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Pr inciples of Macroeconomics

T H I R T E E N T H E D I T I O N

A01_CASE2163_13_SE_FM.indd 1 12/6/18 3:32 AM

Pr inciples of Macroeconomics

T H I R T E E N T H E D I T I O N

Karl E. CaseWellesley College

Ray C. FairYale University

Sharon M. OsterYale University


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Library of Congress Cataloging-in-Publication DataNames: Case, Karl E., author. | Fair, Ray C., author. | Oster, Sharon M., author.Title: Principles of macroeconomics / [Karl E. Case, Ray C. Fair, Sharon M. Oster].Description: [13th edition]. | Upper Saddle River, NJ : Pearson, [2019] | Includes index.Identifiers: LCCN 2018018216 | ISBN 9780135162163 (softcover)Subjects: LCSH: Macroeconomics.Classification: LCC HB172.5 .C375 2019 | DDC 339—dc23LC record available at https://lccn.loc.gov/2018018216

ISBN 10: 0-13-516216-5ISBN 13: 978-0-13-516216-3

10 9 8 7 6 5 4 3 2 1


This edition is dedicated to Chip Case, a wonderful colleague and friend. He was the inspiration for this textbook some 30 years ago, and he served as an inspiration to study economics for thousands of students.


Karl E. Case, who passed away in July, 2016, was a Professor of Economics Emeritus at Wellesley College where he taught for 34 years, serving several tours of duty as Department Chair. He was a Senior Fellow at the Joint Center for Housing Studies at Harvard University and a founding partner in the real estate research firm of Fiserv Case Shiller Weiss, which produces the S&P Case-Shiller Index of home prices. He served as a member of the Index Advisory Committee of Stan-dard and Poor’s, and on the Academic Advisory Board of the Federal Reserve Bank of Boston.

Professor Case received his B.A. from Miami University in 1968, spent three years on active duty in the Army, and received his Ph.D. in Economics from Harvard University in 1976.

Professor Case’s research was in the areas of real estate, housing, and public finance. He authored or coauthored five books, including Principles of Economics, Economics and Tax Policy, and Property Taxation: The Need for Reform, and published numerous articles in professional journals, focused on real estate markets and prices.

Chip, as he was known to his many friends and colleagues, contributed to this textbook throughout its many editions. In his honor and with respect for his substantial contributions to the text and the discipline of economics, his co-authors plan to keep his name on the text for all future editions.

Ray C. Fair is Professor of Economics at Yale University. He is a member of the Cowles Foundation at Yale and a Fellow of the Econometric Society. He received a B.A. in Economics from Fresno State College in 1964 and a Ph.D. in Economics from MIT in 1968. He taught at Princeton University from 1968 to 1974. Professor Fair has taught introductory and intermedi-ate macroeconomics at Yale since 1974. He has also taught graduate courses in macroeconomic theory and macroeconometrics.

Professor Fair’s research has primarily been in the areas of macroeconomics and econometrics, with particular emphasis on macroeconometric model building. He has also done work in the areas of finance, voting behavior, and aging in sports. His publications in-clude Specification, Estimation, and Analysis of Macroeconometric Models (Harvard Press, 1984); Testing Macroeconometric Models (Harvard Press, 1994); Estimating How the Macroeconomy Works (Harvard Press, 2004), and Predicting Presidential Elections and Other Things (Stanford University Press, 2012).

Professor Fair’s U.S. and multicountry models are available for use on the Internet free of charge. The address is http://fairmodel.econ.yale.edu. Many teachers have found that having students work with the U.S. model on the Internet is a useful complement to an introductory macroeconomics course.

Sharon M. Oster is the Frederic Wolfe Professor of Economics and Management and former Dean of the Yale School of Management. Professor Oster joined Case and Fair as a coauthor in the ninth edition of this book. Professor Oster has a B.A. in Economics from Hofstra University and a Ph.D. in Economics from Harvard University.

Professor Oster’s research is in the area of industrial organization. She has worked on prob-lems of diffusion of innovation in a number of different industries, on the effect of regulations on business, and on competitive strategy. She has published a number of articles in these areas and is the author of several books, including Modern Competitive Analysis and The Strategic Management of Nonprofits.

Prior to joining the School of Management at Yale, Professor Oster taught for a number of years in Yale’s Department of Economics. In the department, Professor Oster taught introduc-tory and intermediate microeconomics to undergraduates as well as several graduate courses in industrial organization. Since 1982, Professor Oster has taught primarily in the Management School, where she teaches the core microeconomics class for MBA students and a course in the area of competitive strategy. Professor Oster also consults widely for businesses and nonprofit organizations and has served on the boards of several publicly traded companies and nonprofit organizations.

About the Authors

vi


Brief Contents

PART I Introduction to Economics 1

1 The Scope and Method of Economics 1

2 The Economic Problem: Scarcity and Choice 23

3 Demand, Supply, and Market Equilibrium 43

4 Demand and Supply Applications 74

PART II Concepts and Problems in Macroeconomics 92

5 Introduction to Macroeconomics 92

6 Measuring National Output and National Income 105

7 Unemployment, Inflation, and Long-Run Growth 125

PART III The Core of Macroeconomic Theory 141

8 Aggregate Expenditure and Equilibrium Output 143

9 The Government and Fiscal Policy 164

10 Money, the Federal Reserve, and the Interest Rate 190

11 The Determination of Aggregate Output, the Price Level, and the Interest Rate 217

12 Policy Effects and Cost Shocks in the AS/AD Model 234

13 The Labor Market in the Macroeconomy 247

PART IV Further Macroeconomics Issues 266

14 Financial Crises, Stabilization, and Deficits 266

15 Household and Firm Behavior in the Macroeconomy: A Further Look 282

16 Long-Run Growth 303

17 Alternative Views in Macroeconomics 319

PART V The World Economy 335

18 International Trade, Comparative Advantage, and Protectionism 335

19 Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates 359

20 Economic Growth in Developing Economies 385

PART VI Methodology 402

21 Critical Thinking about Research 402

Glossary 417

Index 427

Photo Credits 443

vii


Contents

PART I Introduction to Economics 1

1 The Scope and Method of Economics 1Why Study Economics? 2

To Learn a Way of Thinking 2ECONOMICS IN PRACTICE Rainfall and Schooling in India 3ECONOMICS IN PRACTICE Majoring in Economics Makes You Less Vulnerable to a Recession! 4

To Understand Society 4To Be an Informed Citizen 5

The Scope of Economics 5Microeconomics and Macroeconomics 5

ECONOMICS IN PRACTICE iPod and the World 6The Diverse Fields of Economics 7

The Method of Economics 8Theories and Models 8

ECONOMICS IN PRACTICE Does Your Roommate Matter for Your Grades? 10

Economic Policy 10An Invitation 12Economic Skills and Economics as a Career 12

Summary 12 Review Terms and Concepts 13

Problems 13 Appendix: How to Read and Understand Graphs 15

2 The Economic Problem: Scarcity and Choice 23Scarcity, Choice, and Opportunity Cost 24

Scarcity and Choice in a One-Person Economy 24Scarcity and Choice in an Economy of Two or More 25

ECONOMICS IN PRACTICE Frozen Foods and Opportunity Costs 26

The Production Possibility Frontier 29The Economic Problem 35

ECONOMICS IN PRACTICE Trade-Offs among the Rich and Poor 36

Economic Systems and the Role of Government 36

Command Economies 36Laissez-Faire Economies: The Free Market 37

Mixed Systems, Markets, and Governments 38Looking Ahead 38

Summary 38 Review Terms and Concepts 39 Problems 39

3 Demand, Supply, and Market Equilibrium 43Firms and Households: The Basic Decision-Making Units 44Input Markets and Output Markets: The Circular Flow 44Demand in Product/Output Markets 46

Changes in Quantity Demanded versus Changes in Demand 46Price and Quantity Demanded: The Law of Demand 47Other Determinants of Household Demand 50

ECONOMICS IN PRACTICE Have You Bought This Textbook? 51

ECONOMICS IN PRACTICE On Sunny Days People Buy Convertibles! 52

Shift of Demand versus Movement along a Demand Curve 53From Household Demand to Market Demand 54

Supply in Product/Output Markets 56Price and Quantity Supplied: The Law of Supply 57Other Determinants of Supply 58Shift of Supply versus Movement along a Supply Curve 59From Individual Supply to Market Supply 60

Market Equilibrium 61Excess Demand 61Excess Supply 63Market Equilibrium with Equations 64Changes in Equilibrium 64

ECONOMICS IN PRACTICE Quinoa 67Demand and Supply in Product Markets: A Review 67

ECONOMICS IN PRACTICE Why Do the Prices of Newspapers Rise? 68

Looking Ahead: Markets and the Allocation of Resources 69


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Contents ix

Exclusion of Used Goods and Paper Transactions 107Exclusion of Output Produced Abroad by Domestically Owned Factors of Production 107

Calculating GDP 108The Expenditure Approach 108

ECONOMICS IN PRACTICE Where Does eBay Get Counted? 109

ECONOMICS IN PRACTICE Estimating Depreciation in the National Income and Product Accounts 111

The Income Approach 112Nominal Versus Real GDP 114

ECONOMICS IN PRACTICE GDP: One of the Great Inventions of the 20th Century 115

Calculating Real GDP 116Calculating the GDP Deflator 117The Problems of Fixed Weights 118

Limitations of the GDP Concept 118GDP and Social Welfare 118The Informal Economy 119

ECONOMICS IN PRACTICE Green Accounting 119Gross National Income per Capita 120

Looking Ahead 121Summary 121 Review Terms and Concepts 122 Problems 122

7 Unemployment, Inflation, and Long-Run Growth 125

Unemployment 126Measuring Unemployment 126

ECONOMICS IN PRACTICE Time Use for the Unemployed in a Recession 127

Components of the Unemployment Rate 128

ECONOMICS IN PRACTICE A Quiet Revolution: Women Join the Labor Force 129

The Costs of Unemployment 129

ECONOMICS IN PRACTICE The Consequences of Unemployment Persist 130

Inflation and Deflation 131The Consumer Price Index 131The Costs of Inflation 133What about Deflation? 135

ECONOMICS IN PRACTICE Chain-Linked Consumer Price Index in the News 135

Long-run Growth 136Output and Productivity Growth 136


4 Demand and Supply Applications 74The Price System: Rationing and Allocating Resources 75

Price Rationing 75Constraints on the Market and Alternative Rationing Mechanisms 77

ECONOMICS IN PRACTICE Why is My Hotel Room So Expensive? A Tale of Hurricane Sandy 79

Prices and the Allocation of Resources 81Price Floor 81

Supply and Demand Analysis: Tariffs (Tax) 82ECONOMICS IN PRACTICE The Price Mechanism at Work for Shakespeare 83

Supply and Demand and Market Efficiency 84Consumer Surplus 84Producer Surplus 85Competitive Markets Maximize the Sum of Producer and Consumer Surplus 86Potential Causes of Deadweight Loss From Under- and Overproduction 87


PART II Concepts and Problems in Macroeconomics 92

5 Introduction to Macroeconomics 92

Macroeconomic Concerns 93Output Growth 93Unemployment 95Inflation and Deflation 95

The Components of the Macroeconomy 96The Circular Flow Diagram 96The Three Market Arenas 97The Role of the Government in the Macroeconomy 98

A Brief History of Macroeconomics 99ECONOMICS IN PRACTICE Macroeconomics in Literature 100

The U.S. Economy Since 1970 101Summary 103 Review Terms and Concepts 103 Problems 103

6 Measuring National Output and National Income 105

Gross Domestic Product 106Final Goods and Services 106


x Contents

Automatic Stabilizers and Destabilizers 180Full-Employment Budget 181

Looking Ahead 181Summary 181 Review Terms and Concepts 182

Problems 182 EOC Questions 184 Appendix A 185

Appendix B 186 Appendix Summary 189

Appendix Problems 189

10 Money, the Federal Reserve, and the Interest Rate 190

An Overview of Money 191What Is Money? 191

ECONOMICS IN PRACTICE Don’t Kill the Birds! 192

Commodity and Fiat Monies 192Measuring the Supply of Money in the United States 193

How Banks Create Money 195A Historical Perspective: Goldsmiths 195

ECONOMICS IN PRACTICE A Run on the Bank: George Bailey, Mary Poppins, Wyatt Earp 196

The Modern Banking System 197The Creation of Money 198The Money Multiplier 200

The Federal Reserve System 201Functions of the Federal Reserve 202

The Demand for Money 203Interest Rates and Security Prices 204

ECONOMICS IN PRACTICE Professor Serebryakov Makes an Economic Error 205

How the Federal Reserve Controls the Interest Rate 206

Tools Prior to 2008 206Expanded Fed Activities Beginning in 2008 207The Federal Reserve Balance Sheet 208Tools After 2008 209


Appendix 214 Appendix Problems 216

11 The Determination of Aggregate Output, the Price Level, and the Interest Rate 217

The Aggregate Supply (AS) Curve 218Aggregate Supply in the Short Run 218Shifts of the Short-Run Aggregate Supply Curve 220

The Aggregate Demand (AD) Curve 221

PART III The Core of Macroeconomic Theory 141

8 Aggregate Expenditure and Equilibrium Output 143

The Keynesian Theory of Consumption 144ECONOMICS IN PRACTICE Behavioral Biases in Saving Behavior 148

Other Determinants of Consumption 148Planned Investment (I) versus Actual Investment 149Planned Investment and the Interest Rate (r) 149

Other Determinants of Planned Investment 150The Determination of Equilibrium Output (Income) 150

The Saving/Investment Approach to Equilibrium 153Adjustment to Equilibrium 154

The Multiplier 154ECONOMICS IN PRACTICE General Motors’ Silverado 155

The Multiplier Equation 157

ECONOMICS IN PRACTICE The Paradox of Thrift 158

The Size of the Multiplier in the Real World 180Looking Ahead 159


Appendix 163

9 The Government and Fiscal Policy 164

Government in the Economy 165Government Purchases (G), Net Taxes (T), and Disposable Income (Yd) 165The Determination of Equilibrium Output (Income) 167

Fiscal Policy at Work: Multiplier Effects 169The Government Spending Multiplier 169The Tax Multiplier 172The Balanced-Budget Multiplier 173

The Federal Budget 175The Budget in 2017 175Fiscal Policy since 1993: The Clinton, Bush, Obama, and Trump Administrations 176

ECONOMICS IN PRACTICE Long-Term Projections of the Federal Government Deficit and Debt 178

The Federal Government Debt 179The Economy’s Influence on the Government Budget 180


Contents xi

Imperfect Information 251Minimum Wage Laws 251

Explaining the Existence of Cyclical Unemployment 252

Sticky Wages 252

ECONOMICS IN PRACTICE Evidence on Sticky Wages 253

ECONOMICS IN PRACTICE The Longer You Are Unemployed, the Harder It Is to Get a Job 254

An Open Question 254The Short-run Relationship Between the Unemployment Rate and Inflation 255

The Phillips Curve: A Historical Perspective 256Aggregate Supply and Aggregate Demand Analysis and the Phillips Curve 258Expectations and the Phillips Curve 259Inflation and Aggregate Demand 259

The Long-run Aggregate Supply Curve, Potential Output, and the Natural Rate of Unemployment 260

The Nonaccelerating Inflation Rate of Unemployment (NAIRU) 261


PART IV Further Macroeconomics Issues 266

14 Financial Crises, Stabilization, and Deficits 266

The Stock Market, the Housing Market, and Financial Crises 267

Stocks and Bonds 267Determining the Price of a Stock 267The Stock Market Since 1948 269Housing Prices Since 1952 270Household Wealth Effects on the Economy 271Financial Crises and the 2008 Bailout 271

ECONOMICS IN PRACTICE Predicting Recessions 272

Time Lags Regarding Monetary and Fiscal Policy 273

Recognition Lags 275Implementation Lags 275Response Lags 276Summary 277

Government Deficit Issues 277Deficit Targeting 277


Planned Aggregate Expenditure and the Interest Rate 221The Behavior of the Fed 222

ECONOMICS IN PRACTICE The Fed Gets a New Chair, Jerome Powell 224

Deriving the AD Curve 225

ECONOMICS IN PRACTICE How Does the Fed Look at Inflation? 226

The Final Equilibrium 227Other Reasons for a Downward-Sloping AD Curve 228The Long Run AS Curve 228

Potential GDP 229

ECONOMICS IN PRACTICE The Simple “Keynesian” Aggregate Supply Curve 230


12 Policy Effects and Cost Shocks in the AS/AD Model 234

Fiscal Policy Effects 235Fiscal Policy Effects in the Long Run 236

Monetary Policy Effects 237The Fed’s Response to the Z Factors 237Shape of the AD Curve When the Fed Cares More About the Price Level than Output 237What Happens When There Is a Zero Interest Rate Bound? 238

Shocks to the System 239Cost Shocks 239

ECONOMICS IN PRACTICE A Bad Monsoon Season Fuels Indian Inflation 240

Demand-Side Shocks 241Expectations 241

Monetary Policy Since 1970 242Inflation Targeting 243


13 The Labor Market in the Macroeconomy 247

The Labor Market: Basic Concepts 248The Classical View of the Labor Market 248

The Classical Labor Market and the Aggregate Supply Curve 250The Unemployment Rate and the Classical View 250

Explaining the Existence of Unemployment 250Efficiency Wage Theory 251


xii Contents

Growth and the Environment and Issues of Sustainability 313


17 Alternative Views in Macroeconomics 319

Keynesian Economics 320Monetarism 320

The Velocity of Money 320The Quantity Theory of Money 321The Keynesian/Monetarist Debate 322

Supply-Side Economics 323The Laffer Curve 323Evaluating Supply-Side Economics 324

New Classical Macroeconomics 325The Development of New Classical Macroeconomics 325Rational Expectations 326

ECONOMICS IN PRACTICE How Are Expectations Formed? 327

Real Business Cycle Theory and New Keynesian Economics 328Evaluating the Rational Expectations Assumption 329

Behavioral Macroeconomics 330Testing Alternative Macroeconomic Models 330


PART V The World Economy 335

18 International Trade, Comparative Advantage, and Protectionism 335

Trade Surpluses and Deficits 336The Economic Basis for Trade: Comparative Advantage 336

Absolute Advantage versus Comparative Advantage 337Terms of Trade 341Exchange Rates 342

The Sources of Comparative Advantage 344The Heckscher-Ohlin Theorem 344Other Explanations for Observed Trade Flows 345

Trade Barriers: Tariffs, Export Subsidies, and Quotas 345

15 Household and Firm Behavior in the Macroeconomy: A Further Look 282

Households: Consumption and Labor Supply Decisions 283

The Life-Cycle Theory of Consumption 283The Labor Supply Decision 284Interest Rate Effects on Consumption 286Government Effects on Consumption and Labor Supply: Taxes and Transfers 286A Possible Employment Constraint on Households 287A Summary of Household Behavior 288The Household Sector Since 1970 288

ECONOMICS IN PRACTICE Measuring Housing Price Changes 289

Firms: Investment and Employment Decisions 291Expectations and Animal Spirits 291Excess Labor and Excess Capital Effects 292Inventory Investment 293A Summary of Firm Behavior 294The Firm Sector Since 1970 294

Productivity and the Business Cycle 296The Short-Run Relationship Between Output and Unemployment 297The Size of the Multiplier 298

ECONOMICS IN PRACTICE Estimating Multipliers: the Mafia Link 299


16 Long-Run Growth 303

The Growth Process: From Agriculture to Industry 304Sources of Economic Growth 305

Increase in Labor Supply 305

ECONOMICS IN PRACTICE Government Strategy for Growth 306

Increase in Physical Capital 307Increase in the Quality of the Labor Supply (Human Capital) 309Increase in the Quality of Capital (Embodied Technical Change) 309

ECONOMICS IN PRACTICE German Jewish Émigrés Contribute to U.S. Growth 310

Disembodied Technical Change 310More on Technical Change 311U.S. Labor Productivity: 1952 I–2017 IV 312


Contents xiii

Economic Development: Sources and Strategies 387

The Sources of Economic Development 388

ECONOMICS IN PRACTICE Corruption 390Strategies for Economic Development 391

ECONOMICS IN PRACTICE Who You Marry May Depend on the Rain 393

Two Examples of Development: China and India 395

ECONOMICS IN PRACTICE Cell Phones Increase Profits for Fishermen in India 396

Development Interventions 396Random and Natural Experiments: Some New Techniques in Economic Development 397Education Ideas 397Health Improvements 398


PART VI Methodology 402

21 Critical Thinking about Research 402

Selection Bias 403Causality 404

Correlation versus Causation 404Random Experiments 405Regression Discontinuity 406

ECONOMICS IN PRACTICE Moving to Opportunity 408

ECONOMICS IN PRACTICE Birth Weight and Infant Mortality 407

Difference-in-Differences 409

ECONOMICS IN PRACTICE Using Difference-in- Differences to Study the Minimum Wage 410

Statistical Significance 411Regression Analysis 412


Glossary 417

Index 427

Photo Credits 443

ECONOMICS IN PRACTICE Globalization Improves Firm Productivity 346

U.S. Trade Policies, GATT, and the WTO 347

ECONOMICS IN PRACTICE What Happens When We Lift a Quota? 347

Free Trade or Protection? 349The Case for Free Trade 349The Case for Protection 351

ECONOMICS IN PRACTICE A Petition 353An Economic Consensus 355


19 Open-Economy Macroeconomics: The Balance of Payments and Exchange Rates 359

The Balance of Payments 360The Current Account 360The Financial Account 362

ECONOMICS IN PRACTICE Who Are the Debtor Nations? 363

Equilibrium Output (Income) in an Open Economy 363

The International Sector and Planned Aggregate Expenditure 363Imports, Exports, and the Trade Feedback Effect 366Import and Export Prices and the Price Feedback Effect 366

The Open Economy with Flexible Exchange Rates 367

The Market for Foreign Exchange 368Factors That Affect Exchange Rates 371The Effects of Exchange Rates on the Economy 373

An Interdependent World Economy 376Summary 376 Review Terms and Concepts 377 Problems 377

Appendix 379 Appendix Summary 384 Appendix Problems 384

20 Economic Growth in Developing Economies 385

Life in the Developing Nations: Population and Poverty 386

ECONOMICS IN PRACTICE What Can We Learn from the Height of Children? 387


Preface

New to this EditionUpdates for this edition of Principles of Macroeconomics include:

• It is our hope that students will come to see both how broad the tools of economics are and how exciting is much of the new research in the field. The 13th edition has contin-ued the changes in the Economics in Practice boxes that we began several editions ago. In these boxes, we aim to bring economic thinking to the concerns of the typical student. In many cases, we do this by spotlighting recent research, much of it by young scholars. Here are some examples of the topics we cover in the new boxes:

– Research on the role weather plays in reducing school achievement in rural India by changing the importance of child labor in agriculture (Chapter 1, “The Scope and Method of Economics”).

– The strength of the economics major in helping students avoid unemployment in a recession, showing how the skills students learn in an economics class can benefit them regardless of the career path they choose (Chapter 1, “The Scope and Method of Economics”).

• We have reworked some of the chapters to streamline them and to improve readability. In the discussions of supply and demand and the discussions of perfect and imperfect competition, we have added simple algebraic material to the graphical, numeric and verbal explanations to aid in clarity of understanding.

– In Chapter 32, “Alternative Views in Macroeconomics,” a discussion of behavioral macroeconomics has been added to the Alternative views of macroeconomics.

• We continue to be very excited about Chapter 36, “Critical Thinking About Research.” This material is unique in an introductory economics text. This chapter covers the re-search methodology of economics, where we highlight some of the key concerns of empirical economics: selection issues, causality, statistical significance, and regression analysis. Methodology is a key part of economics these days, and we have tried to give the introductory student a sense of what this methodology is and how to apply it in class and beyond.

• All of the macro data have been updated through 2018. The slow recovery from the 2008–2009 recession is still evident in these data. This gives students a good idea of what has been happening to the economy since they left high school.

• Many end-of-chapter problems have been revised.• We have added Critical Thinking questions to each Economics in Practice box and each

end-of-chapter section, to reinforce the underlying economic principles and to give stu-dents practical application of what they’ve learned.

The Principles of Macroeconomics ProgramOur goal in the 13th edition, as it was in the first edition, is to instill in students a fascination with both the functioning of the economy and the power and breadth of economics. The first line of every edition of our book has been “The study of economics should begin with a sense of wonder.” We hope that readers come away from our book with a basic under-standing of how market economies function, an appreciation for the things they do well,

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Preface xv

and a sense of the things they do poorly. We also hope that readers begin to learn the art and science of economic thinking and begin to look at some policy, and, even personal deci-sions, in a different way. We have prepared this edition of the text and MyLab Economics with this in mind. To improve student results, we recommend pairing the text content with MyLab Economics, which is the teaching and learning platform that empowers you to reach every student. By combining trusted author content with digital tools and a flexible platform, MyLab personalizes the learning experience and will help your students learn and retain key course concepts while developing skills that future employers are seeking in their candidates. From Digital Interactives to Real-time Data Analysis Exercises, MyLab Economics helps you teach your course, your way. Learn more at www.pearson.com/mylab/economics.

Solving Teaching and Learning ChallengesAs authors and teachers, we understand the challenges of the principles of economics course. The foundational themes of Principles of Macroeconomics, 13th edition, are to introduce the discipline of economics and to provide a basic understanding of how economies function. This requires a blend of economic theory, institutional material, and real-world applications. We have maintained a balance between these ingredients in every chapter. There is such volume of material for teachers to cover, and for students to understand. We address this learning challenge through: (1) A three-tiered approach of explaining key concepts through relevant stories, graphs and equations (2) Pedagogical features in the text and accompanying digital resources in MyLab Economics that illustrate and reinforce key concepts through real-world examples and applications that are relevant to students; (3) Graphs and animations; and (4) A wide variety of questions and problems.

Three-Tiered Explanations: Stories-Graphs-EquationsProfessors who teach principles of economics are faced with a classroom of students with different abilities, backgrounds, and learning styles. For some students, analytical material is difficult no matter how it is presented; for others, graphs and equations seem to come naturally. The problem facing instructors and textbook authors alike is how to convey the core principles of the discipline to as many students as possible without selling the better students short. Our approach to this problem is to present most core concepts in the follow-ing three ways.

First, we present each concept in the context of a simple intuitive story or example in words often followed by a table. Second, we use a graph in most cases to illustrate the story or example. And finally, in many cases where appropriate, we use an equation to present the concept with a mathematical formula. In this edition, we have strengthened this element without greatly increasing mathematical levels needed for the class. For students who would benefit from a math review, MyLab Economics offers math skills review Chapter R, acces-sible from the assignment manager and containing over 150 graphing, algebra, and calculus exercises for homework, quiz, and test use.

Economics in PracticeWe know that students are best motivated when they see the relevance of what they’re learning to the world they live in. We’ve created Economics in Practice with a focus on recent research or events that support a key concept in the chapter and help students think about the broad and exciting applications of economics to their lives and the world around them. Each box contains a Critical Thinking question or two to further connect the material they are learning with their lives.


xvi Preface

E C O N O M I C S I N P R A C T I C E

Have You Bought This Textbook?

CRITICAL THINKING

1. If you were to construct a demand curve for a re-quired text in a course, where would that demand curve intersect the horizontal axis?

2. And this much harder question: In the year before a new edition of a text is published, many college bookstores will not buy the older edition. Given this fact, what do you think happens to the gap between enrollments and new plus used book sales in the year before a new edition of a text is expected?

1Judith Chevalier and Austan Goolsbee, “Are Durable Goods Consumers Forward Looking? Evidence From College Textbooks,” Quarterly Journal of Economics, 2009: 1853–1884.

As all of you know full well, college textbooks are expensive. At first, it may seem as though there are few substitutes available for the cash-strapped undergradu-ate. After all, if your professor assigns Smith’s Principles of Biology to you, you cannot go out and see if Jones’ Principles of Chemistry is perhaps cheaper and buy it instead. As it turns out, as some recent work by Judy Chevalier and Austan Goolsbee1 discovered, even when instructors re-quire particular texts, when prices are high students have found substitutes. Even in the textbook market student de-mand does slope down!

Chevalier and Goolsbee collected data on textbooks from more than 1600 colleges for the years 1997–2001 to do their research. For that period, the lion’s share of both new and used college textbooks was sold in college bookstores. Next, they looked at class enrollments for each college in the large majors: economics, biology, and psychology. In each of those classes they were able to learn which textbook had been as-signed. At first, one might think that the total number of textbooks, used plus new, should match the class enrollment. After all, the text is required! In fact, what they found was the higher the textbook price, the more text sales fell below class enrollments.

So what substitutes did students find for the required text? While the paper has no hard evidence on this, students them-selves gave them lots of suggestions. Many decide to share books with roommates. Others use the library more. These solutions are not perfect, but when the price is high enough, students find it worth their while to walk to the library!

To further promote the relevance of economics, Current News Exercises provide a turn-key way to assign gradable news-based exercises in MyLab Economics. Each week, Pear-son scours the news, finds a current microeconomics and macroeconomics news article or video, creates exercises around these news articles, and then automatically adds them to MyLab Economics. Assigning and grading current news-based exercises that deal with the latest micro and macro events and policy issues has never been more convenient.

Concept ChecksGiving students the opportunity to practice what they are learning along the way is critical to their success in the principles of economics course. New for this edition, each section and


Preface xvii

subsection of each learning objective, and select key figures, is reinforced with a Concept Check in the eText of MyLab Economics that contains one or two multiple choice, true/false, or fill-in questions. These checks act as “speed bumps” that encourage students to stop and check their understanding of fundamental terms and concepts before moving on to the next section. The goal is to help students assess their progress on a section-by-section basis, so they can be better prepared for homework, quizzes, and exams.

Graphs AnimationsGraphs are the backbone of introductory economics, but many students struggle to understand and work with them. The Chapter 1 Appendix, “How to Read and Understand Graphs,” shows readers how to interpret the over 200 graphs featured in this book. To make interpreting graphs easier for students, we use red curves to illustrate the behavior of firms, blue curves to show the behavior of households, and a different shade of red and blue to signify a shift in a curve.

The figures in the book are also an integral part of our three-tiered approach to explain concepts in words, equations and graphs. They promote learning as students read an example or story, followed by a mathematical representation, and then see a graphical representation.

Select numbered figures in the text have a supporting animated version in MyLab Economics. The goal is to help students understand shifts in curves, movements along curves, and changes in equilibrium values by bringing graphs to life. Having an animated version of a graph helps students who have difficulty interpreting the static version in the printed text. Graded practice exercises are included with the animations to give students practice reading and interpreting graphs.


xviii Preface

Real-Time DataCurrency is imperative in economics, particularly macroeconomics. We achieve this with real-time data analysis figures and exercises. Many of the key figures in the text have been updated in the MyLab with real-time data from the Federal Reserve’s Economic Data (FRED™) — a comprehensive, up-to-date data set maintained by the Federal Reserve Bank of St. Louis. These animated graphs help students understand shifts in curves, movements along curves, and changes in equilibrium values. Easy to assign and automatically graded, Real-Time Data Analysis exercises use up-to-the-minute, real-time macroeconomic data. These exercises communicate directly with the Federal Reserve Bank of St. Louis’s FRED™ site, so every time FRED posts new data, students see it.

Critical Thinking QuestionsThroughout the course, and after graduation, students need to demonstrate critical thinking skills in their work and careers. To help develop these essential skills, we’ve added a new section of Critical Thinking questions to give students practice in higher-order thinking. Available in MyLab Economics, each end-of-chapter problem set ends with a Critical Thinking Questions section. These questions ask students to think more deeply about the concepts they’ve learned in the chapter when answering them. These assignable essay questions can be used on homework, tests, or quizzes. They require manual scoring; however, each essay question includes a sample correct answer to make grading easy.

C R I T I C A L T H I N K I N G Q U E S T I O N S

QUESTION 1 work and leaves the labor force, she is no longer considered unemployed. What happens to the unemployment rate as a result? Does this mean that the unemployment rate understates or overstates the problem of joblessness?

QUESTION 2 According to the E�ciency Wage Theory, employers occasionally pay workers more than the equilibrium wage in the market in order to increase productivity. Explain how this would lead to reduced turnover.

Problems and SolutionsEach chapter and appendix ends with a problem set that asks students to think about and apply what they’ve learned in the chapter. These problems are not simple memorization questions. Rather, they ask students to perform graphical analysis or to apply economics to a


Preface xix

real-world situation or policy decision. More challenging problems are indicated by an aster-isk. Many problems have been updated. These problems can be assigned and auto-graded in MyLab Economics and are available with optional just-in-time learning aids to help students when they need it the most. Students can also practice these problems in the Study Plan. The Study Plan gives students personalized recommendations, practice opportunities, and learning aids to help them stay on track.

Developing Employability SkillsFor students to succeed in a rapidly changing job market, they should be aware of their career options and how to go about developing the many skills they will need to do so. We focus on developing these skills in a variety of ways.

In the text, the Economics in Practice boxes help students think deeply about concepts and make connections between what they learn in class and how it can apply to their job in the real world. Chapter 1’s Economics in Practice box explores how majoring in economics can help make students less vulnerable to recession. Chapter 11’s Economics in Practice boxes highlight investment banking, the stock market, and investing strategies, topics of particular interest and relevance to students studying economics and finance.

In MyLab Economics, the Critical Thinking Questions and Current News exercises encour-age application of skills that will contribute toward success in this course and in the future, regardless of each students’ career path.

Table of Contents OverviewMacroeconomic StructureWe remain committed to the view that it is a mistake simply to throw aggregate demand and aggregate supply curves at students in the first few chapters of a principles book. To understand the AS and AD curves, students need to know about the functioning of both the goods market and the money market. The logic behind the simple demand curve is wrong when it is applied to the relationship between aggregate demand and the price level. Similarly, the logic behind the simple supply curve is wrong when it is applied to the relationship between aggregate supply and the price level. We thus build up to the AS/AD model slowly.

The goods market is discussed in Chapters 23 and 24 (the IS curve). The money mar-ket is discussed in Chapter 25 (material behind the Fed rule). Everything comes together in Chapter 26, which derives the AD and AS curves and determines the equilibrium values of aggregate output, the price level, and the interest rate. This is the core chapter and where the Fed rule plays a major role. Chapter 27 then uses the model in Chapter 26 to analyze policy effects and cost shocks. Chapter 28 then brings in the labor market. Figure V.1 on page 459 gives you an overview of this structure.

One of the big issues in the organization of the macroeconomic material is whether long-run growth issues should be taught before short-run chapters on the determina-tion of national income and countercyclical policy. In the last four editions, we moved a significant discussion of growth to Chapter 22, “Unemployment, Inflation, and Long-Run Growth,” and highlighted it. However, while we wrote Chapter 31, the major chapter on long-run growth, so that it can be taught before or after the short-run chapters, we remain convinced that it is easier for students to understand the growth issue once they have come to grips with the logic and controversies of short-run cycles, inflation, and unemployment.

Instructor Teaching ResourcesThe instructor supplements are designed to make teaching and testing flexible and easy and are available for Micro, Macro, and Economics volumes.


xx Preface

This program comes with the following teaching resources:

Supplements available to instructors at www.pearsonhighered.com/case Features of the Supplement

Instructor’s Manualauthored by Tony Lima of California State University, East Bay

• Detailed Chapter Outlines include key terminology, teaching notes, and lecture suggestions.

• Topics for Class Discussion provide topics and real-world situations that help ensure that economic concepts resonate with students.

• Unique Economics in Practice features that are not in the main text provide extra real-world examples to present and discuss in class.

• Teaching Tips provide tips for alternative ways to cover the material and brief reminders on additional help to provide students. These tips include suggestions for exercises and experiments to complete in class.

• Extended Applications include exercises, activities, and experiments to help make economics relevant to students.

• Solutions are provided for all problems in the book.

Test Bankauthored by Randy Methenitis of Richland College and Richard Gosselin of Houston Community College

• Multiple-choice, true/false, short- answer, and graph-ing questions with these annotations:

• Difficulty level (1 for straight recall, 2 for some analy-sis, 3 for complex analysis)

• Type (Multiple-choice, true/false, short-answer, essay)• Topic (The term or concept the question supports)• Learning outcome• AACSB learning standard (Written and Oral Commu-

nication; Ethical Understanding and Reasoning; Ana-lytical Thinking; Information Technology; Interpersonal Relations and Teamwork; Diverse and Multicultural Work; Reflective Thinking; Application of Knowledge)

Computerized TestGen TestGen allows instructors to:• Customize, save, and generate classroom tests• Edit, add, or delete questions from the Test Item Files• Analyze test results• Organize a database of tests and student results.

PowerPointsauthored by Jim Lee of Dickinson State University

• Slides include all the graphs, tables, and equations in the textbook.

• PowerPoints meet accessibility standards for students with disabilities. Features include, but not limited to:• Keyboard and Screen Reader access• Alternative text for images• High color contrast between background and

foreground colors

AcknowledgmentsWe are grateful to the many people who helped us prepare the 13th edition. We thank David Alexander, our Portfolio Manager, and Carolyn Philips, our Content Producer, for their help and enthusiasm.

Jennifer Gavigan, project manager at Integra Software Services, Inc., kept us on schedule and ensured that the production process of the book went smoothly. We want to give special thanks to Patsy Balin, Murielle Dawdy, and Tracy Waldman for their research assistance.

We also owe a debt of gratitude to those who reviewed and checked the 13th edition for accuracy. They provided us with valuable insight as we prepared this edition and its supple-ment package.


Preface xxi

Reviewers of the 13th EditionTom Beveridge, Durham Technical

Community CollegeMike Brandl, Ohio StateShuang Feng, Edinboro University Of

PennsylvaniaDave Gordon, University of Saint FrancisAhsan Habib, Adrian CollegeTahereh Hojjat, DeSales UniversitySarah Hsu, SUNY at New PaltzBarbara John, University of DaytonTheresa Powell, University of DaytonFahlino Sjuib, Framingham State

UniversityToni Weiss, Tulane UniversityBenaiah Yongo, Kettering University

Reviewers of Previous EditionsCynthia Abadie, Southwest Tennessee

Community CollegeShawn Abbott, College of the SiskiyousFatma Abdel-Raouf, Goldey-Beacom

CollegeLew Abernathy, University of North

TexasRebecca Abraham, Nova Southeastern

UniversityBasil Adams, Notre Dame de Namur

UniversityJack Adams, University of MarylandBahram Adrangi, University of PortlandDouglas K. Adie, Ohio UniversityDouglas Agbetsiafa, Indiana University,

South BendSheri Aggarwal, University of VirginiaCarlos Aguilar, El Paso Community

CollegeEhsan Ahmed, James Madison UniversityFerhat Akbas, Texas A&M UniversitySam Alapati, Rutgers UniversityTerence Alexander, Iowa State UniversityJohn W. Allen, Texas A&M UniversityPolly Allen, University of ConnecticutStuart Allen, University of North

Carolina at GreensboroHassan Aly, Ohio State UniversityAlex Anas, University at Buffalo, The

State University of New YorkDavid Anderson, Centre CollegeJoan Anderssen, Arapahoe Community

CollegeAnthony Andrews, Governors State

UniversityJim Angresano, Hampton-Sydney CollegeKenneth S. Arakelian, University of

Rhode IslandHarvey Arnold, Indian River Community

CollegeNick Apergis, Fordham UniversityBevin Ashenmiller, Occidental College

Richard Ashley, Virginia Technical University

Birjees Ashraf, Houston Community College Southwest

Kidane Asmeron, Pennsylvania State University

Musa Ayar, University of Texas, AustinJames Aylesworth, Lakeland Community

CollegeMoshen Bahmani, University of

Wisconsin—MilwaukeeAsatar Bair, City College of San FranciscoDiana Bajrami, College of AlamedaMohammad Bajwa, Northampton

Community CollegeRita Balaban, University of North

Carolina, Chapel HillA. Paul Ballantyne, University of

Colorado, Colorado SpringsRichard J. Ballman, Jr., Augustana CollegeKing Banaian, St. Cloud State UniversityNick Barcia, Baruch CollegeHenry Barker, Tiffin UniversityRobin Bartlett, Denison UniversityLaurie Bates, Bryant UniversityKari Battaglia, University of North TexasLeon Battista, Bronx Community CollegeAmanda Bayer, Swarthmore CollegeKlaus Becker, Texas Tech UniversityRichard Beil, Auburn UniversityClive Belfield, Queens CollegeWillie J. Belton, Jr., Georgia Institute of

TechnologyDaniel K. Benjamin, Clemson UniversityCharles A. Bennett, Gannon UniversityEmil Berendt, Siena Heights UniversityDaniel Berkowitz, University of

PittsburghKurt Beron, University of Texas, DallasDerek Berry, Calhoun Community

CollegeTibor Besedes, Georgia Institute of

TechnologyThomas Beveridge, Durham Technical

Community CollegeAnoop Bhargava, Finger Lakes CCEugenie Bietry, Pace UniversityKelly Blanchard, Purdue UniversityJ. Jeffrey Blais, Rhode Island CollegeMannie Bloemen, Houston Community

CollegeMark Bock, Loyola College in MarylandHoward Bodenhorn, Lafayette CollegeBruce Bolnick, Northeastern UniversityFrank Bonello, University of Notre DameJeffrey Bookwalter, University of

MontanaAntonio Bos, Tusculum CollegeMaristella Botticini, Boston UniversityGeorge Bowling, St. Charles Community

CollegeG. E. Breger, University of South Carolina

Dennis Brennan, William Rainey Harper Junior College

Anne E. Bresnock, California State Polytechnic University, Pomona, and the University of California, Los Angeles

Barry Brown, Murray State UniversityBruce Brown, California State

Polytechnic University, PomonaJennifer Brown, Eastern Connecticut

State UniversityDavid Brownstone, University of

California, IrvineDon Brunner, Spokane Falls Community

CollegeJeff Bruns, Bacone CollegeDavid Bunting, Eastern Washington

UniversityBarbara Burnell, College of WoosterAlison Butler, Willamette UniversityCharles Callahan, III, State University of

New York at BrockportFred Campano, Fordham UniversityDouglas Campbell, University of

MemphisBeth Cantrell, Central Baptist CollegeKevin Carlson, University of

Massachusetts, BostonLeonard Carlson, Emory UniversityArthur Schiller Casimir, Western New

England CollegeLindsay Caulkins, John Carroll UniversityAtreya Chakraborty, Boston CollegeSuparna Chakraborty, Baruch College of

the City University of New YorkWinston W. Chang, University at Buffalo,

The State University of New YorkJanie Chermak, University of New MexicoDavid Ching, University of

Hawaii – HonoluluHarold Christensen, Centenary CollegeDaniel Christiansen, Albion CollegeSusan Christoffersen, Philadelphia

UniversitySamuel Kim-Liang Chuah, Walla Walla

CollegeDmitriy Chulkov, Indiana University,

KokomoDavid Colander, Middlebury CollegePaula M. Cole, University of DenverDaniel Condon, University of Illinois at

Chicago; Moraine Valley Community College

Karen Conway, University of New Hampshire

Cesar Corredor, Texas A&M UniversityDavid Cowen, University of Texas,

AustinTyler Cowen, George Mason UniversityAmy Cramer, Pima Community College,

West CampusPeggy Crane, Southwestern College


xxii Preface

Barbara Craig, Oberlin CollegeJerry Crawford, Arkansas State

UniversityJames Cunningham, Chapman

UniversityScott Cunningham, Baylor UniversityElisabeth Curtis, DartmouthJames D’Angelo, University of CincinnatiDavid Dahl, University of St. ThomasSheryll Dahlke, Lees-McRae CollegeJoseph Dahms, Hood CollegeSonia Dalmia, Grand Valley State

UniversityRosa Lea Danielson, College of DuPageDavid Danning, University of

Massachusetts, BostonMinh Quang Dao, Eastern Illinois

UniversityAmlan Datta, Cisco Junior CollegeDavid Davenport, McLennan

Community CollegeStephen Davis, Southwest Minnesota

State UniversityDale DeBoer, Colorado University,

Colorado SpringsDennis Debrecht, Carroll CollegeJuan J. DelaCruz, Fashion Institute of

Technology and Lehman CollegeGreg Delemeester, Marietta CollegeYanan Di, State University of New York,

Stony BrookAmy Diduch, Mary Baldwin CollegeTimothy Diette, Washington and Lee

UniversityVernon J. Dixon, Haverford CollegeAlan Dobrowolksi, Manchester

Community CollegeEric Dodge, Hanover CollegeCarol Dole, Jacksonville UniversityMichael Donihue, Colby CollegeLeslie Doss, University of Texas San

AntonioShahpour Dowlatshahi, Fayetteville

Technical Community CollegeJoanne M. Doyle, James Madison

UniversityRobert Driskill, Ohio State UniversityJames Dulgeroff, San Bernardino Valley

CollegeKevin Duncan, Colorado State

UniversityYvonne Durham, Western Washington

UniversityDebra Sabatini Dwyer, State University of

New York, Stony BrookGary Dymski, University of Southern

CaliforniaDavid Eaton, Murray State UniversityJay Egger, Towson State UniversityErwin Ehrhardt, University of

CincinnatiAnn Eike, University of Kentucky

Eugene Elander, Plymouth State University

Ronald D. Elkins, Central Washington University

Tisha Emerson, Baylor UniversityMichael Enz, Western New England

CollegeErwin Erhardt III, University of

CincinnatiWilliam Even, Miami UniversityAli Faegh, Houston Community CollegeNoel J. J. Farley, Bryn Mawr CollegeMosin Farminesh, Temple UniversityDan Feaster, Miami University of OhioSusan Feiner, Virginia Commonwealth

UniversityGetachew Felleke, Albright CollegeLois Fenske, South Puget Sound

Community CollegeKaren Fitzner, DePaul UniversityWilliam Field, DePauw UniversityDeborah Figart, Richard Stockton

CollegeBarbara Fischer, Cardinal Stritch

UniversityMary Flannery, Santa Clara UniversityBill Foeller, State University of New York,

FredoniaFred Foldvary, Santa Clara UniversityRoger Nils Folsom, San Jose State

UniversityMathew Forstater, University of

Missouri-Kansas CityKevin Foster, The City College of New

YorkRichard Fowles, University of UtahSean Fraley, College of Mount Saint

JosephJohanna Francis, Fordham UniversityRoger Frantz, San Diego State

UniversityMark Frascatore, Clarkson UniversityJames Frederick, UNC at PembrokeAmanda Freeman, Kansas State

UniversityMorris Frommer, Owens Community

CollegeBrandon Fuller, University of MontanaDavid Fuller, University of IowaMark Funk, University of Arkansas,

Little RockAlejandro Gallegos, Winona State

UniversityCraig Gallet, California State University,

SacramentoN. Galloro, Chabot CollegeBill Galose, Drake UniversityWilliam Ganley, Buffalo State, SUNYMartin A. Garrett, Jr., College of William

and MaryTom Gausman, Northern Illinois

University

Richard Gearhart, California State University, Bakersfield

Shirley J. Gedeon, University of VermontJeff Gerlach, Sungkyunkwan Graduate

School of BusinessLisa Giddings, University of Wisconsin,

La CrosseGary Gigliotti, Rutgers UniversityLynn Gillette, Spalding UniversityDonna Ginther, University of KansasJames N. Giordano, Villanova

UniversityAmy Glass, Texas A&M UniversitySarah L. Glavin, Boston CollegeRoy Gobin, Loyola University, ChicagoBill Godair, Landmark CollegeBill Goffe, University of MississippiDevra Golbe, Hunter CollegeRoger Goldberg, Ohio Northern

UniversityJoshua Goodman, New York UniversityOphelia Goma, DePauw UniversityJohn Gonzales, University of San

FranciscoDavid Gordon, Illinois Valley CollegeRichard Gosselin, Houston Community

CollegeEugene Gotwalt, Sweet Briar CollegeJohn W. Graham, Rutgers UniversityDouglas Greenley, Morehead State

UniversityThomas A. Gresik, University of Notre

DameLisa M. Grobar, California State

University, Long BeachWayne A. Grove, Le Moyne CollegeDaryl Gruver, Mount Vernon Nazarene

UniversityOsman Gulseven, North Carolina State

UniversityMike Gumpper, Millersville UniversityBenjamin Gutierrez, Indiana University,

BloomingtonA. R. Gutowsky, California State

University, SacramentoAnthony Gyapong, Penn State University,

AbingtonDavid R. Hakes, University of Missouri,

St. LouisBradley Hansen, University of Mary

WashingtonStephen Happel, Arizona State

UniversityMehdi Haririan, Bloomsburg University

of PennsylvaniaDavid Harris, Benedictine CollegeDavid Harris, San Diego State

UniversityJames Hartley, Mount Holyoke CollegeBruce Hartman, California Maritime

Academy of California State University


Preface xxiii

Mitchell Harwitz, University at Buffalo, The State University of New York

Dewey Heinsma, Mt. San Jacinto CollegeSara Helms, University of Alabama,

BirminghamWayne Hickenbottom, University of

Texas at AustinBrian Hill, Salisbury UniversityDavid Hoaas, Centenary CollegeArleen Hoag, Owens Community

CollegeCarol Hogan, University of Michigan,

DearbornHarry Holzer, Michigan State UniversityWard Hooker, Orangeburg-Calhoun

Technical CollegeBobbie Horn, University of TulsaJohn Horowitz, Ball State UniversityAli Faegh, Houston Community CollegeDaniel Horton, Cleveland State

UniversityYing Huang, Manhattan CollegeJanet Hunt, University of GeorgiaE. Bruce Hutchinson, University of

Tennessee, ChattanoogaCreed Hyatt, Lehigh Carbon Community

CollegeAna Ichim, Louisiana State UniversityAaron Iffland, Rocky Mountain CollegeFred Inaba, Washington State UniversityRichard Inman, Boston CollegeAaron Jackson, Bentley CollegeBrian Jacobsen, Wisconsin Lutheran

CollegeRus Janis, University of MassachusettsJonatan Jelen, The City College of New

YorkEric Jensen, The College of William &

MaryAaron Johnson, Missouri State

UniversityDonn Johnson, Quinnipiac UniversityPaul Johnson, University of Alaska,

AnchorageShirley Johnson, Vassar CollegeFarhoud Kafi, Babson CollegeR. Kallen, Roosevelt UniversityArthur E. Kartman, San Diego State

UniversityHirshel Kasper, Oberlin CollegeBrett Katzman, Kennesaw State

UniversityBruce Kaufman, Georgia State

UniversityDennis Kaufman, University of

Wisconsin, ParksidePavel Kapinos, Carleton CollegeRussell Kashian, University of

Wisconsin, WhitewaterAmoz Kats, Virginia Technical UniversityDavid Kaun, University of California,

Santa Cruz

Brett Katzman, Kennesaw State University

Fred Keast, Portland State UniversityStephanie Kelton, University of Missouri,

Kansas CityDeborah Kelly, Palomar CollegeErasmus Kersting, Texas A&M UniversityRandall Kesselring, Arkansas State

UniversityAlan Kessler, Providence CollegeDominique Khactu, The University of

North DakotaGary Kikuchi, University of Hawaii,

ManoaHwagyun Kim, State University of New

York, BuffaloKeon-Ho Kim, University of UtahKil-Joong Kim, Austin Peay State

UniversitySang W. Kim, Hood CollegePhillip King, San Francisco State

UniversityBarbara Kneeshaw, Wayne County

Community CollegeInderjit Kohli, Santa Clara UniversityHeather Kohls, Marquette UniversityJanet Koscianski, Shippensburg

UniversityVani Kotcherlakota, University of

Nebraska, KearneyBarry Kotlove, Edmonds Community

CollegeKate Krause, University of New MexicoDavid Kraybill, University of GeorgiaDavid Kroeker, Tabor CollegeStephan Kroll, California State

University, SacramentoJoseph Kubec, Park UniversityJacob Kurien, Helzberg School of

ManagementRosung Kwak, University of Texas at

AustinSally Kwak, University of Hawaii-ManoaTim Kwock, University of Hawaii West

OahuSteven Kyle, Cornell UniversityAnil K. Lal, Pittsburg State UniversityMelissa Lam, Wellesley CollegeDavid Lang, California State University,

SacramentoGary Langer, Roosevelt UniversityAnthony Laramie, Merrimack CollegeLeonard Lardaro, University of Rhode

IslandRoss LaRoe, Denison UniversityMichael Lawlor, Wake Forest UniversityPareena Lawrence, University of

Minnesota, MorrisDaniel Lawson, Drew UniversityMary Rose Leacy, Wagner CollegeMargaret D. Ledyard, University of Texas,

Austin

Jim Lee, Fort Hays State UniversityJudy Lee, Leeward Community CollegeSang H. Lee, Southeastern Louisiana

UniversitySangjoon Lee, Alfred UniversityDon Leet, California State University,

FresnoRobert J. Lemke, Lake Forest CollegeDavid Lehmkuhl, Lakeland CollegeGary Lemon, DePauw UniversityAlan Leonard, Wilson Technical

Community CollegeMary Lesser, Iona CollegeDing Li, Northern State UniversityZhe Li, Stony Brook UniversityLarry Lichtenstein, Canisius CollegeBenjamin Liebman, Saint Joseph’s

UniversityJesse Liebman, Kennesaw State UniversityGeorge Lieu, Tuskegee UniversityStephen E. Lile, Western Kentucky

UniversityJane Lillydahl, University of Colorado at

BoulderTony Lima, California State University,

East BayMelissa Lind, University of Texas,

ArlingtonAl Link, University of North Carolina

GreensboroCharles R. Link, University of DelawareRobert Litro, U.S. Air Force AcademySamuel Liu, West Valley CollegeJeffrey Livingston, Bentley CollegeMing Chien Lo, St. Cloud State UniversityBurl F. Long, University of FloridaAlina Luca, Drexel UniversityAdrienne Lucas, Wellesley CollegeNancy Lutz, Virginia Technical

UniversityKristina Lybecker, Colorado CollegeGerald Lynch, Purdue UniversityKarla Lynch, University of North TexasAnn E. Lyon, University of Alaska,

AnchorageBruce Madariaga, Montgomery CollegeMichael Magura, University of ToledoBasel Mansour, New Jersey City

UniversityMarvin S. Margolis, Millersville

University of PennsylvaniaTim Mason, Eastern Illinois UniversityDon Mathews, Coastal Georgia

Community CollegeDon Maxwell, Central State UniversityNan Maxwell, California State University

at HaywardRoberto Mazzoleni, Hofstra UniversityCynthia S. McCarty, Jacksonville State

UniversityJ. Harold McClure, Jr., Villanova

University


xxiv Preface

Patrick McEwan, Wellesley CollegeRonnie McGinness, University of

MississippiTodd McFall, Wake Forest UniversityRick McIntyre, University of Rhode

IslandJames J. McLain, University of New

OrleansDawn McLaren, Mesa Community

CollegeB. Starr McMullen, Oregon State

UniversityK. Mehtaboin, College of St. RoseMartin Melkonian, Hofstra UniversityAlice Melkumian, Western Illinois

UniversityWilliam Mertens, University of Colorado,

BoulderRandy Methenitis, Richland CollegeArt Meyer, Lincoln Land Community

CollegeCarrie Meyer, George Mason UniversityMeghan Millea, Mississippi State

UniversityJenny Minier, University of MiamiIda

Mirzaie, The Ohio State UniversityDavid Mitchell, Missouri State UniversityBijan Moeinian, Osceola CampusRobert Mohr, University of New

HampshireShahruz Mohtadi, Suffolk UniversityAmyaz Moledina, College of WoosterGary Mongiovi, St. John’s UniversityTerry D. Monson, Michigan

Technological UniversityBarbara A. Moore, University of Central

FloridaJoe L. Moore, Arkansas Technical

UniversityMyra Moore, University of GeorgiaRobert Moore, Occidental CollegeNorma C. Morgan, Curry CollegeW. Douglas Morgan, University of

California, Santa BarbaraDavid Murphy, Boston CollegeJohn Murphy, North Shore Community

College, MassachusettsEllen Mutari, Richard Stockton College of

New JerseySteven C. Myers, University of AkronVeena Nayak, University at Buffalo, The

State University of New YorkRon Necoechea, Robert Wesleyan

CollegeDoug Nelson, Spokane Community

CollegeRandy Nelson, Colby CollegeDavid Nickerson, University of British

ColumbiaSung No, Southern University and A&M

CollegeRachel Nugent, Pacific Lutheran University

Akorlie A. Nyatepe-Coo, University of Wisconsin LaCrosse

Norman P. Obst, Michigan State University

William C. O’Connor, Western Montana College

Constantin Ogloblin, Georgia Southern University

David O’Hara, Metropolitan State University

Albert Okunade, University of MemphisRonald Olive, University of

Massachusetts, LowellMartha L. Olney, University of California,

BerkeleyKent Olson, Oklahoma State UniversityJaime Ortiz, Florida Atlantic UniversityTheresa Osborne, Hunter CollegeDonald J. Oswald, California State

University, BakersfieldMete Ozcan, Brooklyn CollegeAlexandre Padilla, Metropolitan State

College of DenverAaron Pankratz, Fresno City CollegeNiki Papadopoulou, University of

CyprusWalter Park, American UniversityCarl Parker, Fort Hays State UniversitySpiro Patton, Rasmussen CollegeAndrew Pearlman, Bard CollegeCharlie Pearson, Southern Maine

Community CollegeRichard Peck, University of Illinois at

ChicagoDon Peppard, Connecticut CollegeElizabeth Perry, Randolph CollegeNathan Perry, University of UtahJoe Petry, University of

Illinois-Urbana-ChampaignJoseph A. Petry, University of IllinoisMary Ann Pevas, Winona State

UniversityChris Phillips, Somerset Community

CollegeJeff Phillips, Morrisville Community

CollegeFrankie Pircher, University of Missouri,

Kansas CityTony Pizelo, Spokane Community

CollegeDennis Placone, Clemson UniversityMike Pogodzinski, San Jose State

UniversityLinnea Polgreen, University of IowaElizabeth Porter, University of North

FloridaBob Potter, University of Central FloridaEd Price, Oklahoma State UniversityAbe Qastin, Lakeland CollegeKevin Quinn, St. Norbert CollegeSarah Quintanar, University of Arkansas

at Little Rock

Ramkishen S. Rajan, George Mason University

James Rakowski, University of Notre Dame

Amy Ramirez-Gay, Eastern Michigan University

Paul Rappoport, Temple UniversityArtatrana Ratha, St. Cloud State

UniversityMichael Rendich, Westchester

Community CollegeLynn Rittenoure, University of TulsaTravis Roach, Texas Tech UniversityBrian Roberson, Miami UniversityMichael Robinson, Mount Holyoke

CollegeJuliette Roddy, University of Michigan,

DearbornMichael Rolleigh, University of

MinnesotaBelinda Roman, Palo Alto CollegeS. Scanlon Romer, Delta CollegeBrian Rosario, University of California,

DavisPaul Roscelli, Canada CollegeDavid C. Rose, University of Missouri-St.

LouisGreg Rose, Sacramento City CollegeRichard Rosenberg, Pennsylvania State

UniversityRobert Rosenman, Washington State

UniversityRobert Rosenthal, Stonehill CollegeHoward Ross, Baruch CollegePaul Rothstein, Washington UniversityCharles Roussel, Louisiana State

UniversityJeff Rubin, Rutgers UniversityMark Rush, University of FloridaDereka Rushbrook, Ripon CollegeJerard Russo, University of HawaiiLuz A. Saavedra, University of St.

ThomasWilliam Samuelson, Boston University

School of ManagementAllen Sanderson, University of ChicagoDavid Saner, Springfield

College – Benedictine UniversityAhmad Saranjam, Bridgewater State

CollegeDavid L. Schaffer, Haverford CollegeEric Schansberg, Indiana

University – SoutheastRobert Schenk, Saint Joseph’s CollegeRamon Schreffler, Houston Community

College System (retired)Adina Schwartz, Lakeland CollegeJerry Schwartz, Broward Community

CollegeAmy Scott, DeSales UniversityGary Sellers, University of AkronAtindra Sen, Miami University


Preface xxv

Chad Settle, University of TulsaJean Shackleford, Bucknell UniversityRonald Shadbegian, University of

Massachusetts, DartmouthLinda Shaffer, California State University,

FresnoDennis Shannon, Southwestern Illinois

CollegeStephen L. Shapiro, University of North

FloridaPaul Shea, University of OregonGeoff Shepherd, University of

Massachusetts AmherstBih-Hay Sheu, University of Texas at

AustinDavid Shideler, Murray State

UniversityAlden Shiers, California Polytechnic

State UniversityGerald Shilling, Eastfield CollegeDongsoo Shin, Santa Clara UniversityElias Shukralla, St. Louis Community

College, MeramecAnne Shugars, Harford Community

CollegeDaniel Sichel, Wellesley CollegeRichard Sicotte, University of VermontWilliam Simeone, Providence CollegeScott Simkins, North Carolina

Agricultural and Technical State University

Larry Singell, University of OregonPriyanka Singh, University of Texas, DallasSue Skeath, Wellesley CollegeEdward Skelton, Southern Methodist

UniversityKen Kenneth Slaysman, York College of

PennsylvaniaJohn Smith, New York UniversityPaula Smith, Central State University,

OklahomaDonald Snyder, Utah State UniversityMarcia Snyder, College of CharlestonDavid Sobiechowski, Wayne State

UniversityJohn Solow, University of IowaAngela Sparkman, Itawamba

Community CollegeMartin Spechler, Indiana UniversityDavid Spigelman, University of MiamiArun Srinivasa, Indiana University,

Southeast

David J. St. Clair, California State University at Hayward

Sarah Stafford, College of William & Mary

Richard Stahl, Louisiana State UniversityRebecca Stein, University of

PennsylvaniaMary Stevenson, University of

Massachusetts, BostonSusan Stojanovic, Washington

University, St. LouisCourtenay Stone, Ball State UniversityErnst W. Stromsdorfer, Washington State

UniversityEdward Stuart, Northeastern Illinois

UniversityChris Stufflebean, Southwestern

Oklahoma State UniversityChuck Stull, Kalamazoo CollegeKenneth Slaysman, York College of

PennsylvaniaDella Sue, Marist CollegeAbdulhamid Sukar, Cameron UniversityChristopher Surfield, Saginaw Valley

State UniversityRodney B. Swanson, University of

California, Los AngelesJames Swofford, University of AlabamaBernica Tackett, Pulaski Technical

CollegeMichael Taussig, Rutgers UniversitySamia Tavares, Rochester Institute of

TechnologyTimothy Taylor, Stanford UniversityWilliam Taylor, New Mexico Highlands

UniversitySister Beth Anne Tercek, SND, Notre

Dame College of OhioHenry Terrell, University of MarylandJennifer Thacher, University of New

MexicoDonna Thompson, Brookdale

Community CollegeRobert Tokle, Idaho State UniversityDavid Tolman, Boise State UniversitySusanne Toney, Hampton UniversityKaren M. Travis, Pacific Lutheran

UniversityJack Trierweler, Northern State

UniversityBrian M. Trinque, University of Texas at

Austin

HuiKuan Tseng, University of North Carolina at Charlotte

Boone Turchi, University of North Carolina

Kristin Van Gaasbeck, California State University, Sacramento

Amy Vander Laan, Hastings CollegeAnn Velenchik, Wellesley CollegeLawrence Waldman, University of New

MexicoChris Waller, Indiana University,

BloomingtonWilliam Walsh, University of St. ThomasChunbei Wang, University of St. ThomasJohn Watkins, WestminsterJanice Weaver, Drake UniversityBruce Webb, Gordon CollegeRoss Weiner, The City College of New YorkElaine Wendt, Milwaukee Area Technical

CollegeWalter Wessels, North Carolina State

UniversityChristopher Westley, Jacksonville State

UniversityJoan Whalen-Ayyappan, DeVry Institute

of TechnologyRobert Whaples, Wake Forest UniversityLeonard A. White, University of ArkansasAlex Wilson, Rhode Island CollegeWayne Winegarden, Marymount

UniversityJennifer Wissink, Cornell UniversityArthur Woolf, University of VermontJadrian Wooten, Penn State UniversityPaula Worthington, Northwestern

UniversityLinus Yamane, Pitzer CollegeBill Yang, Georgia Southern UniversityBen Young, University of Missouri,

Kansas CityDarrel Young, University of TexasMichael Youngblood, Rock Valley CollegeJay Zagorsky, Boston UniversityAlexander Zampieron, Bentley CollegeSourushe Zandvakili, University of

CincinnatiWalter J. Zeiler, University of MichiganAbera Zeyege, Ball State UniversityJames Ziliak, Indiana University,

BloomingtonJason Zimmerman, South Dakota State

University

We welcome comments about the 13th edition. Please write to us care of David Alexander, Executive Editor, Pearson, 501 Boylston Street, 8th floor, Boston, MA 02116.

Karl E. Case

Ray C. Fair

Sharon M. Oster


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