Brief Principles of Macroeconomics 9th Edition

Book Preface

During my 20-year career as a student, the course that excited me most was the two-semester sequence on the principles of economics that I took during my freshman year in college. It is no exaggeration to say that it changed my life.

I had grown up in a family that often discussed politics over the dinner table. The pros and cons of various solutions to society’s problems generated fervent debate. But in school, I had been drawn to the sciences. Whereas politics seemed vague, rambling, and subjective, science was analytic, systematic, and objective. While political debate continued without end, science made progress. My freshman course on the principles of economics opened my eyes to a new way of thinking. Economics combines the virtues of politics and science. It is, truly,
a social science. Its subject matter is society—how people choose to lead their lives and how they interact with one another—but it approaches the subject with the dispassion of a science. By bringing the methods of science to the questions of politics, economics tries to make progress on the challenges that all societies face. I was drawn to write this book in the hope that I could convey some of the excitement about economics that I felt as a student in my first economics course. Economics is a subject in which a little knowledge goes a long way. (The same cannot be said, for instance, of the study of physics or the Chinese language.) Economists have a unique way of viewing the world, much of which can be taught in one or two semesters. My goal in this book is to transmit this way of thinking to the widest possible audience and to convince readers that it illuminates much about the world around them.

I believe that everyone should study the fundamental ideas that economics has to offer. One purpose of general education is to inform people about the world and thereby make them better citizens. The study of economics, as much as any discipline, serves this goal. Writing an economics textbook is, therefore, a great honor and a great responsibility. It is one way that economists can help promote better
government and a more prosperous future. As the great economist Paul Samuelson put it, “I don’t care who writes a nation’s laws, or crafts its advanced treaties, if I can write its economics textbooks.”

What’s New in the Ninth Edition?

Economics is fundamentally about understanding the world in which we live. Most chapters of this book include Case Studies illustrating how the principles of economics can be applied. In addition, In the News boxes offer excerpts from newspapers, magazines, and online news sources showing how economic ideas shed light on current issues facing society. After students finish their first course in economics, they should think about news stories from a new perspective and with greater insight. To keep the study of economics fresh and relevant for each new cohort of students, I update each edition of this text to keep pace with the ever-changing world.

The new applications in this ninth edition are too numerous to list in their entirety, but here is a sample of the topics covered (and the chapters in which they appear):
• Technology companies are increasingly using economists to better run their businesses. (Chapter 2)
• The theory of economic growth can help explain why so many of the world’s poorest nations are in sub-Saharan Africa. (Chapter 7)
• Economist Martin Feldstein explains why the United States is so prosperous. (Chapter 7)
• Cryptocurrencies may be the money of the future, or they may be a passing fad. (Chapter 11)
• Living during a hyperinflation, such as the recent situation in Venezuela, is a surreal experience. (Chapter 12)
• Recent discussion of trade deficits has included a lot of misinformation. (Chapter 14)
• The Federal Reserve has started to reassess what it means to target an inflation rate of 2 percent. (Chapter 18)

In addition to updating the book, I have refined its coverage and pedagogy with input from many users of the previous edition. There are numerous changes, large and small, aimed at making the book clearer and more student-friendly.

All the changes that I made, and the many others that I considered, were evaluated in light of the benefits of brevity. Like most things that we study in economics, a student’s time is a scarce resource. I always keep in mind a dictum from the great novelist Robertson Davies: “One of the most important things about writing is to boil it down and not bore the hell out of everybody.”

How Is This Book Organized?

The organization of this book was designed to make economics as student-friendly as possible. What follows is a whirlwind tour of this text. The tour will, I hope, give instructors some sense of how the pieces fit together.

Introductory Material

Chapter 1, “Ten Principles of Economics,” introduces students to the economist’s view of the world. It previews some of the big ideas that recur throughout economics, such as opportunity cost, marginal decision making, the role of incentives, the gains from trade, and the efficiency of market allocations. Throughout the book, I refer regularly to the Ten Principles of Economics introduced in Chapter 1 to remind students that these ideas are the foundation for all economics.

Chapter 2, “Thinking Like an Economist,” examines how economists approach their field of study. It discusses the role of assumptions in developing a theory and introduces the concept of an economic model. It also explores the role of economists in making policy. This chapter’s appendix offers a brief refresher course on how graphs are used, as well as how they can be abused Chapter 3, “Interdependence and the Gains from Trade,” presents the theory of comparative advantage. This theory explains why individuals trade with their neighbors, as well as why nations trade with other nations. Much of economics is about how market forces coordinate many individual production and consumption decisions. As a starting point for this analysis, students see in this chapter why specialization, interdependence, and trade can benefit everyone.

I next introduce the basic tools of supply and demand. Chapter 4, “The Market Forces of Supply and Demand,” develops the supply curve, the demand curve, and the notion of market equilibrium. This microeconomic model is the starting point for much of macroeconomic theory