KRUGMAN_WELLS_MACRO_CHAPTER06

KRUGMAN_WELLS_MACRO_CHAPTER06 - chapter 6 TABLE 6-1 2000...

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TABLE 6-1 Median Starting Salaries of New MBAs from Selected Schools in 2000, 2002, and 2004 School 2000 starting salary 2002 starting salary 2004 starting salary Stanford $165,500 $138,100 $150,000 Harvard 160,000 134,600 147,500 Pennsylvania 156,000 124,500 144,000 Columbia 142,500 123,600 142,500 Dartmouth 149,500 122,100 135,000 Source: Business Week Graduate Survey, October 18, 2004. 138 139 economics that focuses on the behavior of the economy as a whole. In contrast, microeconomics is concerned with the production and consumption de- cisions of consumers and producers and with the allocation of scarce resources among industries. Returning to our exam- ple of business school graduates, a typical question for microeconomics would be why different industries—say, investment bank- ing versus marketing—pay different salaries to new graduates. Macroeconomics is con- cerned with developments in the national economy, such as the total output level, the general level of prices, and the overall level of employment. In addition, macro- economics analyzes how the behavior of the economy depends on and is affected by the workings of the global economy. Another element of Table 6-1 should strike you: new MBAs get paid an awful lot of money. Most Americans don’t earn as much as MBAs from elite business schools do. Still, the incomes of Americans in al- most all walks of life are much higher than those typical in previous generations. The average starting salary for Stanford’s MBA class of 1968 was only $12,000. A dollar doesn’t go as far today as it did in the 1960s, but even after you adjust for inflation —a rise in the general price level—MBA salaries in 2002 were more than twice as high as they were in 1968. This comparison touches on long-run growth, another fundamental area of study in macroeconomics. Long-run growth is the sustained upward trend in the economy’s overall output, and is a critical factor in a country’s ability to achieve higher incomes and a higher standard of living. The main reason MBAs were paid so much more in 2002 than in 1968 is that output per person in the United States had doubled over those years. As this compari- son suggests, economists measure long-run growth by looking at the economy’s per- formance over several decades—long enough to show, in retrospect, that the increase in output was a permanent trend rather than the result of a temporary boom in the economy. Historical evidence shows that over an extended period of time, long-run growth is much more im- portant than the business cycle —short-run fluctuations in the economy’s performance— in determining a country’s living standards. The average graduate of the class of 2002, even though facing disappointing job prospects and a lower salary, would have had an enormously higher standard of living than a comparable graduate in 1968. Earlier chapters have given you a grasp of
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KRUGMAN_WELLS_MACRO_CHAPTER06 - chapter 6 TABLE 6-1 2000...

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