: Publication

Macroeconomics provides perspective on how an economy is doing overall. It adds value to the discussion of where an economy has been and where it may be going in relation to the parameters that a given society may measure its success.

Over the past 70 years, the gross domestic product (GDP) has become the primary indicator and measure of global economic progress. However, the indicator due to its very aggregated nature, distorts the perception of the economy and masks the equity and sustainability issues that may be present on the microeconomic level of the firm and consumer. For this reason, macroeconomics is best understood through a foundation in microeconomics and social norms. Economic outcomes mimic the values and behaviors of participants in the economy and this, in turn, impacts resource utilization rates, production capacity, and ultimately GDP.

This text, which is the third in the FRAMEWORK FOR SUSTAINABLE PRACTICES series, provides the reader with the opportunity to understand the relationship between microeconomics and macroeconomics, as well as sustainability. From this perspective, the reader can understand the significance of stewardship and consumption as it applies to economic growth and societal well-being.

Introduction vii

About the Author xi

An Overview of U.S. Economic History 

The Role of Culture 1

The Market Value of Discovery 2 

The Role of Marketed Want 4

Independence, Political Will, and Economic Growth 5

Preservation of the Union and Rebuilding 8

Regulation and Economic Growth 9

Government Intervention and Economic Growth 10

Contemporary Presidents, Fiscal Policy and the State of the Economy 10

Scarcity and Abundance 

Scarcity 19

Market Distortions 19

Abundance 21

Public Goods 22

Price 23

Value 23

Supply, Demand, and the Development of Market Systems 

Types of Goods and Services 28

Role of Graphs 28

Demand 28

Law of Demand 29

Movements Along Demand 30

Shifts of Demand 30

Supply 33

Law of Supply 34

Movements Along Supply 34

Shifts of Supply 36

Market Equilibrium 36

Elasticity 

Elasticity of Demand 44

Price Elasticity of Demand 46

Determinants of Price Elasticity of Demand 46

Income Elasticity of Demand 48

Cross-Price Elasticity of Demand 49

Elasticity of Supply 50

Price Elasticity of Supply 51

Trade-offs, Cost Benefit Analysis, and Opportunity Cost

Trade-off 56

Cost Benefit Analysis 57

Efficiency 58 Opportunity Cost 60

Consumer and Producer Theory 63

Theory of the Consumer 64

Utility 64

Income Constraint 66

Utility Maximization 66

Theory of the Firm 69

Production Costs 70

Total Cost, Average Cost, and Marginal Cost 71

Profit Maximization 73

Types of Markets 74

Reconciling Market Outcomes 79

Externalities and Common Goods 

Externalities 83

Common and Public Goods 87

Property Rights 88

Social Welfare and Government Intervention 

Regulatory Intervention 92

Price Controls 93

Price Ceilings 93

Price Floors 94

Taxation and Subsidies 96

Taxes 96

Tax and Elasticity 96

Tariffs and Trade 99

Subsidy 102

Measuring Economic Growth 

Defining GDP 105

Role of Consumption 106

Nominal and Real GDP 109

GDP Deflator and Inflation 111

Business Cycles 111

Economic Capacity, Progress, and Well-Being 113

Alternative Indices 114

Macroeconomic Economic Indicators

Leading, Lagging, and Coincident

120 Consumer Price Index

120 Retail Sales

121 Unemployment and Non-farm Payrolls

122 Institute for Supply Management Purchasing Managers Index (PMI) 123

Conference Board Consumer Confidence Index 124

Stock Market 124

Directional Expectations 125

Monetary System

Monetary Policy 127

Implementing Monetary Policy 129

Open Market Operations 130

Federal Open Market Committee 130

Open Market Operations 131

Discount Rate 132

Reserve Ratio 133

Monetary Policy and Economic Growth 134

Fiscal Policy

The Role of Government 138

Expansionary Fiscal Policy 139

Crowding Out and Monetary Policy 141

Fiscal Policy, Population Size, and Income Polarization 141

Tax Reductions 142

Government Spending 142

Contractionary Fiscal Policy 143

Foundations and Context of Economic Thought

Timeline of Economic Thought 148

Early Economic Thought 149

Plato and Aristotle 150

The Role of Biblical Verse 151

Middle Ages 151

The Protestant Reformation 152

Martin Luther (1483–1546) 152

John Calvin (1509–1564) 153

Mercantilism 153

Physiocrats 154

Classical Economics 155

Adam Smith (1723–1790) 155 J

eremy Bentham (1748–1832) 156

Thomas Malthus (1766–1834) 157

David Ricardo (1772–1823) 158

Karl Marx (1818–1883) 159

Principles of Economics 161

Index 165

Madhavi Venkatesan earned a PhD, MA, and BA in Economics from Vanderbilt University, a Masters in Sustainability and Environmental Management from Harvard University, and a Masters In Environmental Law and Policy from Vermont Law School. She has contributed to numerous books and journal articles on the subject of sustainability and economics. In 2017, she was awarded the Fulbright CySip Distinguished Lectureship to the Philippines and has been the recipient of other grants and awards related to her interests in sustainable economic development. Her present academic interests include the integration of sustainability into the economics curriculum.

Prior to re-entering academics, Madhavi held senior level positions in investor relations for three Fortune 250 companies. In this capacity she was a key point of contact for investors and stakeholders and was instrumental in the development of socially responsible investing strategies and corporate social responsibility reporting. She started her financial services career after completing her post-doctoral fellowship at Washington University in St. Louis.

Madhavi resides on Cape Cod, Massachusetts with her son and their two dogs, Oscar and Oliver.