Current issues organize each chapter. News stories about today’s major economic events tie each chapter together, from new chapter-opening vignettes to end-of-chapter problems and online practice. Each chapter includes a discussion of a critical issue of our time to demonstrate how economic theory can be applied to explore a particular debate or question.
- The gains from trade, globalization, and protectionism in Chapters 2 and 15 and an updated conversation with Jagdish Bhagwati in the first part closer
- How ethanol competes with food and drives its price up in Chapter 2
- The Fed’s extraordinary actions and their impact on the balance sheets of banks in Chapter 8
- Stubbornly high unemployment in Chapters 5, 10, and 12
- Currency fluctuations and the managed Chinese yuan in Chapter 9
- Fiscal stimulus and the debate about the fiscal stimulus multipliers in Chapter 13
- Monetary stimulus in Chapter 14 and the dangers of targeting unemployment in an updated conversation with Stephanie Schmitt-Grohé
- Real-world examples and applications appear in the body of each chapter and in the end-ofchapter problems and applications
A selection of questions that appear daily in MyEconLab in Economics in the News are also available for assignment as homework, quizzes, or tests.
Highpoints of the Revision
All the chapters have been updated to incorporate data through the second quarter of 2010 (later for some variables) and the news and policy situation through the fall of 2010. Beyond these general updates, the chapters feature the following eight notable revisions:
- What Is Economics? (Chapter 1): I have reworked the explanation of the economic way of thinking around six key ideas, all illustrated with student relevant choices. The graphing appendix to this chapter has an increased focus on scatter diagrams and their interpretation and on understanding shifts of curves.
- Measuring GDP and Economic Growth (Chapter 4): I have revised the section on cross-country comparisons and the limitations of GDP to make the material clearer and added photo illustrations of PPP and items omitted from GDP. This chapter now has a graphing appendix which focuses on time-series and ratio scale graphs.
- Monitoring Jobs and Inflation (Chapter 5): This chapter now includes a discussion and illustration of the alternative measures of unemployment reported by the BLS and the costs of different types of unemployment. I have rewritten the section on full employment and the influences on the natural unemployment rate and illustrated this discussion with a box on structural unemployment in Michigan. The coverage of the price level has been expanded to define and explain the costs of deflation as well as inflation.
- Economic Growth (Chapter 6): I have simplified this chapter by omitting the technical details on growth accounting and replacing them with an intuitive discussion of the crucial role of human capital and intellectual property rights. I illustrate the role played by these key factors in Britain’s Industrial Revolution. I have made the chapter more relevant and empirical by including a summary of the correlations between the growth rate and the positive and negative influences on it.
- Money, the Price Level, and Inflation (Chapter 8): This chapter records and explains the Fed’s extraordinary injection of monetary base following the financial panic of 2008. In revising this chapter, I have redrawn the line between this chapter, the “money and banking” chapter, and the later “monetary policy” chapter by including in this chapter a complete explanation of how an open-market operation works. I have also provided clearer and more thorough explanations of the money multiplier and money market equilibrium in the short and the long run and in the transition to the long run.
- The Exchange Rate and the Balance of Payments (Chapter 9): I have revised this chapter to better explain the distinction between the fundamentals and the role of expectations. I have also included an explanation of how arbitrage works in the foreign exchange market and the temporary and risky nature of seeking to profit from the so called “carry trade.”
- Fiscal Policy (Chapter 13): The topic of this chapter is front-page news almost every day and is likely to remain so. The revision describes the deficit and the accumulating debt and explains the consequences of the uncertainty they engender. An entirely new section examines the fiscal stimulus measures taken over the past year, channels through which stimulus works, its unwanted side effects, its potentially limited power, and its shortcomings. The controversy about and range of views on the magnitude of fiscal stimulus multiplier is examined.
- Monetary Policy (Chapter 14): This chapter describes and explains the dramatic monetary policy responses to the 2008–2009 recession and the persistently high unemployment of 2010. It also contains an improved description of the FOMC’s decision-making process. Technical details about alternative monetary policy strategies have been replaced with a shorter and more focused discussion of inflation targeting as a tool for bringing clarity to monetary policy and anchoring inflation expectations.