Ebook Macroeconomics (9th edition): Part 1

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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)


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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


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Macroeconomics, Eighth Edition

© 2011, 2008 South-Western, Cengage Learning

William Boyes, Michael Melvin

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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


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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


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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


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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


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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


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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

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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


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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


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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


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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

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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


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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

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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


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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
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474
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461

477


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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.

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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.


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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.


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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.