Selected International Examples
Below, preview just a few of the many global examples
found in the eighth edition of this text.
Canada and Mexico:
The effects of NAFTA
on Canada and Mexico
(Chapter 10)
N o r t h
A m e r i c a
United States:
China example of
international trade
conflicts with the U.S.
(Chapter 19)
S o u t h
A m e r i c a
Low-income economies
$755 or less
Lower-middle-income economies
$756 to $2,995
Upper-middle-income economies
$2,996 to $9,265
High-income economies
$9,266 or more
No data
Global Business Insight
“Active Trading Around the World” (Chapter 6)
“The Euro” (Chapter 6)
“High Unemployment in Europe” (Chapter 7)
“Oil and Aggregate Supply” (Chapter 8)
“Value-Added Tax” (Chapter 11)
“Islamic Banking” (Chapter 12)
“The European Central Bank (Chapter 13)
“Economic Development in the Americas” (Chapter 17)
“The World Trade Organization” (Chapter 18)
“The Dutch Disease” (Chapter 19)
“Smoot-Hawley Tariff” (Chapter 20)
“The IMF and the World Bank” (Chapter 21)
Europe:
Analysis of why European
unemployment rates are
higher than U.S.
(Chapter 7)
Eastern Europe:
Analysis of Eastern
European countries
joining the Euro
(Chapter 21)
Asia, Indonesia, Thailand, Korea, Malaysia,
Philippines:
Analysis of Asian financial crisis in Indonesia,
Thailand, Korea, Malaysia and the Philippines
(Chapter 18)
China:
Comparison
of government
revenue sources
and spending
priorities in
China and the
United States
(Chapter 11)
A s i a
E u r o p e
India:
Example of U.S. and India
wheat trade to illustrate
comparative advantage
(Chapter 19)
A f r i c a
Bahrain:
Explanation of
Islamic banking
(Chapter 12)
England:
Discussion of French
residents crossing the
English Channel to shop in
London taking advantage
of depreciation of the
British pound (Chapter 6)
Description of Bank of
England monetary policy
during the global financial
crisis (Chapter 13)
A u s t r a l i a
Zimbabwe:
Story of
hyperinflation
in Zimbabwe
(Chapter 7)
Germany:
Example of U.S.
and Germany
competing
in strategic
trade policy
(Chapter 20)
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Eighth Edition
Macroeconomics
William Boyes
Arizona State University
Michael Melvin
Arizona State University and
Barclays Global Investors
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
Macroeconomics, Eighth Edition
© 2011, 2008 South-Western, Cengage Learning
William Boyes, Michael Melvin
ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon
may be reproduced or used in any form or by any means—graphic, electronic,
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Printed in the United States of America
1 2 3 4 5 6 7 13 12 11 10 09
To Melissa, Katie, and Lindsey –W. B.
To Bettina, Jason, Jeremy, and Anna –M. M.
Brief Contents
Chapter Number in
Econ
Macro
Micro
Introduction to the Price System
1
1
1
1A
1A
1A
Economics: The World Around You
2
2
2
Choice, Opportunity Costs, and Specialization
3
3
3
Markets, Demand and Supply, and the Price System
4
4
4
The Market System and the Private and Public Sector
Appendix: Working with Graphs
Macroeconomic Basics
5
5
National Income Accounting
6
6
An Introduction to the Foreign Exchange Market
and the Balance of Payments
7
7
Unemployment and Inflation
8
8
Macroeconomic Equilibrium: Aggregate Demand and Supply
9
9
9A
9A
Appendix: An Algebraic Model of Aggregate Expenditures
Aggregate Expenditures
10
10
Income and Expenditures Equilibrium
10A
10A
Appendix: An Algebraic Model of Income and Expenditures Equilibrium
Macroeconomic Policy
11
11
Fiscal Policy
11A
11A
12
12
Money and Banking
13
13
Monetary Policy
14
14
Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
15
15
Macroeconomic Viewpoints: New Keynesian, Monetarist,
and New Classical
16
16
Economic Growth
17
17
Development Economies
18
18
Globalization
Appendix: An Algebraic Examination of the Balanced-Budget
Change in Fiscal Policy
Product Market Basics
19
5
Elasticity: Demand and Supply
ix
x
Brief Contents
Page Number in
Econ
Macro
Micro
Product Market Basics
20
6
20A
6A
21
7
21A
7A
Consumer Choice
Appendix: Indifference Analysis
Supply: The Costs of Doing Business
Appendix: The Mechanics of Going from Production to Costs
Product Markets
22
8
Profit Maximization
23
9
Perfect Competition
24
10
Monopoly
25
11
Monopolistic Competition and Oligopoly
26
12
Antitrust and Regulation
27
13
Government and Market Failure
Resource Markets
28
14
Resource Markets
29
15
The Labor Market
30
16
Capital Markets
31
17
The Land Market and Natural Resources
Current Issues Involving the Public Sector
and the Market Economy
32
18
Aging, Social Security, and Health Care
33
19
Income Distribution, Poverty, and Government Policy
Issues in International Trade and Finance
34
19
20
World Trade Equilibrium
35
20
21
International Trade Restrictions
36
21
22
Exchange Rates and Financial Links Between Countries
Contents
PART 1 Introduction to the Price System
Preface
xxii
Chapter 1
Economics: The World Around You
1
Preview
1
3. The Economic Approach
6
1. Why Study Economics?
2
3.a. Positive and Normative Analysis
3.b. Common Mistakes
3.c. Microeconomics and Macroeconomics
Summary
Key Terms
Exercises
Economically Speaking “Not Earning
as Much as the Guys? Here’s Why”
6
7
7
8
9
9
1.a. The Value of a Degree
1.b. What Is Economics?
2. The Definition of Economics
2.a. Scarcity
2.b. Choices
2.c. Rational Self-Interest
3
3
4
4
5
5
11
Appendix to Chapter 1
Working with Graphs
1. Reading Graphs
14
14
1.a. Relationships Between Variables
14
1.b. Independent and Dependent Variables 16
1.c. Direct and Inverse Relationships
16
2. Constructing a Graph
2.a. The Axes
2.b. Constructing a Graph from a Table
17
17
18
2.c. Interpreting Points on a Graph
2.d. Shifts of Curves
18
19
3. Slopes
20
3.a. Positive and Negative Slopes
Summary
Key Terms
Exercises
20
22
22
22
Chapter 2
Choice, Opportunity Costs, and Specialization
Preview
1. Opportunity Costs
1.a. Tradeoffs
1.b. The Production Possibilities Curve
2. Specialization and Trade
2.a. Marginal Cost
2.b. Specialize Where Opportunity
Costs Are Lowest
24
24
25
25
29
29
29
24
2.c. Comparative Advantage
2.d. Private Property Rights
Economic Insight “The Importance of Private
Property Rights”
Summary
Key Terms
Exercises
Economically Speaking “Venezuela’s
Chavez Urges Cooperation from
Ranchers and Land Reform”
32
33
34
35
35
35
38
xi
xii
Contents
Chapter 3
Markets, Demand and Supply, and the Price System
Preview
1. Allocation Systems
1.a. Fairness
1.b. Incentives
1.c. The Market Process: Arbitrage
2. Markets and Money
2.a. Barter and Money Exchanges
3. Demand
3.a. The Law of Demand
3.b. The Demand Schedule
3.c. The Demand Curve
3.d. From Individual Demand Curves to
a Market Curve
3.e. Changes in Demand and Changes in
Quantity Demanded
4. Supply
4.a. The Law of Supply
4.b. The Supply Schedule and
Supply Curve
40
42
42
43
44
46
47
47
48
49
49
49
51
55
55
4.c. From Individual Supply Curves to the
Market Supply
4.d. Changes in Supply and Changes in
Quantity Supplied
40
56
58
5. Equilibrium: Putting Demand
and Supply Together
61
5.a. Determination of Equilibrium
5.b. Changes in the Equilibrium Price:
Demand Shifts
5.c. Changes in the Equilibrium Price:
Supply Shifts
5.d. Market Adjustment and Market
Interference
5.e. Market Adjustment: Watch the
Price of Eggs
Summary
Key Terms
Exercises
Economically Speaking “Gas Price Controls
Mean Long Lines”
61
62
63
64
67
69
69
70
72
55
Chapter 4
The Market System and the Private and Public Sectors
Preview
1. The Market System
1.a. Consumer Sovereignty
1.b. Profit and the Allocation of Resources
1.c. Creative Destruction
1.d. The Determination of Income
2. The Private Sector
2.a. Households
2.b. Business Firms
2.c. The International Sector
3. The Public Sector
3.a. Growth of Government
3.b. Government Spending
74
75
75
76
78
79
79
80
81
81
88
88
89
4. Linking the Sectors
74
91
4.a. Households and Businesses and the
Circular Flow
91
4.b. Government and the Circular Flow
91
4.c. The International Sector and the
Circular Flow
93
Summary
93
Key Terms
94
Exercises
94
Economic Insight “The Successful Entrepreneur
(Sometimes It’s Better to Be Lucky Than
Good)”
83
Economically Speaking “Impact of Bailouts” 95
Contents
xiii
PART 2 Macroeconomic Basics
Chapter 5
National Income Accounting
Preview
1. Measures of Output and
Income
1.a. Gross Domestic Product
1.b. Other Measures of Output
and Income
2. Nominal and Real Measures
2.a. Nominal and Real GDP
2.b. Price Indexes
97
98
99
105
108
108
110
97
3. Flows of Income and
Expenditures
Summary
Key Terms
Exercises
Economic Insight “The Consumer
Price Index”
Economically Speaking “Hiding in
the Shadows: The Growth of
the Underground Economy”
113
113
114
114
111
116
Chapter 6
An Introduction to the Foreign Exchange Market and
the Balance of Payments
Preview
1. The Foreign Exchange
Market
1.a. Exchange Rates
1.b. Exchange Rate Changes and
International Trade
2. The Balance of Payments
2.a. Accounting for International
Transactions
2.b. Balance of Payments Accounts
118
119
120
123
124
124
125
2.c. The Current Account and the
Financial Account
Summary
Key Terms
Exercises
Global Business Insight “Active Trading
Around the World”
Global Business Insight “The Euro”
Economically Speaking “French Cross
Channel to Buy Chanel in London”
118
126
128
129
129
121
123
130
Chapter 7
Unemployment and Inflation
Preview
132
1. Business Cycles
133
1.a. Definitions
1.b. Historical Record
1.c. Indicators
133
135
136
2. Unemployment
137
2.a. Definition and Measurement
137
2.b. Interpreting the Unemployment Rate 138
132
2.c. Types of Unemployment
2.d. Costs of Unemployment
2.e. The Record of Unemployment
3. Inflation
3.a. Absolute versus Relative
Price Changes
3.b. Effects of Inflation
139
140
142
146
146
147
xiv
Contents
3.c. Types of Inflation
3.d. The Inflationary Record
Summary
Key Terms
Exercises
150
151
154
154
154
Global Business Insight “High
Unemployment in Europe”
Economically Speaking “Older Workers
and the Recession”
145
156
Chapter 8
Macroeconomic Equilibrium: Aggregate Demand
and Supply
Preview
158
1. Aggregate Demand, Aggregate
Supply, and Business Cycles 159
1.a. Aggregate Demand and
Business Cycles
1.b. Aggregate Supply and
Business Cycles
1.c. A Look Ahead
2. Factors That Influence
Aggregate Demand
2.a. Consumption
2.b. Investment
2.c. Government Spending
2.d. Net Exports
2.e. Aggregate Expenditures
160
161
161
162
162
163
163
163
164
3. The Aggregate Demand Curve 164
3.a. Why the Aggregate Demand Curve
Slopes Downward
3.b. Changes in Aggregate Demand:
Nonprice Determinants
164
168
158
4. Aggregate Supply
171
4.a. Why the Aggregate Supply Curve
Slopes Upward
4.b. Short-Run versus Long-Run
Aggregate Supply
4.c. Changes in Aggregate Supply:
Nonprice Determinants
171
172
175
5. Aggregate Demand and
Supply Equilibrium
179
5.a. Short-Run Equilibrium
5.b. Long-Run Equilibrium
Summary
Key Terms
Exercises
Economic Insight “How Lack of Information
in the Short Run Affects Wages in the
Long Run”
Global Business Insight “Oil and
Aggregate Supply”
Economically Speaking “The Conference
Board Consumer Confidence Index
Plummets Further in February”
179
179
181
181
181
174
177
183
Chapter 9
Aggregate Expenditures
Preview
1. Consumption and Saving
1.a. Saving and Savings
1.b. The Consumption and
Saving Functions
1.c. Marginal Propensity to Consume
and Save
1.d. Average Propensity to Consume
and Save
1.e. Determinants of Consumption
185
185
186
187
2. Investment
2.a. Autonomous Investment
2.b. Determinants of Investment
2.c. Volatility
198
198
199
202
187
3. Government Spending
203
190
4. Net Exports
203
192
194
4.a. Exports
4.b. Imports
4.c. The Net Export Function
204
205
205
Contents
xv
5. The Aggregate Expenditures
Function
206
5.a. Aggregate Expenditures Table
and Function
5.b. The Next Step
206
208
Summary
Key Terms
Exercises
Economic Insight “Permanent Income,
Life Cycles, and Consumption”
Economically Speaking “2008 Trade Gap Is
$681.1 Billion”
208
209
209
197
211
Appendix to Chapter 9
An Algebraic Model of Aggregate Expenditures
213
Chapter 10
Income and Expenditures Equilibrium
Preview
1. Equilibrium Income and
Expenditures
1.a. Expenditures and Income
1.b. Leakages and Injections
2. Changes in Equilibrium
Income and Expenditures
2.a. The Spending Multiplier
2.b. The Spending Multiplier and
Equilibrium
2.c. Real-World Complications
216
218
218
220
223
223
226
228
216
3. Aggregate Expenditures and
Aggregate Demand
231
3.a. Aggregate Expenditures and
Changing Price Levels
3.b. Deriving the Aggregate
Demand Curve
3.c. A Fixed-Price AD–AS Model
Summary
Key Terms
Exercises
Economic Insight “John Maynard Keynes”
Economic Insight “The Paradox of Thrift”
Economically Speaking “Results: North
Americans Are Better Off after 14 Years of
NAFTA”
232
232
232
235
235
235
218
221
237
Appendix to Chapter 10
An Algebraic Model of Income and
Expenditures Equilibrium
239
PART 3 Macroeconomic Policy
Chapter 11
Fiscal Policy
Preview
1. Fiscal Policy and Aggregate
Demand
1.a. Shifting the Aggregate
Demand Curve
1.b. Multiplier Effects
1.c. Government Spending
Financed by Tax Increases
241
241
242
243
244
244
1.d. Government Spending
Financed by Borrowing
1.e. Crowding Out
2. Fiscal Policy in the
United States
2.a. The Historical Record
2.b. Deficits and the National Debt
2.c. Automatic Stabilizers
246
247
248
248
252
254
xvi
Contents
3. Fiscal Policy in Different
Countries
3.a. Government Spending
3.b. Taxation
Summary
Key Terms
Exercises
255
256
256
259
260
260
Economic Insight “Supply-Side Economics
246
and the Laffer Curve”
Economic Insight “The Taxpayer’s Federal
Government Credit Card Statement”
249
Global Business Insight “Value-Added Tax” 259
Economically Speaking “Commission Assesses
Stability Programmes of France, Greece,
Ireland, Netherlands, Portugal and Spain” 261
Appendix to Chapter 11
An Algebraic Examination of the Balanced-Budget
Change in Fiscal Policy
263
Chapter 12
Money and Banking
Preview
1. What Is Money?
1.a. Functions of Money
1.b. The U.S. Money Supply
1.c. Global Money
2. Banking
2.a. Financial Intermediaries
2.b. U.S. Banking
2.c. International Banking
2.d. Informal Financial Markets in
Developing Countries
265
265
266
266
267
270
272
273
273
276
3. Banks and the Money Supply 279
3.a. Deposits and Loans
3.b. Deposit Expansion Multiplier
Summary
Key Terms
Exercises
Global Business Insight “Islamic Banking”
Economically Speaking “International
Demand for the Dollar”
279
281
283
284
284
274
285
277
Chapter 13
Monetary Policy
Preview
288
288
1. The Federal Reserve System 289
1.a. Structure of the Fed
1.b. Functions of the Fed
2. Implementing Monetary
Policy
2.a. Policy Goals
2.b. Operating Procedures
2.c. Foreign Exchange Market
Intervention
289
291
293
293
296
303
3. Monetary Policy and
Equilibrium Income
3.a. Money Demand
3.b. Money and Equilibrium Income
Summary
Key Terms
Exercises
Economic Insight “What’s on a
20-Dollar Bill?”
Global Business Insight “The European
Central Bank”
Economically Speaking “Bank of England
Maintains Bank Rate at 0.5 Percent and
Increases Size of Asset Purchase
Program by £50 Billion to £125 Billion”
305
305
310
311
312
312
292
295
314
Contents
xvii
Chapter 14
Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
316
Preview
1. The Phillips Curve
316
317
1.a. An Inflation–Unemployment
Tradeoff?
318
1.b. Short-Run versus Long-Run Tradeoffs 318
2. The Role of Expectations
322
2.a. Expected versus Unexpected
Inflation
2.b. Forming Expectations
323
327
3. Credibility and Time
Inconsistency
3.a. The Policymaker’s Problem
3.b. Credibility
4. Sources of Business Cycles
4.a. The Political Business Cycle
4.b. Real Business Cycles
4.c. Output Volatility
328
329
329
331
5. The Link Between Monetary
and Fiscal Policies
337
5.a. The Government Budget
Constraint
5.b. Monetary Reforms
Summary
Key Terms
Exercises
Economic Insight “The Natural Rate of
Unemployment”
Economic Insight “Why Wages Don’t Fall
During Recessions”
Economically Speaking “Testimony of
Chairman Ben S. Bernanke Before the
Joint Economic Committee,
U.S. Congress, Washington, D.C.”
337
338
340
341
341
322
327
342
331
333
335
Chapter 15
Macroeconomic Viewpoints: New Keynesian, Monetarist,
and New Classical
Preview
1. Keynesian Economics
1.a. The Keynesian Model
1.b. The Policymakers’ Role
2. Monetarist Economics
2.a. The Monetarist Model
2.b. The Policymakers’ Role
3. New Classical Economics
3.a. The New Classical Model
3.b. The Policymakers’ Role
344
345
345
346
347
347
348
350
351
351
4. Comparison and Influence
Summary
Key Terms
Exercises
Economic Insight “Milton Friedman”
Economically Speaking “The Ghosts of
Christmas Past Haunt Economists”
344
353
354
355
355
348
356
xviii
Contents
Chapter 16
Economic Growth
Preview
1. Defining Economic Growth
1.a. Real GDP
1.b. Per Capita Real GDP
1.c. The Problems with
Definitions of Growth
358
358
359
359
360
361
2. The Determinants of Growth 363
2.a. Labor
2.b. Capital
2.c. Land
2.d. Technology
364
366
366
366
3. Productivity
368
3.a. Productivity and Economic Growth
3.b. Determinants of Productivity
3.c. Growth and Development
Summary
Key Terms
Exercises
Economic Insight “Technological Advance:
The Change in the Price of Light”
Economically Speaking “Riding a Surge of
Technology”
368
369
373
374
374
374
367
376
Chapter 17
Development Economics
Preview
1. The Developing World
1.a. Measuring Poverty
1.b. Basic Human Needs
2. Obstacles to Growth
2.a. Political Obstacles
2.b. Social Obstacles
3. Development Strategies
3.a. Inward-Oriented Strategies
3.b. Outward-Oriented Strategies
3.c. Comparing Strategies
378
378
379
379
379
382
382
386
388
388
389
390
4. Foreign Investment and Aid
391
4.a. Foreign Savings Flows
4.b. Benefits of Foreign Investment
4.c. Foreign Aid
Summary
Key Terms
Exercises
Global Business Insight “Economic
Development in the Americas”
Economically Speaking “Does International
Food Aid Harm the Poor?”
391
392
393
394
395
395
385
396
Chapter 18
Globalization
Preview
1. The Meaning of
Globalization
1.a. Globalization Is Neither
New nor Widespread
1.b. The Role of Technological Change
1.c. Measuring Globalization
398
398
399
399
399
400
2. Globalization Controversy
2.a. Arguments Against Globalization
2.b. Arguments in Favor of Globalization
3. Globalization, Economic
Growth, and Incomes
402
402
404
407
Contents
4. Financial Crises and
Globalization
4.a. Crises of the 1990s
4.b. Exchange Rates and Financial Crises
4.c. What Caused the Crises?
4.d. The Global Financial Crisis of
2007–2008
xix
409
409
410
412
413
Summary
Key Terms
Exercises
Global Business Insight “The World Trade
Organization”
Economically Speaking “Reshaping
the Global Economy”
416
416
416
403
418
PART 4 Issues in International Trade and Finance
Chapter 19
World Trade Equilibrium
Preview
421
421
1. An Overview of World Trade 422
1.a. The Direction of Trade
1.b. What Goods Are Traded?
422
423
2. An Example of International
Trade Equilibrium
425
2.a. Comparative Advantage
2.b. Terms of Trade
2.c. Export Supply and Import Demand
2.d. The World Equilibrium Price and
Quantity Traded
425
427
429
431
3. Sources of Comparative
Advantage
432
3.a. Productivity Differences
3.b. Factor Abundance
3.c. Other Theories of Comparative
Advantage
Summary
Key Terms
Exercises
Global Business Insight “The Dutch Disease”
Economically Speaking “Letter to Senate
Majority Leader Harry Reid”
432
433
433
436
436
437
428
438
Chapter 20
International Trade Restrictions
Preview
1. Arguments for Protection
1.a. Creation of Domestic Jobs
1.b. Creation of a “Level Playing Field”
1.c. Government Revenue Creation
1.d. National Defense
1.e. Infant Industries
1.f. Strategic Trade Policy
2. Tools of Commercial Policy
2.a. Tariffs
2.b. Quotas
2.c. Other Barriers to Trade
440
441
441
443
444
444
445
445
446
447
448
450
440
3. Preferential Trade
Agreements
3.a. Free Trade Areas and
Customs Unions
3.b. Trade Creation and Diversion
Summary
Key Terms
Exercises
Global Business Insight “Smoot-Hawley
Tariff”
Economically Speaking “Trade Group
Calls for Reform to U.S. Sugar Policy”
452
452
453
454
455
455
447
456
xx
Contents
Chapter 21
Exchange Rates and Financial Links Between Countries
Preview
458
1. Past and Current ExchangeRate Arrangements
459
1.a. The Gold Standard
1.b. The Bretton Woods System
1.c. The International Monetary Fund
and the World Bank
1.d. The Transition Years
1.e. Today
2. Fixed or Floating
Exchange Rates
459
460
460
460
461
465
2.a. Equilibrium in the Foreign
Exchange Market
465
2.b. Adjustment Mechanisms Under Fixed
and Flexible Exchange Rates
467
2.c. Constraints on Economic Policy
468
Glossary
Index
G-1
I-1
3. Prices and Exchange Rates
458
469
3.a. Appreciation and Depreciation
3.b. Purchasing Power Parity
4. Interest Rates
and Exchange Rates
469
470
471
4.a. The Domestic Currency Return from
Foreign Bonds
4.b. Interest Rate Parity
Summary
Key Terms
Exercises
Global Business Insight “The IMF and the
World Bank”
Economically Speaking “Frequently Asked
Questions: EU Enlargement and Economic
and Monetary Union (EMU)”
472
473
474
475
475
461
477
Suggested Outlines for One-Term Courses*
Macroeconomic Emphasis
Microeconomic Emphasis
Balanced Micro-Macro
1. Economics:
The World Around You
1. Economics:
The World Around You
1. Economics:
The World Around You
2. Choice, Opportunity Costs,
and Specialization
2. Choice, Opportunity Costs,
and Specialization
2. Choice, Opportunity Costs,
and Specialization
3. Markets, Demand and Supply,
and the Price System
3. Markets, Demand and Supply,
and the Price System
3. Markets, Demand and Supply,
and the Price System
4. The Market System and the
Private and Public Sectors
4. The Market System and the
Private and Public Sectors
4. The Market System and the
Private and Public Sectors
5. National Income Accounting
19. Elasticity: Demand and Supply
5. National Income Accounting
6. An Introduction to the Foreign
Exchange Market and the
Balance of Payments
20. Consumer Choice
21. Supply: The Costs of Doing
Business
6. An Introduction to the Foreign
Exchange Market and the
Balance of Payments.
7. Unemployment and Inflation
22. Profit Maximization
7. Unemployment and Inflation
8. Macroeconomic Equilibrium:
Aggregate Demand and Supply
23. Perfect Competition
8. Macroeconomic Equilibrium:
Aggregate Demand and Supply
9. Aggregate Expenditures
10. Income and
Expenditures Equilibrium
11. Fiscal Policy
12. Money and Banking
13. Monetary Policy
14. Macroeconomic Policy: Tradeoffs, Expectations, Credibility,
and Sources of Business Cycles
15. Macroeconomic Viewpoints:
New Keynesian, Monetarist,
and New Classical
24. Monopoly
25. Monopolistic Competition
and Oligopoly
11. Fiscal Policy
12. Money and Banking
26. Antitrust and Regulation
13. Monetary Policy
27. Government and Market Failure
19. Elasticity: Demand and Supply
28. Resource Markets
20. Consumer Choice
29. The Labor Market
21. Supply: The Costs of Doing
Business
30. Capital Markets
31. The Land Market
and Natural Resources
22. Profit Maximization
28. Resource Markets
32. Aging, Social Security, and
Health Care
33. Income Distribution, Poverty,
and Government Policy
34. World Trade Equilibrium
17. Development Economics
33. Income Distribution, Poverty,
and Government Policy
18. Globalization
34. World Trade Equilibrium
34. World Trade Equilibrium
35. International Trade Restrictions
16. Economic Growth
35. International Trade Restrictions
36. Exchange Rates and Financial
Links Between Countries
*Chapter numbers represent Economics, 8th ed. For Macroeconomics, 8th ed., and Microeconomics, 8th ed., chapter numbers, see the
conversion chart in the Brief Contents section.
xxi
Preface
In the first edition of Macroeconomics, we integrated a global perspective with
traditional economic principles to give students a framework to understand
the globally developing economic world. Events since then have made this
approach even more imperative. In the 1990s, the Soviet Union disintegrated
and newly independent nations emerged. Much of Latin America was turning
toward free markets and away from government controls. But by 2005, several
of these nations were turning away from free markets. Hugo Chavez and Evo
Morales were guiding Venezuela and Bolivia away from free markets and toward government-run and -controlled economies. Vladimir Putin was driving
Russia toward more government control. Other events were making the world
seem very small: North Korea was testing nuclear weapons, Somalia was embroiled in a civil war, terrorism was prevalent in nations around the world, and
much of Africa remained mired in poverty. In 2007, the interconnectedness of
nations was once again highlighted when the world fell into a recession created
by the housing collapse in the United States. Students and instructors have
embraced the idea that the economies of countries are interrelated and that this
should be made clear in the study of economics. Macroeconomics gives students
the tools they need to make connections between the economic principles they
learn and the now-global world they live in.
In this edition, we continue to refine and improve the text as a teaching and
learning instrument while expanding its international base by updating and
adding examples related to global economics.
Changes in the Eighth Edition
The eighth edition of Macroeconomics has been thoroughly updated and refined. A detailed account of all the additions, deletions, and modifications can
be found in the Transition Guide in the Instructor’s Resource Manual (found
on the instructor’s site at www.cengage.com/economics/boyes and also on the
Instructor’s Resource CD).
Revised Macroeconomic Coverage
xxii
The focus of this new edition has been to ensure that the information and
discussion faithfully represent the latest thinking of economists on important
macroeconomic phenomena. To this end, many small additions and revisions
appear throughout. Larger changes of note include: a reduction of introductory material from five chapters to four; a simplification of the material on real
GDP with the deletion of chain-type GDP; many applications to the recent
financial crisis and associated recession appear throughout the macro section;
a discussion of quantitative easing policies employed by central banks to counter the recent recession and deflation pressures in Chapter 13; the Chapter 14
presentation policymaker credibility now includes a discussion of central bank
inflation targeting as a stabilization tool; and Chapter 18 on globalization now
includes an extensive new section that explains how the global financial crisis
began in the United States but spread globally.
Preface
xxiii
The macroeconomic chapters have all been updated to include the latest
available economic statistics. In many chapters, numerical examples have been
revised to provide greater clarity in the graphical presentations, and many of the
Economically Speaking boxes and commentaries have been revised or replaced
with more current examples of economic activity around the wrld.
Successful Features Retained
from the Seventh Edition
In addition to the considerable updating and revising we’ve done for the eighth
edition, there are several features preserved from the previous edition that we
think instructors will find interesting.
Enhanced Student Relevance
With all of the demands on today’s students, it’s no wonder that they resist spending time on a subject unless they see how the material relates to them and how
they will benefit from mastering it. We incorporate features throughout the text
that show economics as the relevant and necessary subject we know it to be.
Real-World Examples Students are rarely intrigued by unknown manufacturers or service companies. Our text talks about people and firms that students
recognize. We describe business decisions made by McDonald’s and Wal-Mart,
and by the local video store or café. We discuss standards of living around the
world, comparing the poverty of sub-Saharan Africa to the wealth of the industrial nations. We discuss policies applied to real-world economic issues. We talk
about political, environmental, and other social issues. These examples grab
students’ interest. Reviewers have repeatedly praised the use of novel examples
to convey economic concepts.
Economic Insight Boxes These brief boxes use contemporary material from
current periodicals and journals to illustrate or extend the discussion in the
chapter. By reserving interesting but more technical sidelights for boxes, we
lessen the likelihood that students will be confused or distracted by issues that
are not critical to understanding the chapter. By including excerpts from articles, we help students move from theory to real-world examples. And by including plenty of contemporary issues, we guarantee that students will see how
economics relates to their own lives.
Economically Speaking Boxes The objective of the principles course is to
teach students how to translate to the real world the predictions that come out of
economic models, and to translate real-world events into an economic model in
order to analyze and understand what lies behind the events. The Economically
Speaking boxes present students with examples of this kind of analysis. Students
read an article at the end of each chapter. The commentary that follows shows
how the facts and events in the article translate into a specific economic model
or idea, thereby demonstrating the relevance of the theory. Nearly two-thirds
of the articles and commentaries are new to the eighth edition, and cover such
current events as U.S. trade with China, the collapse of consumer confidence
during the financial crisis, illegal immigration, Venezuela’s redistribution of
wealth, high gasoline prices, the impact of the government’s bailout of large
companies, fair trade coffee, and the change in India’s permit raj.
xxiv
Preface
Global Business Insight Boxes These boxes link business events and developments around the world to the economic concepts discussed in the main text
of the chapters. Topics include such basic micro- and macroeconomic issues as
global competition, resource pricing, and foreign exchange.
An Effective and Proven System of Teaching and
Learning Aids
This text is designed to make teaching easier by enhancing student learning.
Tested pedagogy motivates students, emphasizes clarity, reinforces relationships, simplifies review, and fosters critical thinking. And, as we have discovered
from reviewer and user feedback, this pedagogy works.
In-Text Referencing System Sections are numbered for easy reference and
to reinforce hierarchies of ideas. Numbered section heads serve as an outline
of the chapter, allowing instructors flexibility in assigning reading and making
it easy for students to find topics to review. Each item in the key terms list and
summary at the end of the chapter refers students back to the appropriate section number.
The section numbering system appears throughout the Boyes and Melvin
ancillary package; Study Guides and Instructor’s Manual are both organized
according to the same system.
Fundamental Questions These questions help to organize the chapter and
highlight those issues that are critical to understanding. Each fundamental
question also appears in the margin next to the related text discussion and, with
brief answers, in the chapter summaries. A fuller discussion of and answer to
each of these questions may be found in the Study Guides that are available as
supplements to this text. The fundamental questions also serve as one of several
criteria used to categorize questions in the Test Banks.
Preview This motivating lead-in sets the stage for the chapter. Much more so
than a road map, it helps students identify real-world issues that relate to the
concepts that will be presented.
Recaps Briefly listing the main points covered, a recap appears at the end of
each major section within a chapter. Students are able to quickly review what
they have just read before going on to the next section.
Summary The summary at the end of each chapter is organized along two
dimensions. The primary organizational device is the list of fundamental questions. A brief synopsis of the discussion that helps students to answer those
questions is arranged by section below each of the questions. Students are
encouraged to create their own links among topics as they keep in mind the
connections between the big picture and the details that make it up.
Comments Found in the text margins, these comments highlight especially
important concepts, point out common mistakes, and warn students of common pitfalls. They alert students to parts of the discussion that they should read
with particular care.
Key Terms Key terms appear in bold type in the text. They also appear with
their definition in the margin and are listed at the end of the chapter for easy
review. All key terms are included in the Glossary at the end of the text.