Table of contents - McGraw-Hill Books

Economics
• Added material on indifference curves: In our second edition, we
offered an appendix on the indifference curve approach to the consumer
choice problem on the text web site. But because a number of reviewers
felt strongly that this material should me more accessible for those
who want to use it, we’ve added it an extensively revised appendix to
Chapter 5. This topic can be skipped at no compromise to the material
in the succeeding chapters.
• Algebra appendixes added: To the basic review of the algebra and
geometry of straight lines presented in the mathematical appendix to
Chapter 1, we have added a basic primer on how to solve simple systems
of two equations with two unknowns. In this edition, the treatment of
supply and demand in the main text is carried out exclusively in verbal
and graphical terms. But we have added an appendix to Chapter 3 that
presents an algebraic treatment of supply and demand. We have also
added a brief appendix to Chapter 10 showing how monopoly profit
maximization can be treated in an algebraic framework.
• Additional Economic Naturalist drawings: For reasons best explained
by educational psychologists, illustrations can be an enormously
effective pedagogical tool, in part because of their ability to trigger rich
networks of cognitive association. To exploit this tool more effectively,
we commissioned line drawings by the renowned New Yorker cartoonist
Mick Stevens and other artists to accompany many of the economic
naturalist examples. For this edition, all of the economic naturalist
examples are accompanied by such drawings.
• Expanded Discussion of Macroeconomic Policy: The revised
monetary policy reaction function we introduce in Chapter 27 is a
more realistic description of how the Fed actually conducts monetary
policy and clarifies the Taylor rule. In Chapter 28 we use this policy
reaction function to help students distinguish between a move along
the aggregate demand curve and a shift in the aggregate demand curve
resulting from a change in monetary policy.
• In a new Chapter 29, we provide a more complete analysis of the
interaction between fiscal and monetary policy, illustrating the crucial
role of the central bank in any long-run inflation. We also discuss how
enhanced credibility can help to anchor inflationary expectations and
explain the contributions of central bank independence, inflation targeting,
and central bank reputation. In the last section of Chapter 29
we expand our discussion of the real-world difficulties in conducting
macroeconomic policy.
• More Patient Presentation of Models: In Chapter 26 we explain the
effects of tax cuts on planned aggregate expenditure more carefully. In
an optional box we also solve a simple Keynesian model, leaving the
full model in the appendix, as in the second edition. In the diagrams
in Chapter 28 we include the transitional short-run aggregate supply
lines to illustrate how the short-run aggregate supply line shifts when
actual output deviates from potential output.
• Expanded Discussion of Supply-Side Economics: Most economists
agree that changes in marginal tax rates can affect both aggregate demand
and aggregate supply, but they disagree on the size of the effects.
In Chapter 28 we describe this controversy in greater detail and present
both the theoretical and empirical evidence of the effects of changes in
marginal tax rates on aggregate supply.
• Greater Attention to Asset Prices: In Chapter 21 we provide a clearer
explanation of the inverse relationship between bond prices and interest
rates. We also discuss the effects of changes in asset prices (especially
stocks and houses) on aggregate demand.
• Simpler Presentation of Exchange Rates: We use supply and demand
curves to illustrate the determination of nominal exchange rates before
we introduce the real exchange rate and purchasing-power-parity.
• Additional Material on China: At its current rate of growth the Chinese
economy may become the largest economy in the world within
the next generation. In this edition we expand our discussion of China
in the world economy. We discuss the determinants of its success and
its management of its exchange rate.
• New Material on the Acceleration of Productivity Growth: The
productivity slowdown of 1973-1995 has been followed by surprisingly
strong productivity growth. We present and discuss the reasons
for this acceleration.
• Updated Discussion of Saving and Investment: In addition to emphasizing
the importance of public and private saving and the relationship
between the budget deficit, national saving, and capital flows, we discuss
the recently divergent trends in business and household saving.
• Modern Macroeconomics: Recent developments have renewed
interest in cyclical fluctuations while still paying attention to such
long-run issues as growth, productivity, the evolution of real wages,
and capital formation. Thus, we offer the following organization: A
5-chapter treatment of long-run issues prior to an analysis of short-run
fluctuations followed by a modern treatment of short-term fluctuations
and stabilization policy, emphasizing the important distinction between
short- and long-run behavior of the economy. Consistent with both media
reporting and recent research on the central bank reaction function,
we treat the interest rate rather than the money supply as the instrument
of Fed policy. The analysis of aggregate demand and aggregate supply
relates output to inflation, rather than to the price level, sidestepping
the necessity of a separate derivation of the link between the output
gap and inflation. This book places a heavy emphasis on globalization,
starting with an analysis of its effects on real wage inequality and progressing
to such issues as the benefits of trade, the causes and effects of
protectionism, the role of capital flows in domestic capital formation,
the link between exchange rates and monetary policy, and the sources
of speculative attacks on currencies.
Features
• An Emphasis on Core Principles: A few core principles do most
of the work in economics. By focusing on these principles, the text
assures that students leave the course with a deep mastery of them.
In contrast, traditional encyclopedic texts so overwhelm students
with detail that they often leave the course with little useful working
knowledge at all.
• Economic Naturalism Introduced: The authors’ ultimate goal is to
produce “economic naturalists” –people who see each human action
as the result of an implicit or explicit cost-benefit calculation. The
economic naturalist sees mundane details of ordinary existence in a
new light and becomes actively engaged in the attempt to understand
them. Why don’t auto manufacturers make cars without heaters? Why
are whales, but not chickens, threatened with extinction? Why do movie
theaters give student discounts on the price of admission but not on
the price of popcorn?
• Active Learning Stressed: The only way to lean to hit an overhead
smash in tennis or to speak a foreign language is through repeated
practice. The same is true for learning economics. Thus, the authors
consistently introduce new ideas in the context of simple examples and
then follow them with applications showing how they work in familiar
settings. And frequently, the text poses exercises that both test and reinforce
the understanding of these ideas. The end-of-chapter questions and
problems are carefully crafted to help students internalize and extend
core concepts. Students are prepared to apply the important concepts
to solve “economic riddles” drawn from the real world.
• Well-Known Authors: Robert Frank and Ben Bernanke are renowned
experts in their fields (micro and macro, respectively). Frank’s research
has looked at rivalry and cooperation in economic and social behavior.
He is the author of a best-selling intermediate economics text, Microeconomics
and Behavior, (McGraw-Hill/Irwin), and has published such
award-winning books as The Winner-Take-All-Society and Luxury Fever.
Bernanke is the co-author of a best-selling intermediate macroeconomics
text and has done significant research on the causes of the Great
Depression, the role of financial markets and institutions in the business
cycle, and measuring the effects of monetary policy on the economy.
He was a member of the Federal Reserve Board of Governors for more
than two years and is now the Chairman of the President’s Council of
Economic Advisers.
• Modern Microeconomics: Economic surplus, introduced in Chapter
1 and applied repeatedly thereafter, is more fully developed here than
in any other text. This concept underlies the argument for economic
efficiency as an important social goal. Rather than speak of tradeoffs
between efficiency and other goals, the authors stress that maximizing
economic surplus facilitates the achievement of all goals. The tendency
to ignore opportunity costs, the tendency not to ignore sunk costs, and
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