregate Production Function and Return to Scale
      • 10.4 The Cobb-Douglas Production Function
      • 10.5 Why Growth Differs among Nations: The Importance of Saving and Investment
      • 10.6 Other Factors Affecting Growth: The Framework of Growth Accounting
      • 10.7 Causes of Growth in the US Economy
      • 10.8 The Worldwide Slowdown in Productivity after 1973
      • 10.9 The Neoclassical Growth Model and the Slowdown of Mature Economies
      • 10.10 Endogenous Growth Theory and Convergence Models
      • 10.11 Additional Importance of Saving and Investment
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
  • Part IV: The International Economy
    • Chapter 11: Basic Determinants of Exports and Imports
      • Introduction
      • 11.1 The Balance Between Current and Capital Accounts
      • 11.2 Fixed and Flexible Exchange Rates
      • 11.3 US Exports and Imports: Empirical Review
      • 11.4 Income and Price Elasticities of US Exports and Imports
      • 11.5 The Repercussion Effect
      • 11.6 How Serious is the Burgeoning Trade Deficit?
      • 11.7 Recent Progress Towards Free Trade
      • 11.8 Arguments For and Against a Trade Deficit
      • 11.9 Foreign Purchases of US Assets: A Non-Event
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Appendix: The Theory of Comparative Advantage and the Modern Theory of International Trade
      • Notes
    • Chapter 12: International Financial Markets and Foreign Exchange Policy
      • Introduction
      • 12.1 The World Dollar Standard and Major Trends in Other Key Currencies
      • 12.2 Nominal and Real Exchange Rates
      • 12.3 Measuring International Labor Costs
      • 12.4 The Concept of Purchasing Power Parity
      • 12.5 Factors that Determine Foreign Exchange Rates
      • 12.6 Why Foreign Exchange Markets Overshoot Equilibrium: The J-Curve Effect
      • 12.7 Other Factors Causing Currency Rates to Diverge from Equilibrium
      • 12.8 Managed Exchange Rates: Bands and Crawling Pegs
      • 12.9 Optimal Trade and Foreign Exchange Rate Policy
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 13: The Mundell-Fleming Model: Joint Determination of Output, Interest Rates, Net Exports, and the Value of the Currency
      • Introduction
      • 13.1 Links Between Domestic and International Saving and Investment
      • 13.2 The Basic Model: Joint Determination of Real Interest Rates, Output, Currency Value, and the Current Account Balance
      • 13.3 The Mundell-Fleming Model for a Small Open Economy
      • 13.4 The Repercussion Effect in the Mundell-Fleming Model
      • 13.5 The Depreciation Effect in the Mundell-Fleming Model
      • 13.6 Shifts in the NX and NFI Curves Caused by Changes in Inflation and Productivity
      • 13.7 Effects of the Reagan and Clinton Fiscal and Monetary Policies
      • 13.8 Economic Impact of an Exogenous Change in Net Exports
      • 13.9 Short- and Long-Run Effects of an Exogenous Change in the Value of the Currency
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 14: Case Studies in International Trade
      • Introduction
      • 14.1 International Trade in the European Economy
      • 14.2 International Trade in the Asian Economy
      • 14.3 International Trade in Latin America
      • 14.4 Pros and Cons of Free Trade in an Imperfect World
      • 14.5 What Factors Will Determine World Leaders of the Twenty-First Century?
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
  • Part V: Cyclical Fluctuations
    • Chapter 15: Business Cycles
      • Introduction
      • 15.1 The Long-Term Historical Record
      • 15.2 Measuring the Business Cycle: The Indexes of Leading, Coincident, and Lagging Indicators
      • 15.3 Cyclical Behavior: Recurring but Not Regular
      • 15.4 The Phases of the Business Cycle
      • 15.5 The Role of Exogenous Shocks in the Business Cycle
      • 15.6 The Role of Technology in the Business Cycle
      • 15.7 The Role of Fiscal Policy in the Business Cycle
      • 15.8 The Role of Monetary Policy in the Business Cycle
      • 15.9 Global Transmission of Business Cycles
      • 15.10 Could the Great Depression Happen Again?
      • 15.11 Recap: Are Business Cycles Endogenous or Exogenous?
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 16: Cyclical Fluctuations in Components of Aggregate Demand
      • Introduction
      • 16.1 The Stock Adjustment Principle
      • 16.2 Empirical Review: The Components of Capital Spending
      • 16.3 The Role of Business Sentiment in Capital Spending
      • 16.4 Investment in Residential Construction
      • 16.5 The Role of Inventory Investment in the Business Cycle
      • 16.6 Inventory Production and Control Mechanisms
      • 16.7 Cyclical Patterns in Purchases of Motor Vehicles
      • 16.8 Cyclical Patterns in Other Components of Consumption
      • 16.9 Recap: What Determines Cyclical Fluctuations in Aggregate Demand
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 17: Financial Business Cycles
      • Introduction
      • 17.1 Cyclical Patterns of Monetary and Credit Aggregates
      • 17.2 Cyclical Patterns in the Yield Spread
      • 17.3 Cyclical Patterns of Stock Market Prices
      • 17.4 The Present Discounted Value of Stock Prices and the Equilibrium Price/Earnings Ratio
      • 17.5 Determinants of the Risk Factor
      • 17.6 Impact of the Budget Ratio on Bond and Stock Returns
      • 17.7 Impact of Changes in the Expected Rate of Inflation on Bond and Stock Returns
      • 17.8 Impact of Changes in Capital Gains Taxes on Stock Prices
      • 17.9 Long-Term Performance of Stocks, Bonds, and Liquid Assets
      • 17.10 Cyclical Fluctuations in Returns on Stocks, Bonds, and Liquid Assets
      • 17.11 Recap: The Importance of Financial Markets and Asset Allocation
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
  • Part VI: Policy Analysis and Forecasting
    • Chapter 18: Fiscal Policy and Its Impact on Productivity Growth
      • Introduction
      • 18.1 Automatic and Discretionary Stabilizers
      • 18.2 Components of the Federal Government Budget
      • 18.3 Advantages and Disadvantages of Federal Budget Surpluses and Deficits
      • 18.4 The Concept of the Fiscal Dividend
      • 18.5 The Role of Fiscal Policy in Determining Productivity Growth
      • 18.6 Simplifying the Tax Code
      • 18.7 “Saving” Social Security and Medicare
      • 18.8 Recap: Fiscal Policy and Productivity Growth
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 19: Monetary Policy and Its Impact on Inflation and Growth
      • Introduction
      • 19.1 The Overall Goals of Monetary Policy: Insure Adequate Liquidity, Reduce Business Cycle Fluctuations, and Keep Inflation Low and Stable
      • 19.2 The Negative Effects of Higher Inflation
      • 19.3 The Optimal Rate of Inflation is Not Zero
      • 19.4 The Role of Monetary Policy in Financial Crises
      • 19.5 Demand-Side Policies: Punchbowls and Preemptive Strikes
      • 19.6 Supply-Side Shocks and Sticky Prices and Wages: How the Fed Should React
      • 19.7 Why Targeting Interest Rates Doesn't Always Work: The Conundrum Revisited
      • 19.8 Budget Deficits and Monetary Policy
      • 19.9 Monetary Policy in an Open Economy
      • 19.10 Why Higher Inflation Leads to Lower Productivity
      • 19.11 Recap: The Case for Active Monetary Policy and Optimal Policy Rules
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes
    • Chapter 20: Macroeconomic Forecasting: Methods and Pitfalls
      • Introduction
      • 20.1 Sources of Forecasting Error in Econometric Models: Summary
      • 20.2 Inadequate and Incorrect Data and the Tendency to Cluster
      • 20.3 Examining Exogenous Shocks: Impulse and Propagation Revisited
      • 20.4 Market Reaction to Economic Data
      • 20.5 Unknown Lag Structures and the Conservatism Principle
      • 20.6 Summary of Noneconometric Forecasting Methods
      • 20.7 Naive Models and Consensus Surveys of Macro Forecasts
      • 20.8 Using the Index of Leading Economic Indicators to Predict the Economy
      • 20.9 Survey Methods for Individual Sectors
      • 20.10 Recap: How Managers Should Use Forecasting Tools
      • Key Terms and Concepts
      • Summary
      • Question and Problems
      • Notes

Reviews

Macroeconomics for Managers

Reviewed by Roland Buresund

Very Good ******** (8 out of 10)

Last modified: May 21, 2007, 3:09 a.m.

This is a very good book, that tries to addres the use of Macroeconomics by senior managers and strategists, while at the same time tries to teach the basics of macroeconomic theory. Unfortunately, after reading a few hundred pages, you gradually become aware of some personal preferences of the authors, which starts to distract on your reading of the material and gets you to check other books for contrarian opinions (considering that Mr. Evans is a former academic, he would probably be happy, but I think many people may toss the book aside as a prejudiced example, which is a loss, as he has many good point to make, even if you don't agree with all of them).

The biggest drawback of this book is its reliance on US (and only US) examples and discussions. Even the international trade chapter is in fact viewed from a US centric viewpoint. His discussion of the Great Depression mentions the collapse of the European economy as a major contributing factor, but he declines to explain how that happened.

All in all, this is a very good book that is nearly destroyed by the partisan viewpoint (from a non-US perspective) of the author.

If you find macroeconomics interesting (and if you are a manager or at all interested in politics or taxes, you should be) this is for you, but you need some additional material to read as well.

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