Features

Consult Core Econ’s Fact checker for a detailed list of sources.

Building blocks

• Macroeconomics 1.5–1.7: The WS–PS model of the supply side of the macroeconomy
• Macroeconomics 3.6–3.8: The multiplier model
• Macroeconomics 4.4–4.6: The inflation (Phillips curve) model
• Macroeconomics 4.7–4.8: The business cycle model
• Macroeconomics 5.2–5.4: Role of fiscal and monetary policy
• Macroeconomics 5.9–5.10: Monetary policy and inflation
• Macroeconomics 5.13–5.14: The domestic and exchange rate channels for the transmission of monetary policy
• Macroeconomics 5.14: Monetary policy and the exchange rate
• Macroeconomics 6.2–6.4: Debt, financial sector, and banks
• Macroeconomics 6.6: Introducing the central bank
• Microeconomics 1.2: History’s hockey stick
• Microeconomics 2.2: Economic decisions: Opportunity costs, economic rents, and incentives
• Microeconomics 2.8: Economic models: How to see more by looking at less
• Microeconomics 3.2–3.4: Solving constrained choice problems
• Microeconomics 3.7: Income and substitution effects
• Microeconomics 4.2–4.3: Game theory and Nash equilibrium
• Microeconomics 4.2, 4.3, and 4.13: Game theory, Nash equilibrium, and coordination games
• Microeconomics 4.5 and 5.3: Pareto efficiency and fairness
• Microeconomics 5.12: Measuring economic inequality: The Gini coefficient
• Microeconomics 6.6: Getting the work done: Contracts, principals, and agents
• Microeconomics 6.10: Combining recruitment and labour discipline: The wage-setting model
• Microeconomics 6.11: Putting the wage-setting model to work: Wages, employment, and the rate of unemployment
• Microeconomics 7.5: Demand, elasticity, and revenue
• Microeconomics 8.2–8.3: Demand and supply curves
• Microeconomics 10.3 and 10.5: Addressing external effects
• Microeconomics 10.6–10.7: Public goods

Extensions

• Extension 1.7: Deriving the price-setting real wage
• Extension 2.2: Owners, workers, and the profit share
• Extension 3.3: GDP measured as value added, and national income
• Extension 3.11: An investment coordination game
• Extension 5.9: Why make central banks independent?
• Extension 5.12: More about investment and present value
• Extension 6.7: The central bank and monetary policy
• Extension 6.9: Decomposing the rates of return on assets
• Extension 6.11: Rates of return, risk, and bond prices
• Extension 7.3: The rate of change of competitiveness
• Extension 7.8: The UIP condition: Theory and data
• Extension 7.9: Implications of UIP for interest rates when the commitment to a fixed exchange rate is not fully credible
• Extension 9.3: The production function and the return to investment in capital
• Extension 9.4: Growth accounting
• Extension 9.8: Models of economic growth
• Extension 9.12: The drivers of carbon emissions: Kaya’s identity
• Extension 10.7: How a rent-seeking government chooses the tax level
• Extension 10.8: The income and substitution effects of an increase in political competition

How economists learn from facts

• My diet starts tomorrow (3.10 Shocks to households and the limits to smoothing consumption)
• The Mafia and the multiplier (5.7 The size of the multiplier and the impact of fiscal policy)
• Does electoral competition affect policy? (10.9 How political competition affects government policy)
• Does money talk? (10.13 Citizens and elected leaders as principals and agents)

Great Economists

• Michał Kalecki (2.3 Unemployment and inequality: WS–PS model and Lorenz curve)
• Bill Phillips (4.4 Inflation, unemployment, and conflicting claims on output)
• John Maynard Keynes (5.8 Government austerity policy and the paradox of thrift)
• Kenneth Arrow (10.3 Democracy as a political institution)
• Albert O. Hirschman (10.10 The parallels between political and economic competition)

Videos

• Unit 2: In our ‘Economist in action’ video, John Van Reenen reports on the wide variation in productivity across firms in the economy, and how best practices in technology and management can be promoted.
• Unit 4: In our ‘Economist in Action’ video, Stefanie Stantcheva discusses ‘Why do people dislike inflation?’
• Unit 4: Watch this video of Isabella Weber, one of the authors of the research study, explain the causes and consequences of ‘sellers’ inflation’.
• Unit 8: In our ‘Economist in action’ video, Anat Admati explains the basic principles of equity and debt.
• Unit 8: The Crisis of Credit Visualized.
• Unit 8: In our ‘Economist in action’ video, Claudia Buch, one of the authors of the CORE Insight ‘Too big to fail: lessons from a decade of financial sector reforms’, discusses the effectiveness of regulatory changes prompted by the global financial crisis.
• Unit 9: In our ‘Economist in Action’ video, Simon Johnson discusses how good institutions influence economic growth.
• Unit 9: In our ‘Economist in Action’ video, Leonard Wantchekon discusses how the slave trade created mistrust and held back GDP growth in West Africa.
• Unit 9: In our ‘Economist in Action’ video, Mushtaq Khan explains how Bangladesh surmounted market failures to become a leading garment exporter.
• Unit 10: In our ‘Economist in action’ video, Esther Duflo explains what happened when it was mandated that randomly selected villages elect a woman to head their local council.
• Unit 10: James Heckman explores the question of how schooling and preschool experience affects inequality.

Exercises

• 1.3: Exercise 1.1: Employment, unemployment, and participation
• 1.4: Exercise 1.2: Rebasing indices
• 1.6: Exercise 1.3: Shifts in the wage-setting curve
• 1.7: Exercise 1.4: Shifts in the price-setting curve
• 2.2: Exercise 2.1: Inequalities among your classmates
• 2.2: Exercise E2.1: Building a Gini coefficient calculator
• 2.3: Exercise 2.2: An increase in the wage share
• 2.4: Exercise 2.3: Unemployment rates and labour market policies
• 2.5: Exercise 2.4: Trade union density and income inequality
• 2.6: Exercise 2.5: Labour unions in the gig economy
• 2.7: Exercise 2.6: Education and training financed by taxation
• 2.8: Exercise 2.7: Energy prices and the WS–PS model
• 2.9: Exercise 2.8: Automation and inequality
• 2.10: Exercise 2.9: The effects of Danish flexicurity
• 2.11: Exercise 2.10: Comparing labour market performance
• 2.11: Exercise 2.11: Unemployment, wellbeing, and social norms
• 3.1: Exercise 3.1: The OECD Better Life Index
• 3.4: Exercise 3.2: Cost-of-living comparisons
• 3.5: Exercise 3.3: Defining recessions
• 3.5: Exercise 3.4: How to use FRED
• 3.8: Exercise 3.5: The multiplier model
• 3.9: Exercise 3.6: Lifetime consumption plans
• 3.10: Exercise 3.7: Health insurance
• 3.10: Exercise 3.8: Changes in income, changes in consumption
• 3.12: Exercise 3.9: Consulting FRED
• 3.13: Exercise 3.10: COVID-19 savings behaviour and the multiplier model
• 4.2: Exercise 4.1: Measuring inflation
• 4.2: Exercise 4.2: The CPI and the GDP deflator
• 4.2: Exercise 4.3: Using the CPI to measure inflation
• 4.3: Exercise 4.4: Comparing values over time
• 4.5: Exercise 4.5: The bargaining gap in a recession
• 4.5: Exercise 4.6: Positive and negative shocks
• 4.6: Exercise 4.7: A negative aggregate demand shock with high unemployment
• 4.6: Exercise 4.8: Inflation, expected inflation, and the bargaining gap
• 4.8: Exercise 4.9: Modelling supply-side and demand-side shocks
• 4.8: Exercise 4.10: Wars, pandemics, and inflation
• 4.9: Exercise 4.11: An oil shock that did not produce rising inflation
• 4.10: Exercise 4.12: Tax-push inflation
• 5.1: Exercise 5.1: Correlation vs causation
• 5.2: Exercise 5.2: Fiscal policy and the categories of government spending
• 5.5: Exercise 5.3: Illustrating supply and demand shocks
• 5.6: Exercise 5.4: Contributions to change in real gross domestic product over the business cycle
• 5.7: Exercise 5.5: Stimulus without more debt
• 5.8: Exercise 5.6: Austerity in France: 2014
• 5.9: Exercise E5.1: Central bank mandates
• 5.11: Exercise 5.7: Introduction to the inflation tool: A supply shock
• 5.11: Exercise 5.8: The oil shock and the central bank’s policy choice
• 5.11: Exercise 5.9: Active policy scenarios to address inflation and unemployment
• 5.12: Exercise E5.2: The policy interest rate and investment decisions
• 5.13: Exercise 5.10: The disconnect between the policy rate and lending rates
• 5.14: Exercise 5.11: The ‘ifs’ and ‘buts’ of monetary policy and the exchange rate
• 5.15: Exercise 5.12: The UK’s policy responses (1950–2023)
• 6.1: Exercise 6.1: Calculating the time spent not working
• 6.2: Exercise 6.2: Bilateral loan contracts
• 6.4: Exercise 6.3: Calculating net worth and equity
• 6.4: Exercise 6.4: Calculating collective net worth
• 6.5: Exercise 6.5: Bank money and bank balance sheets
• 6.6: Exercise 6.6: What do we mean by money?
• 6.6: Exercise 6.7: The Irish bank strike
• 6.7: Exercise 6.8: Alternative forms of money?
• 6.9: Exercise E6.1: Approximating real returns
• 6.10: Exercise 6.9: Calculating return on equity
• 6.10: Exercise 6.10: Leverage and negative net worth
• 6.11: Exercise 6.11: Debt and equity by income quartile
• 6.11: Exercise E6.2: Government borrowing
• 6.11: Exercise E6.3: Risk and return
• 6.12: Exercise 6.12: The financial sector: What’s it all for?
• 6.12: Exercise 6.13: So how do you live if you don’t work?
• 7.1: Exercise 7.1: Inflation around the world
• 7.3: Exercise E7.1: The accuracy of approximations
• 7.4: Exercise 7.2: Calculating real exchange rates
• 7.6: Exercise 7.3: Exchange rate regimes
• 7.7: Exercise 7.4: Changing the exchange rate regime
• 7.10: Exercise 7.5: Explaining cross-country and historical variations in inflation
• 7.11: Exercise 7.6: Governance and inflation
• 8.3: Exercise 8.1: Virtuous and vicious circles
• 8.5: Exercise 8.2: Modelling a bust in the housing market
• 8.5: Exercise 8.3: Differences between equilibrium and stability
• 8.6: Exercise 8.4: A boom in the housing market
• 8.6: Exercise 8.5: The big ten asset price bubbles of the last 400 years
• 8.7: Exercise 8.6: The financial accelerator
• 8.9: Exercise 8.7: Banking regulations can help bring on financial crises
• 8.9: Exercise 8.8: Behaviour in the financial crisis
• 8.11: Exercise 8.9: Environmental tipping points
• 8.12: Exercise 8.10: Environmental tipping points
• 8.13: Exercise 8.11: Electric vehicle adoption around the world
• 9.1: Exercise 9.1: Visualizing income growth
• 9.2: Exercise 9.2: Comparing growth rates
• 9.3: Exercise 9.3: Explaining technological progress for the United States
• 9.4: Exercise 9.4: Output growth calculations
• 9.5: Exercise 9.5: Marco’s income and consumption growth
• 9.5: Exercise 9.6: A one-off increase in saving and investment
• 9.6: Exercise 9.7: Using game theory to model coordination problems
• 9.6: Exercise 9.8: Education investment and growth
• 9.7: Exercise 9.9: The rule of 70 and Russian economic growth
• 9.8: Exercise 9.10: The growth dynamics model: Numerical examples of the growth dynamics curve
• 9.9: Exercise 9.11: Modelling economic growth (Part 1)
• 9.10: Exercise 9.12: Modelling economic growth (Part 2)
• 9.11: Exercise 9.13: Between-country inequality
• 9.11: Exercise 9.14: Growth rates and the rule of 70
• 9.12: Exercise 9.15: Public concern about climate change
• 9.12: Exercise E9.4: Kaya’s identity
• 10.2: Exercise 10.1: The size of the government and economic development
• 10.3: Exercise 10.2: Building self-control into government
• 10.4: Exercise 10.3: Political competition: A three-party scenario
• 10.4: Exercise 10.4: Nash equilibria in the median voter model
• 10.4: Exercise 10.5: The median voter model and the observed measures of inequality and redistribution
• 10.5: Exercise 10.6: How democracy helps protect the governed
• 10.6: Exercise 10.7: Work times and inequality in less democratic democracies
• 10.8: Exercise 10.8: Income and substitution effects
• 10.9: Exercise 10.9: Effects of cost-saving improvements to public services
• 10.10: Exercise 10.10: Comparing duration curves and demand curves
• 10.12: Exercise 10.11: Economies succeed when national policies align with individual impulses
• 10.13: Exercise 10.12: Imposing tariffs

Figures

Unit 1

• Figure 1.1 Unemployment and real wage growth in 15 high-income countries (2010–2019).
• Figure 1.2 A model of the economy.
• Figure 1.3 The aggregate labour market.
• Figure 1.4 Macroeconomic performance in the UK and US: employment, unemployment, and participation.
• Figure 1.5 Labour market statistics for Australia, Germany, Norway, and Spain (averages over 2000–2019).
• Figure 1.6 Nominal wage index for the US (2010–2022), using 2010 as the base year.
• Figure 1.7 Consumer price index for the US, using 2010 as the base year.
• Figure 1.8 Real wage index for the US, using 2010 as the base year.
• Figure 1.9 Indices for nominal wages, consumer prices, and real wages in the US (2010–2022), with 2010 as the base year.
• Figure 1.10 Indices for nominal wages, consumer prices, and real wages in the UK and Italy (2010–2022), with 2010 as the base year.
• Figure 1.11 Labour market concepts.
• Figure 1.12 Output per worker is shared between firms and employees.
• Figure 1.13 The wage-setting (WS) curve.
• Figure 1.14 The price-setting (PS) curve.
• Figure 1.15 The WS–PS model of the economy’s supply side.
• Figure 1.16 The mutual dependence between firm behaviour and the whole economy.
• Figure 1.17 Labour market matching: flows, workers, and jobs.
• Figure 1.18 The reservation wage facing the firm.
• Figure 1.19 The firm’s reservation wage and no-shirking wage.
• Figure 1.20 Deriving the wage-setting curve for the aggregate economy, the WS curve.
• Figure 1.21 A wage-setting curve estimated for the US economy (1979–2019).
• Figure 1.22 Determinants of the PS real wage.
• Figure 1.23 Equilibrium (structural), and involuntary and voluntary unemployment.
• Figure 1.24 The WS–PS model, case 1: employment above equilibrium.
• Figure 1.25 The WS–PS model, case 2: employment below equilibrium.

Unit 2

• Figure 2.1 Unemployment in Spain and Germany (1960–2022).
• Figure 2.2 A Lorenz curve for wealth ownership.
• Figure 2.3 The distribution of spoils: pirates and the British navy.
• Figure 2.4a The Lorenz curve and Gini coefficient for wealth ownership.
• Figure 2.4b Comparing Gini coefficients.
• Figure 2.5 Market income and disposable income.
• Figure 2.6 Distribution of market and disposable income in the Netherlands (2020).
• Figure E2.1 Calculating the Gini coefficient using the Lorenz curve diagram.
• Figure 2.7 The distribution of income at supply-side equilibrium.
• Figure 2.8 The effect of an increase in the extent of competition faced by firms: the price-setting curve shifts upwards and inequality falls.
• Figure 2.9 The effect of education and training on labour market outcomes and inequality.
• Figure 2.10 Short- and long-run effects of introducing an unemployment benefit.
• Figure 2.11 Unemployment benefit generosity and unemployment rates across the OECD (2001–2020).
• Figure 2.12 Combining the introduction of an unemployment benefit with a solidarity wage policy to raise productivity in the economy.
• Figure 2.13 Share of employees whose wages are covered by collective bargaining agreements (2017–2020).
• Figure 2.14 The bargained wage-setting curve when there is union wage setting.
• Figure 2.15 Collective wage bargaining coverage and unemployment across the OECD.
• Figure 2.16 The bargained wage-setting curve and equilibrium when there is a union voice effect.
• Figure 2.17 Earnings inequality shown by the Gini coefficient and the share of unionized workers in the US (1915–2018).
• Figure 2.18 The effect of labour market segmentation.
• Figure 2.19 The WS–PS model with taxation.
• Figure 2.20 The effect of a rise in tax rates on wages and employment.
• Figure 2.21 The estimated average markup for firms in the US (1955–2016).
• Figure 2.22 The share of economic profits in income in the US non-financial corporate sector (1946–2016).
• Figure 2.23 The Gini coefficient for market income in the US (1913–2019).
• Figure 2.24 Rising market power (the product market) and declining worker power (the labour market)—a new equilibrium.
• Figure 2.25 Rising market power (the product market) and declining worker power (the labour market) leads to higher inequality in the new equilibrium.
• Figure 2.26 The triangle of Danish flexicurity.
• Figure 2.27 Macroeconomic performance: Unemployment and wage growth (2010–2019).
• Figure 2.28 Indicators for key variables in the WS–PS model: Germany, Spain, and Denmark.
• Figure 2.29 Unemployment in Spain, Germany, and Denmark (1960–2022).

Unit 3

• Figure 3.1 Recession hardships in the United States: survey results for 2013–2014.
• Figure 3.2 The circular flow model: three ways to measure GDP.
• Figure 3.3 The circular flow (expenditure, output, and income) model.
• Figure 3.4 Measuring GDP using value added by each industry.
• Figure 3.5 Shares of GDP by main expenditure type (2010–2019 average).
• Figure E3.1 The output structure of the UK economy: sector contributions to GDP in 2022.
• Figure E3.2 The income structure of the UK economy (2024).
• Figure 3.6 Gross domestic product (1980–2022), in nominal and real terms, expressed as an index (2000 = 100).
• Figure 3.7 Evolution of GDP per capita relative to the US (US = 100); GDP per capita at purchasing power parity (2009–2023).
• Figure 3.8a Real GDP in the UK and Japan, using linear scales (top) and ratio scales (bottom).
• Figure 3.8b UK GDP growth and unemployment (1875–2022).
• Figure 3.9 Contributions to percentage change in real GDP in the US in 2009.
• Figure 3.10a Growth rates of consumption, investment, and GDP in the UK and US, per cent per annum (1956–2022).
• Figure 3.10b Growth rates of consumption, investment, and GDP in Mexico and South Africa, per cent per annum (1961–2022).
• Figure 3.11 The aggregate consumption function.
• Figure 3.12 The aggregate demand function.
• Figure 3.13 Goods market equilibrium: the 45-degree line.
• Figure 3.14 Goods market equilibrium: the multiplier diagram.
• Figure 3.15 The multiplier in action: an investment-led recession.
• Figure 3.16 Changes in the AD curve.
• Figure 3.17 Consumption smoothing through our lifetime.
• Figure 3.18 An anticipated rise in income: consumption smoothing and credit constraints.
• Figure 3.19 Consumption when households demonstrate present bias: an anticipated fall in income.
• Figure 3.20 Investment in new technologies and the dot-com bubble (1991–2022).
• Figure 3.21 Low expected demand for the firm’s products creates a vicious circle.
• Figure 3.22 High expected demand for the firm’s products creates a virtuous circle.
• Figure E3.3 Investment decisions as a coordination game.
• Figure 3.23 Investment, aggregate demand, and business confidence in the eurozone (1996–2022).
• Figure 3.24 Aggregate investment function: effects of the interest rate and profit expectations.
• Figure 3.25 Contributions to the change in US GDP, COVID-19 episode.

Unit 4

• Figure 4.1 UK inflation rate (1875–2022).
• Figure 4.2 Number of online searches for the terms ‘inflation’ (blue), ‘cost of living’ (red), and ‘unemployment’ (green) in the UK, 2004–2023.
• Figure 4.3 Inflation levels and volatility in high- and low-income economies.
• Figure 4.4a Calculating the CPI: a basket of goods.
• Figure 4.4b Calculating the CPI using the basket prices.
• Figure 4.5 Supply-side equilibrium: claims on output per worker by workers and owners are compatible.
• Figure 4.6 Causal chain from lower unemployment to higher inflation.
• Figure 4.7 Adding output to the causal chain from higher aggregate demand to lower unemployment and higher inflation.
• Figure 4.8 Phillips’s original data and curve: wage inflation and unemployment (1861–1913).
• Figure 4.9 Bargaining gaps, inflation, and the Phillips curve.
• Figure 4.10 Deriving the Phillips curve from the causal chain from higher aggregate demand to lower unemployment and higher inflation.
• Figure 4.11 Bargaining gaps, expected inflation, and the Phillips curve.
• Figure 4.12 Causal chain with expected inflation.
• Figure 4.13 Unstable Phillips curves: expected inflation and the bargaining gap.
• Figure 4.14 Causal chain from last year’s inflation to this year’s inflation.
• Figure 4.15 Inflation expectations and Phillips curves.
• Figure 4.16 Inflation, expected inflation, and the bargaining gap.
• Figure 4.17 The supply side and the demand side of the aggregate economy.
• Figure 4.18 The business cycle: aggregate demand, employment, and inflation.
• Figure 4.19 Falling inflation in a recession.
• Figure 4.20a A negative supply-side shock (higher markup) opens up a bargaining gap at the initial equilibrium employment level.
• Figure 4.20b A negative supply-side shock (higher markup) and unchanged aggregate demand.
• Figure 4.20c Consequences for inflation of a negative supply-side shock (a higher markup shifts the PS curve down and the Phillips curve up).
• Figure 4.21 Consequences for inflation of a supply-side shock that shifts the WS curve up.
• Figure 4.22 UK GDP growth and real oil prices (1950–2022).
• Figure 4.23 UK inflation, equilibrium unemployment rate (‘NAIRU’), and real oil prices (1971–2022).
• Figure 4.24 An oil shock and inflation: the PS curve and Phillips curves.
• Figure 4.25 Price responses to rising employment and capacity utilization.
• Figure 4.26 Profit-push inflation due to capacity constraints.
• Figure 4.27 Indexes of nominal and real earnings and of consumer prices, UK (2020–2024).
• Figure 4.28 Gains and losses in the terms of trade in 2022: net energy exporters like Norway experienced terms-of-trade gains.
• Figure 4.29 Comparison of real wages with the terms-of-trade loss to the UK as a proportion of earnings (top panel); UK taxes as a percentage of the national wage bill (bottom-left panel); share of profits in GDP, where profits are measured by the ‘gross operating surplus’ of private businesses (bottom-right panel).

Unit 5

• Figure 5.1 Inflation and presidential election victory in the US (1912–2020).
• Figure 5.2 Fluctuations in output and the size of government (as measured by government tax revenue as a percent of national income) in the US (1870–2022).
• Figure 5.3 A fall in investment and AD: the need for stabilization.
• Figure 5.4 A fall in investment: stabilization via monetary policy.
• Figure 5.5 A fall in investment and AD: stabilization via fiscal policy.
• Figure 5.6 Inflation-stabilizing (equilibrium) unemployment rate, unemployment rate, and inflation rate in Canada (1985–2022).
• Figure 5.7 A negative supply shock and the policy dilemma.
• Figure 5.8 A negative supply shock: addressing the policy dilemma by tightening monetary policy.
• Figure 5.9 Using Mafia infiltration to estimate the multiplier.
• Figure 5.10 Using US stimulus highway spending to estimate the multiplier.
• Figure 5.11 The paradox of thrift: government austerity can worsen a recession.
• Figure 5.12 UK unemployment rate (falling from left to right) and inflation rate—selected years (1950–2022).
• Figure E5.1 Inflation and central bank independence: OECD countries.
• Figure E5.2 Inflation vs target inflation in 38 countries.
• Figure 5.13 An inflationary supply shock.
• Figure 5.14 The cost of getting inflation back to target; anchored expectations reduce the cost.
• Figure 5.15 Opening page of CORE Econ’s inflation tool.
• Figure 5.16a An oil shock hits the economy.
• Figure 5.16b Choose the central bank’s interest rate response and observe the economic outcomes.
• Figure 5.17 Example of the choice of policy by the central bank to respond to the increase in inflation.
• Figure E5.3 Firm A’s investment decision.
• Figure E5.4 Investment, expected rate of profit, and the impact of changes in the interest rate in an economy with two firms.
• Figure E5.5 The aggregate economy, where the expected rate of profit rises for a given set of projects (supply effect).
• Figure 5.18 Policy interest rate and monetary policy transmission mechanisms.
• Figure 5.19 The nominal policy rate and market interest rates in the United States.
• Figure 5.20 The transmission of monetary policy from the policy rate to inflation.
• Figure 5.21 A depreciation of the home economy’s real exchange rate raises output and employment.
• Figure 5.22 The exchange rate effects of a cut in Australia’s interest rate.
• Figure 5.23 Inflation and unemployment in the UK (1950–2023).
• Figure 5.24 The GBP/USD exchange rate (normalized to equal 1 in 1953).
• Figure 5.25 Real oil prices spiked in the 1970s.
• Figure 5.26 1967–1980: Real interest rates (the difference between the Bank of England policy rate and the consumer price index) were mostly negative.
• Figure 5.27 1967–1980: Unemployment fell below the NAIRU.
• Figure 5.28 1977–1984: Real interest rates (the difference between the Bank of England policy rate and the consumer price index) were positive for a sustained period.
• Figure 5.29 1977–1980: The real exchange rate appreciated significantly.
• Figure 5.30 1980–1984: A significant increase in unemployment above the NAIRU.
• Figure 5.31 1991–2019: Real interest rates (the difference between the Bank of England policy rate and the consumer price index) changed from positive to negative due to the global financial crisis.
• Figure 5.32 2007–2008: A sharp depreciation in the exchange rate.
• Figure 5.33 2021–2023: Gas prices increase due to the Russia–Ukraine war.
• Figure 5.34 2020–2023: Real interest rates (the difference between the Bank of England policy rate and the consumer price index) fell.
• Figure 5.35 2022: Inflation expectations did not significantly shift upwards.

Unit 6

• Figure 6.1 Calculating the fraction of life not working.
• Figure 6.2 A balance sheet.
• Figure 6.3 Marco and Julia’s balance sheets (units of grain).
• Figure 6.4 A bilateral loan contract: what happens to Marco’s 100 units of grain.
• Figure 6.5 Total liabilities and wealth: multiples of GDP.
• Figure 6.6 The relationship between participation in the financial sector and GDP per capita, showing lines of best fit.
• Figure 6.7 The balance sheet of the bank as an intermediary between Julia and Marco.
• Figure 6.8 Julia, Marco, and the bank’s balance sheet.
• Figure 6.9 Saving and lending at the bank: what happens to Marco’s 100 units of grain.
• Figure 6.10 Bank of England consolidated balance sheet in GBP (millions), 2021.
• Figure 6.11 Bank of England liabilities, % of GDP (1946–2023).
• Figure E6.1a Determining the policy rate when reserves are scarce.
• Figure E6.1b An ample reserves regime.
• Figure 6.12a Money creation by lending, if both Company A and B bank at the same bank.
• Figure 6.12b Money creation by lending, if Company B has an account with a different bank.
• Figure 6.13 The financial sector and the wider economy.
• Figure 6.14a How leverage increases the rate of return on equity.
• Figure 6.14b How leverage results in losses when the return on investment is lower than expected.
• Figure 6.15 Comparing the leverage of a bank with a non-financial company: Barclays and Honda.
• Figure 6.16 Comparing assets and liabilities of US households, according to household net worth.
• Figure 6.17a Rate of return on currency in the US (1900–2020).
• Figure 6.17b Real rates of return on three other assets, United States.
• Figure 6.18 Global real rates of return: bonds, equities, and housing in 16 countries (1950–2015).
• Figure E6.2 The UK policy rate and implied interest rates (‘yields’) on short-term government bonds (maturing in 1 to 6 months).
• Figure 6.19a A summary of the financial sector, with both markets and financial intermediaries.
• Figure 6.19b The financial sector disappears: all wealth is ultimately owned by households and the government.
• Figure 6.20 The financial sector: what’s it all for?

Unit 7

• Figure 7.1 Argentina’s CPI inflation rate (1960–2023).
• Figure 7.2 Inflation around the world in 2022.
• Figure 7.3 CPI inflation in Germany, the UK, and Spain.
• Figure 7.4 Daily exchange rates for Japan as the home country and Denmark as the home country: Japanese yen per US dollar and Danish kroner per euro.
• Figure 7.5 The impact of a positive demand shock on a country with a flexible exchange rate and an inflation target.
• Figure 7.6 The impacts of depreciation and appreciation in a FlexIT economy.
• Figure 7.7 The impact of a positive demand shock on a country with a flexible exchange rate regime and no inflation target, FlexNIT.
• Figure 7.8 Positive demand shock in a FlexNIT economy: an inflation–depreciation spiral.
• Figure 7.9 The effects of loose monetary policy in a FlexNIT economy.
• Figure 7.10 Spanish vs German inflation during the period of flexible exchange rates.
• Figure 7.11 The impact of a positive aggregate demand shock for a country in a common currency area.
• Figure 7.12 Spain vs Germany post-1999: impact of eurozone membership on the Spanish economy.
• Figure 7.13 Three monetary policy and exchange rate regimes.
• Figure 7.14 CPI inflation rates in Senegal and France (1999–2022).
• Figure 7.15 Exchange rate regimes and national monetary policy autonomy across the world.
• Figure 7.16 The correlation between exchange rate depreciation and inflation (2010–2019).
• Figure 7.17 Inflation and the nominal exchange rate in Argentina (1991–2001).
• Figure 7.18 Central bank policy rates in 2022.
• Figure E7.1 Comparing interest differentials and subsequent rates of depreciation.
• Figure 7.19 An exchange rate regime is a monetary policy regime.
• Figure 7.20 Exchange rates and interest rates in Spain, Germany, and Denmark (1960–2023).
• Figure 7.21 Monetary finance and inflation in Argentina (1960–2017).
• Figure 7.22 Exchange rate and monetary regimes: summarizing the key themes of this unit.
• Figure 7.23 Quality of governance and average inflation (2012–2022).

Unit 8

• Figure 8.1 US real GDP per capita (2000–2023), ratio scale.
• Figure 8.2 An unstable equilibrium.
• Figure 8.3 Positive feedbacks destabilize an unstable equilibrium and negative feedbacks stabilize a stable equilibrium.
• Figure 8.4 A poverty trap: lock-in due to risk aversion.
• Figure 8.5 Lock-in: the case of a poverty trap.
• Figure 8.6 The poverty trap dynamics curve (PTDC).
• Figure 8.7 Distribution of income in the treatment group.
• Figure 8.8 The ratio of house prices to median income in the US (1945–2024).
• Figure 8.9 Deriving a price dynamics curve.
• Figure 8.10 Positive and negative feedback in the housing market.
• Figure 8.11 The price shock is dampened: negative feedback and stable equilibrium.
• Figure 8.12 The price shock is amplified: positive feedback and instability.
• Figure 8.13 Unstable and stable equilibria in the housing market.
• Figure 8.14 Price dynamics, multiple equilibria, and the S-shaped PDC.
• Figure 8.15 A shift in the S-shaped PDC.
• Figure 8.16 A shift in the PDC eliminates the tipping point from three equilibria to one.
• Figure 8.17 The financial accelerator: housing collateral amplifies house price increases and decreases, contributing to positive feedback process when prices either rise or fall.
• Figure 8.18 The household debt-to-income ratio and house prices in the US (1950–2022).
• Figure 8.19 Household wealth and debt in the US: poorest and richest quintile groups by net worth in 2007.
• Figure 8.20 The growth of income (upper panel) and wealth (lower panel) for three wealth groups: the poorest 50%, the middle to upper 40% (50–90%), and the richest 10%; for each group, 1971 = 100.
• Figure 8.21 Leverage of US and UK banks (1980–2023).
• Figure 8.22 Positive feedback processes that amplify a fall in house prices.
• Figure 8.23 Bank–government interaction can produce excessive risk-taking by banks.
• Figure 8.24 The external effect of the implicit funding subsidy to banks.
• Figure 8.25 Decline of Arctic summer sea ice.
• Figure 8.26 Positive feedback processes accelerating climate change.
• Figure 8.27 Environmental dynamics, multiple equilibria, and the S-shaped EDC.
• Figure 8.28 Negative feedback processes stabilize a ‘good equilibrium’ on the left, and a ‘bad equilibrium’ on the right.
• Figure 8.29 Stabilization of sea ice following a shock from G to E0.
• Figure 8.30 Climate change causes the EDC to shift down.
• Figure 8.31 Break-even point: costs of operating e-vehicles and c-vehicles.
• Figure 8.32 The adoption dynamics curve with an e-vehicle equilibrium (G) and the status quo carbon-based equilibrium (B).
• Figure 8.33 An upward shift in the ADC.

Unit 9

• Figure 9.1 Shanghai skyline with the Bund in the foreground and Pudong in the background, 1987 and 2013.
• Figure 9.2 The ‘skyscraper’ representation of global incomes by country, 1980 and 2020.
• Figure 9.3 ‘Hockey stick’ growth in South Korea, China, and India, 1960–2022.
• Figure 9.4 The production function: capital productivity falls as capital intensity rises.
• Figure 9.5 Technological progress combined with investment raises output while maintaining capital productivity.
• Figure 9.6a Technological leaders, catch-up growth, and convergence, 1865–2023.
• Figure 9.6b Long-run growth trajectories of selected economies, 1760–1990.
• Figure 9.7a Accounting for output growth, 1960–2019.
• Figure 9.7b Accounting for growth of output per worker, 1960–2019.
• Figure 9.8 Long-run growth in output and capital in China and South Korea.
• Figure 9.9 Foreign direct investment: investment by US firms in other countries according to whether wages are lower or higher than in the US (2001–2012).
• Figure 9.10a Consumption possibilities in years 0 and 1 depend on how much output must be saved for the following year.
• Figure 9.10b Raising future income through a one-off increase in saving and investment.
• Figure 9.11 Scatterplot of the investment share of GDP and GDP per capita, 2010–2019.
• Figure 9.12 Savings and investment as a share of GDP, South Korea, 1953–2019.
• Figure 9.13 Scatterplot of electricity consumption and GDP per capita, 2023.
• Figure 9.14a Low-technology equilibrium: investing in new technology is not profitable because no other entrepreneurs are investing.
• Figure 9.14b High-technology equilibrium: if many entrepreneurs adopt new technologies, entering the modern sector is profitable.
• Figure 9.15 The causal relationship between quality of institutions and economic growth.
• Figure 9.16 Living standards and institutional quality today.
• Figure 9.17a The growth dynamics model.
• Figure 9.17b Modelling an increase in growth rates.
• Figure 9.17c When αβ>1, growth increases indefinitely.
• Figure 9.18 Rapid growth associated with a high value of β, 1940s–1960s in the United States.
• Figure 9.19 GDP per capita using the ratio scale, 1960–2023.
• Figure 9.20 Investment shares, 1980–2023, selected countries and world median.
• Figure 9.21 Growth and investment in Botswana and Tanzania.
• Figure 9.22 Average years of schooling, 1960–2020, selected countries, ratio scale.
• Figure 9.23 The contrast between the low-growth equilibrium in Tanzania and the high-growth equilibrium in Botswana using the growth dynamics model of Figure 9.17a.
• Figure 9.24 Growth and investment in Bangladesh and Pakistan.
• Figure 9.25 The ratio of remittances (from migrant workers) to export revenue in Pakistan and Bangladesh, 2000–2023.
• Figure 9.26 The global distribution of income, 1950–2022 (ratio scale), and the ratio of income at the 90th percentile to the 10th and at the 80th to the 20th.
• Figure 9.27 The global ‘between-country’ distribution of incomes, 1800–2020.
• Figure 9.28a The association between GDP per capita and CO₂ emissions, 2022.
• Figure 9.28b The association between GDP per capita and consumption-based CO₂ emissions, 1750–2022.
• Figure 9.29 Change in per capita CO₂ emissions and GDP, 1950–2023.
• Figure 9.30a Energy use per person since 1970.
• Figure 9.30b Fossil fuels as a share of energy consumption since 1970.
• Figure 9.31 California’s energy supply on 19 May 2025.
• Figure 9.32 Levelized cost of renewable energy (world average).
• Figure E9.5a Using Kaya’s identity to analyse the drivers of total global CO₂ emissions.
• Figure E9.5b Drivers of global CO₂ emissions, 1990–2022.
• Figure E9.5c Drivers of global CO₂ emissions using Kaya’s identity, 1990–2022, for high-income and low- and middle-income countries.

Unit 10

• Figure 10.1 How voting affects government spending and final outcomes.
• Figure 10.2 The growth of government in the UK (1500–2021).
• Figure 10.3a Party B wins the election.
• Figure 10.3b Nash equilibrium.
• Figure 10.4a The preferred choice of public spending in the case of no inequality.
• Figure 10.4b The range of voter preferences for public expenditure corresponds to the range of incomes.
• Figure 10.5 Share of total wealth held by the richest 1% (1740–2021).
• Figure 10.6 Democracies: origins, shortcomings, interruptions, and retreats.
• Figure 10.7 The advance of democracy in the world and its recent halt.
• Figure 10.8 The extent of electoral democracy and the size of government.
• Figure 10.9 The uninterrupted duration of democracy as of 2024 and working hours (2019).
• Figure 10.10 The duration of democracy and inequality in disposable income (2015).
• Figure 10.11 A rent-seeking government’s isorent curves.
• Figure 10.12 The dictator’s duration curve.
• Figure 10.13 The dictator chooses a tax level to maximize his political rents.
• Figure 10.14 Examples of governing elites, and how they achieved and lost power.
• Figure 10.15 Duration curves, democracy, and the sensitivity to tax rises.
• Figure 10.16 Choice of taxes under less and more competitive conditions.
• Figure 10.17 Effect of greater stability and competition: a case where the elite gains.
• Figure 10.18 Comparison between models of firms and governments.
• Figure 10.19 Stock market prices in Chile: the democratic election of a socialist president, 1970.
• Figure 10.20a Stock market prices in Chile: The military overthrow of the socialist government, 1973.
• Figure 10.20b Stock market prices in Chile: The 1988 referendum, ending military rule.
• Figure 10.21 The association between GDP per capita and CO₂ emissions, 2022.
• Figure 10.22 Income inequality and output per head in high-income countries, 2022.