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Macroeconomics
for Today
Eleventh Edition
Irvin B. Tucker
University of North Carolina at Charlotte
Australia ● Brazil ● Canada ● Mexico ● Singapore ● United Kingdom ● United States
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Printed in the United States of America

Print Number: 01 Print Year: 2022
About the Author
Irvin B. Tucker
IRVIN B. TUCKER was a longtime leader in economic education with over 30 years
of experience teaching introductory economics at the University of North Carolina
in Charlotte. He earned his B.S. in economics at N.C. State University and his M.A.
and Ph. D. in economics from the University of South Carolina. Dr. Tucker served as
the executive director of the S.C. Council of Education and director of the Cen-
ter for Economic Education at the University of North Carolina in Charlotte.
Dr. Tucker is recognized for his ability to relate basic principles to economic issues
and public policy. His work has received national recognition by being awarded the
Meritorious Levy Award for Excellence in Private Enterprise Education, the Fed-
eration of Independent Business Award for Postsecondary Educator of the Year in
Entrepreneurship and Economic Education, and the Freedom Foundation’s George
Washington Medal for Excellence in Economic Education. In addition, his research
has been published in numerous professional economics journals on a wide range of
topics, including industrial organization, entrepreneurship, and economics of edu-
cation. Dr. Tucker is also the author of the highly successful Survey of Economics,
eleventh edition, a text for the one-semester principles of economics courses, pub-
lished by Cengage Learning.
iii
Brief Contents
Part 1 Introduction to Economics 1
Chapter 1 Introducing the Economic Way of Thinking 1

Appendix to Chapter 1: Applying Graphs to Economics 16
Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 26
Part 2 Microeconomics Fundamentals 48
Chapter 3 Market Demand and Supply 48

Chapter 4 Markets in Action 78
Appendix to Chapter 4: Consumer Surplus, Producer Surplus,
and Market Efficiency 98
Part 3 Macroeconomics Fundamentals 110
Chapter 5 Gross Domestic Product 110

Appendix to Chapter 5: A Four-Sector Circular Flow Model 137
Chapter 6 Business Cycles and Unemployment 139
Chapter 7 Inflation 165
Part 4 Macroeconomics Theory and Policy 188
Chapter 8 The Keynesian Model 188

Chapter 9 The Keynesian Model in Action 210
Chapter 10 Aggregate Demand and Supply 233
Appendix to Chapter 10: The Self-Correcting Aggregate
Demand and Supply Model 262
Chapter 11 Fiscal Policy 276
Chapter 12 The Public Sector 300
Chapter 13 Federal Deficits, Surpluses, and the National Debt 322
Part 5 Money, Banking, and Monetary Policy 350
Chapter 14 Money and the Federal Reserve System 350

Chapter 15 Money Creation 373
iv
Chapter 16 Monetary Policy 395
Appendix to Chapter 16: Policy Disputes Using the Self-Correcting
Aggregate Demand and Supply Model 422
Chapter 17 The Phillips Curve and Expectations Theory 429
Part 6 The International Economy 455
Chapter 18 International Trade and Finance 455

Chapter 19 Economies in Transition 487
Chapter 20 Growth and the Less-Developed Countries 511
Appendix A Answers to Odd-Numbered Study Questions and Problems 535

Appendix B Answers to Sample Quizzes 552
Appendix C Answers to Road Map Questions 554
Glossary 555
Index 562
Contents
About the Author iii
Preface xiii
Part 1 Introduction to Economics 1
Chapter 1 Introducing the Economic Way of Thinking 1

1-1 Economics: The Study of Scarcity and Choice 1
1-2 Three Fundamental Economic Questions 3
1-3 The Methodology of Economics 5
1-4 Hazards of the Economic Way of Thinking 6
1-5 Why Do Economists Disagree? 7
A Closer Look: Unusual Economic Indicators 8
A Closer Look: Does the Minimum Wage Really Help the Working Poor? 11
Appendix to Chapter 1: Applying Graphs to Economics 16
1A-1 A Direct Relationship 16
1A-2 An Inverse Relationship 18
1A-3 The Slope of a Straight Line 19
1A-4 A Three-Variable Relationship in One Graph 20
1A-5 A Helpful Study Hint for Using Graphs 21
Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 26

2-1 Opportunity Cost 26
2-2 Marginal Analysis 28
2-3 The Production Possibilities Model 28
2-4 Opportunity Cost and the Production Possibilities Curve 32
2-5 Sources of Economic Growth 34
A Closer Look: FedEx Wasn’t an Overnight Success 37
A Closer Look: How Does Public Capital Affect a Nation’s Curve? 39
Part 1: Road Map: Introduction to Economics 46
Part 2 Microeconomics Fundamentals 48
Chapter 3 Market Demand and Supply 48

3-1 Demand 48
vi
Contentsvii
3-2 Supply 56
3-3 Market Equilibrium 63
A Closer Look: The Market Approach to Organ Shortages 67
3-4 Changes in Market Equilibrium 68
Chapter 4 Markets in Action 78

4-1 Market Efficiency 78
4-2 Sources of Market Failure 81
4-3 Policies to Correct Market Failure 86
A Closer Look: Can Vouchers Fix Our Schools? 91
Appendix to Chapter 4: Consumer Surplus, Producer Surplus,
and Market Efficiency 98
4A-1 Consumer Surplus 98
4A-2 Producer Surplus 99
4A-3 Market Efficiency 101
Part 2: Road Map: Microeconomics Fundamentals 107
Part 3 Macroeconomics Fundamentals 110
Chapter 5 Gross Domestic Product 110

5-1 Gross Domestic Product 111
5-2 Measuring GDP 112
5-3 The Expenditure Approach 115
5-4 The Income Approach 118
5-5 GDP Shortcomings 120
5-6 Other National Income Accounts 123
A Closer Look: Is GDP a False Beacon Steering Us into the Rocks? 125
5-7 Changing Nominal GDP to Real GDP 127
Appendix to Chapter 5: A Four-Sector Circular Flow Model 137
Chapter 6 Business Cycles and Unemployment 139

6-1 The Business–Cycle Roller Coaster 139
6-2 Unemployment 146
6-3 Types of Unemployment 151
6-4 The Goal of Full Employment 154
A Closer Look: What Kind of Unemployment Do Robots and Artificial
Intelligence Cause? 156
viii Contents
6-5 Nonmonetary and Demographic Consequences of Unemployment 158

A Closer Look: Brother Can You Spare a Dime? 159
Chapter 7 Inflation 165

7-1 Meaning and Measurement of Inflation 165
7-2 Consequences of Inflation 171
A Closer Look: Who Wants to Be a Trillionaire? 176
A Closer Look: Why the High Cost of Health Care? 178
7-3 Demand-Pull and Cost-Push Inflation 178
Part 3: Road Map: Macroeconomics Fundamentals 185
Part 4 Macroeconomics Theory and Policy 188
Chapter 8 The Keynesian Model 188

8-1 Introducing Classical Theory and the Keynesian Revolution 189
8-2 Reasons the Consumption Function Shifts 196
8-3 Investment Expenditures 198
8-4 Why Investment Demand Is Unstable 200
8-5 Investment as an Autonomous Expenditure 202
A Closer Look: Does a Stock Market Crash Cause Recession? 203
Chapter 9 The Keynesian Model in Action 210

9-1 Adding Government and Global Trade to the Keynesian Model 211
9-2 The Aggregate Expenditures Model 212
9-3 The Spending Multiplier Effect 217
9-4 Recessionary and Inflationary Gaps 221
A Closer Look: Infrastructure Spending 225
Chapter 10 Aggregate Demand and Supply 233

10-1 The Aggregate Demand Curve 234
10-2 Reasons for the Aggregate Demand Curve’s Shape 235
10-3 Nonprice-Level Determinants of Aggregate Demand 237
10-4 The Aggregate Supply Curve 239
10-5 Changes in AD–AS Macroeconomic Equilibrium 244
10-6 Nonprice-Level Determinants of Aggregate Supply 249
10-7 Cost-Push and Demand-Pull Inflation Revisited 251
A Closer Look: Was John Maynard Keynes Right? 254
Contents ix
Appendix to Chapter 10: The Self-Correcting Aggregate

10A-1 The Short-Run and Long-Run Aggregate Supply Curves 262
10A-2 Changes in Potential Real GDP 267
Chapter 11 Fiscal Policy 276

11-1 Discretionary Fiscal Policy 276
11-2 Automatic Stabilizers 287
11-3 Supply-Side Fiscal Policy 289
A Closer Look: The Laffer Curve 294
Chapter 12 The Public Sector 300

12-1 Government Size and Growth 300
12-2 Financing Government Budgets 303
12-3 The Art of Taxation 305
12-4 Public Choice Theory 312
A Closer Look: Is It Time to Trash the 1040s? 313
Chapter 13 Federal Deficits, Surpluses, and the National Debt 322

13-1 The Federal Budget Balancing Act 323
A Closer Look: The Great Federal Budget Surplus Debate 326
13-2 Budget Surpluses and Deficits in Other Countries 330
13-3 Why Worry Over the National Debt? 330
A Closer Look: How Real Is Uncle Sam’s Debt? 339
Part 4: Road Map: Macroeconomics Theory and Policy 346
Part 5 Money, Banking, and Monetary Policy 350
Chapter 14 Money and the Federal Reserve System 350

14-1 What Makes Money? 350
A Closer Look: Why a Loan in Yap Is Hard to Roll Over 354
14-2 Money Supply Definitions 355
14-3 The Federal Reserve System 358
14-4 What a Federal Reserve Bank Does 362
A Closer Look: Should the Fed Be Independent? 364
14-5 The U.S. Banking Revolution 366
x Contents
Chapter 15 Money Creation 373

15-1 Money Creation Begins 373
15-2 Multiplier Expansion of Money
by the Banking System 378
15-3 How Monetary Policy Creates Money 381
15-4 Monetary Policy Shortcomings 387
A Closer Look: How Does the FOMC Really Work? 388
Chapter 16 Monetary Policy 395

16-1 How Are Interest Rates Determined? 396
16-2 The Monetarist View of the Role of Money 404
16-3 A Comparison of Macroeconomic Views 409
A Closer Look: Did the Fed Cause the Great Recession? 410
A Closer Look: Monetary Policy During the Great Depression 413
Appendix to Chapter 16: Policy Disputes Using the Self-Correcting Aggregate
16A-1 The Classical Versus Keynesian Views of Expansionary Policy 422
16A-2 Classical Versus Keynesian Views of Contractionary Policy 424
Chapter 17 The Phillips Curve and Expectations Theory 429

17-1 The Phillips Curve 430
17-2 The Long-Run Phillips Curve 432
A Closer Look: The Political Business Cycle 437
17-3 The Theory of Rational Expectations 439
17-4 Applying the AD–AS Model to the Great Expectations Debate 440
17-5 Incomes Policy 442
17-6 How Different Macroeconomic Theories Attack Inflation 444
A Closer Look: Ford’s Whip Inflation Now (WIN) Button 445
Part 5: Road Map: Money, Banking, and Monetary Policy 451
Part 6 The International Economy 455
Chapter 18 International Trade and Finance 455

18-1 Why Nations Need Trade 456
18-2 Absolute and Comparative Advantage 459
18-3 Free Trade Versus Protectionism 461
18-4 Arguments for Protection 463
Contents xi
A Closer Look: World Trade Slips on a Banana Peel 466

18-5 The Balance of Payments 467
18-6 Exchange Rates 472
A Closer Look: Return to the Yellow Brick Road? 479
Chapter 19 Economies in Transition 487

19-1 Basic Types of Economic Systems 488
19-2 The “ISMS” 495
19-3 Economies in Transition 501
A Closer Look: The Unrealistic Path to Communism 502
A Closer Look: Shining Light on a Debate 504
Chapter 20 Growth and the Less-Developed Countries 511

20-1 Comparing Developed and Less-Developed Countries 512
20-2 Economic Growth and Development
Around the World 516
A Closer Look: India and China’s Economic Growth: An Updated Version
of Aesop’s Tale 522
20-3 The Helping Hand of Advanced Countries 524
Part 6: Road Map: The International Economy 532

Appendix A Answers to Odd-Numbered Study Questions and Problems 535
Appendix B Answers to Sample Quizzes 552
Appendix C Answers to Road Map Questions 554
Glossary 555
Index 562
The Four Versions of This Book
Economics Microeconomics Macroeconomics Survey of
Economics for Today for Today for Today for Today Economics
Introducing the Economic Way of Thinking 1 1 1 1
Production Possibilities, Opportunity Cost, and 2 2 2 2
Economic Growth
Market Demand and Supply 3 3 3 3
Markets in Action 4 4 4 4
Elasticity 5 5 5
Consumer Choice Theory 6 6
Production Costs 7 7 6
Perfect Competition 8 8 7
Monopoly 9 9 8
Monopolistic Competition and Oligopoly 10 10 9
Labor Markets 11 11 10
Income Distribution, Poverty, and Discrimination 12 12 11
Antitrust and Regulation 13 13
Environmental Economics 14 14
Gross Domestic Product 15 5 12
Business Cycles and Unemployment 16 6 13
Inflation 17 7 14
The Keynesian Model 18 8
The Keynesian Model in Action 19 9
Aggregate Demand and Supply 20 10 15
Fiscal Policy 21 11 16
The Public Sector 22 12 17
Federal Deficits, Surpluses, and the National Debt 23 13 18
Money and the Federal Reserve System 24 14 19
Money Creation 25 15 20
Monetary Policy 26 16 21
The Phillips Curve and Expectations Theory 27 17
International Trade and Finance 28 15 18 22
Economies in Transition 29 16 19 23
Growth and the Less-Developed Countries 30 17 20 24
Note: Chapter numbers refer to the complete book, Economics for Today.
xii
Preface
Text with a Mission

The purpose of Economics for Today, eleventh edition, is to teach, in an engaging
style, the basic operations of the U.S. economy to students who will take a two-term
economics course. Rather than taking an encyclopedic approach to economic con-
cepts, Economics for Today focuses on the most important tools in economics and
applies these concepts to clearly explain real-world economic issues and events.
Every effort has been made to make Economics for Today the most student-friendly
text on the market. This text was written because so many others expose students
to a confusing array of economic analyses that force students to simply memorize to
pass the course. Instead, Economics for Today presents a straightforward and unbiased
approach that effectively teaches the application of basic economic principles. After
reading this text, the student should be able to say, “Now that economics stuff in the
news makes sense.”
How It Fits Together

This text presents the core principles of microeconomics, macroeconomics, and
international economics. The first 14 chapters introduce the logic of economic anal-
ysis and develop the core of microeconomic analysis. Here, students learn the role of
demand and supply in determining prices in competitive markets versus monopolis-
tic markets. Within these chapters, the book explores issues such as minimum wage
laws, rent control, and pollution. The next 13 chapters develop the macroeconom-
ics part of the text. Using the modern yet simple aggregate demand and aggregate
supply model, the text explains the measurement of and changes in the price level,
national output, and employment in the economy. The study of macroeconomics
also includes how the supply of and the demand for money influences the economy.
Finally, this text concludes with three chapters devoted entirely to global issues. For
example, students will learn how the supply of and demand for currencies deter-
mine exchange rates and what the implications are for a strong or a weak dollar on
our nation’s economy.
Text Flexibility
The full version of Economics for Today is easily adapted to an instructor’s pref-
erence for the sequencing of microeconomic and macroeconomic topics. This text
can be used in a macroeconomic–microeconomic sequence by teaching the first four
chapters and then Parts 5 through 7. Next, microeconomics is covered in Parts 2
through 4. Finally, the course can be completed with Part 8, consisting of three
chapters devoted to international economics.
An important design feature of this text is that it accommodates the two
major approaches for teaching principles of macroeconomics: those who cover
both the Keynesian Cross and AD–AS models and those who skip the Keynesian
model and cover only the AD–AS model. For instructors who prefer the former,
Economics for Today moves smoothly in Chapters 18–19 (Macroeconomics for
xiii
xiv Preface
Today Chapters 8–9) from the Keynesian model (based on the Great Depression)
to the AD–AS model in Chapter 20 (Macroeconomics for Today Chapter 10). For
instructors using the latter approach, this text is written so instructors can skip the
Keynesian model in Chapters 18–19 (Macroeconomics for Today Chapters 8–9)
and proceed from Chapter 17 (Macroeconomics for Today Chapter 7) to Chapter
20 (Macroeconomics for Today Chapter 10) without losing anything. For example,
the spending multiplier is completely covered both in the Keynesian and AD–AS
model chapters.
For instructors who want to teach the self-correcting AD–AS model, empha-
sis can be placed on the appendices to Chapters 20 (Macroeconomics for Today
Chapter 10) and 26 (Macroeconomics for Today Chapter 16). Instructors who
choose not to cover this model can simply skip these appendices. In short, Econom-
ics for Today provides more comprehensive and flexible coverage of macroeconom-
ics models than is available in other texts. Also, a customized text might meet your
needs. If so, contact your Cengage learning consultant for information.
How Not to Study Economics

To some students, studying economics is a little frightening because many chapters
are full of graphs. Students often make the mistake of preparing for tests by trying
to memorize the lines of graphs. When their graded tests are returned, the students
using this strategy will probably exclaim, “What happened?” The answer to this
question is that the students should have learned the economic concepts first; then,
they would understand the graphs as illustrations of these underlying concepts.
Stated simply, superficial cramming for economics quizzes does not work.
For students who are anxious about using graphs, the Appendix to Chapter 1
provides a brief review of graphical analysis. In addition, Graph Builder in the Tucker
MindTap product contains step-by-step features on how to construct and interpret
graphs. Moreover, videos entitled “GuideMe Videos” (A Graphing Tutorial for Stu-
dents) are found in the Tucker MindTap product that explain numerous key graphs
throughout the textbook.
Changes to the Eleventh Edition

The basic layout of the eleventh edition remains the same. However, there have
been many important changes. Each chapter now begins with clearly stated Chapter
Objectives that outline the key learning goals students should achieve after having
studied the chapter.
Throughout the narrative, the eleventh edition has replaced the “Conclusion
Statements” of previous editions with “Take Note Statements.” These Take Note
statements have been carefully designed and updated to highlight key concepts and
are strategically placed within the chapters to enhance pedagogy. Students will be
able to use these to remember key points when reviewing the chapter and studying
for quizzes and tests. A summary of these Take Note statements is provided at the
end of each chapter.
The eleventh edition has also added a new feature entitled “Am I on Track?”
which are multiple-choice questions testing students' understanding as they move
through the chapter. They are designed to pique interest and to maximize mas-
tery of the material presented in the chapters. They have been strategically placed
Preface xv
throughout each chapter to maximize learning. These questions spark student inter-
est and enable them to check their progress by comparing their answers against
the Key provided at the end of the chapter. Students who answer correctly earn the
satisfaction of knowing they are on track and can feel more confident taking quiz-
zes and tests because these questions are very similar to those they will face on their
exams!
Finally, “Checkpoint” features of the previous editions have become, when
appropriate, new “Study Questions and Problems” found at the end of the chapters.
The following are some additional specific changes.
● Chapter 1, Introducing the Economic Way of Thinking, has added a brief
introduction to the efficiency versus equity trade-off and has an updated
“A Closer Look” Feature on Unusual Economic Indicators to add interest
for students. In addition, our discussion of the three fundamental economic
questions that result from scarcity has been moved to Chapter 1, where
scarcity is introduced. Three “Am I on Track?” multiple-choice questions and
two “Study Questions and Problems” have been created.
● Chapter 2, Production Possibilities, Opportunity Cost, and Economic Growth,
now introduces the concept of economic efficiency using the PPC. Three new
“Am I on Track?” multiple-choice questions, two new “Study Questions and
Problems,” and three new “Sample Quiz” questions have been included.
● Chapter 3, Market Demand and Supply, now concludes with a discussion
of how changes in demand and supply impact the market equilibrium price
and quantity. Four “Am I on Track?” multiple-choice questions, two “Study
Questions and Problems,” and three “Sample Quiz” questions have been
created.
● Chapter 4, Markets in Action, expands the efficiency discussion while
maintaining many of the same examples from previous editions of the text. The
Appendix to Chapter 4 now describes efficiency using consumer and producer
surplus. Three “Am I on Track?” multiple-choice questions, two “Study
Questions and Problems,” and six “Sample Quiz” questions have been added.
● Chapter 5, Gross Domestic Product, has updated data on all components of
GDP. Three new “Am I on Track?” multiple-choice questions and one new
“Study Questions and Problems” have been created.
● Chapter 6, Business Cycles and Unemployment, includes updated business
cycles and unemployment data. This chapter also includes updated
unemployment data by demographic groups with a section on the impacts
of globalization on unemployment. Three new “Am I on Track?” multiple-
choice questions and two new “Study Questions and Problems” have been
created.
● Chapter 7, Inflation, updates data on inflation, including a global comparison
of annual inflation rates. Here, students can also enjoy learning how Babe
Ruth’s 1932 salary is converted into today’s dollars. Three new “Am I on
Track?” multiple-choice questions and two new “Study Questions and
Problems” have been created.
● Chapter 8, The Keynesian Model, has updated data on all personal
consumption, disposable income, and investment. Three new “Am I on
Track?” multiple-choice questions and one new “Study Questions and
xvi Preface
● Chapter 9, The Keynesian Model in Action, has three new “Am I on Track?”
multiple-choice questions and two new “Study Questions and Problems.”
● Chapter 10, Aggregate Demand and Supply, has three new “Am I on Track?”
multiple-choice questions and two new “Study Questions and Problems.”
● Chapter 11, Fiscal Policy, has three new “Am I on Track?” multiple-choice
questions and two new “Study Questions and Problems.”
● Chapter 12, The Public Sector, highlights the important current issue of the
changing economic character of the United States with global comparisons to
other countries. Here, for example, updated data and exhibits trace the growth
of U.S. government expenditures and taxes since the Great Depression. Global
comparisons of spending and taxation exhibits have been revised. Four new
“Am I on Track?” multiple-choice questions” and one new “Study Questions
and Problems” have been created.
● Chapter 13, Federal Deficits, Surpluses, and the National Debt, focuses on
the current “hot button” issue of federal deficits and the national debt using
updated data and exhibits. This chapter includes global comparisons of the
deficit and national debt as a percentage of GDP. Three new “Am I on Track?”
multiple-choice questions and one new “Study Questions and Problems” have
been created.
● Chapter 14, Money and the Federal Reserve System, has updated money
supply figures and an updated listing of the top 10 U.S. banks by asset size.
This chapter also examines the role of bitcoins as money and has A Closer
Look entitled “Should the Fed be Independent?” Three new “Am I on Track?
multiple-choice questions and one new “Study Questions and Problems” have
been created.
● Chapter 15, Money Creation, has a new end-of-chapter Study Question and
Problem that asks students to determine how the Fed could utilize its tools to
combat unemployment. Three new “Am I on Track? multiple-choice questions
and two new “Study Questions and Problems” have been created.
● Chapter 16, Monetary Policy, features a new Checkpoint that tests students’
understanding of how the Fed could push interest rates down. Three new
“Am I on Track? multiple-choice questions and two new “Study Questions and
● Chapter 17, The Phillips Curve and Expectations Theory, has three new
“Am I on Track?” multiple-choice questions and two new “Study Questions
and Problems.”
● Chapter 18, International Trade and Finance, has updated data for the
international balance of payments and trade. Three new “Am I on Track?”
multiple-choice questions and two new “Study Questions and Problems” have
been created.
● Chapter 19, Economies in Transition, has greater clarification on the
differences between capitalism and socialism and why all real-world economies
are mixed economies. Three new “Am I on Track?” multiple-choice questions
and one new “Study Questions and Problems” have been created.
● Chapter 20, Growth and the Less Developed Countries, presents updated
data ranking countries by their GDP per capita. It also presents updated
data comparing regions of the world by their average GDP per capita.
Preface xvii
Here, updated data is used to explain the link between economic freedom
and quality-of-life indicators. Three new “Am I on Track?” multiple-choice
questions” and two new “Study Questions and Problems” have been created.
Alternative Versions of the Book

For instructors who want to spend various amounts of time for their courses and
offer different topics of this text:
● Economics for Today. This complete version of the book contains all 30
chapters. It is designed for two-semester introductory courses that cover both
microeconomics and macroeconomics.
● Microeconomics for Today. This version contains 17 chapters and is designed
for one-semester courses in introductory microeconomics.
● Macroeconomics for Today. This version contains 20 chapters and is designed
for one-semester courses in introductory macroeconomics.
● Survey of Economics. This version of the book contains 24 chapters.
It is designed for one-semester courses that cover the basics of both
microeconomics and macroeconomics.
The Available Versions accompanying table on page xii shows precisely which
chapters are included in each book. Instructors who want more information about
these alternative versions should contact their local Cengage learning consultant.
Motivational Pedagogical Features

Economics for Today strives to motivate and advance the boundaries of pedagogy
with the following features:
Part Openers
Each part begins with a statement of the overall mission of the chapters in the part.
In addition, there is a nutshell introduction for each chapter in relation to the part’s
learning objective.
Chapter Objectives
Each chapter begins with Chapter Objectives that outline the key learning goals
students should achieve after having studied the chapter. This is followed by a brief
introduction to the chapter that is designed to pique the student’s interest and help
place the chapter material into the broader context of the book.
Margin Definitions and Flashcards

Key concepts introduced in the chapter are highlighted in bold type and then defined
with the definitions again in the margins. This feature, therefore, serves as a quick
reference. Key terms are also defined on the Tucker MindTap product with a flash-
card feature that is great for learning terms.
xviii Preface
A Closer Look
Each chapter includes boxed inserts that provide the acid test of “relevance to
everyday life.” These were formerly known as the “You’re the Economist” boxed
sections. This feature gives the student an opportunity to encounter timely, real-
world extensions of economic theory by taking a closer look at important concepts
introduced in the chapter. For example, students read about Fred Smith as he writes
an economics term paper explaining his plan to create FedEx. To ensure that the
student wastes no time figuring out which chapter concepts apply to these boxed
features, applicable concepts are listed after each title. Several of these boxed fea-
tures include quotes from newspaper articles over a period of years, demonstrating
that economic concepts remain relevant over time. Many of these boxed features
have been updated or changed in the eleventh edition to reflect the latest issues,
developments, and relevant applications of economics for students today.
The accompanying “Analyze the Issue” questions found in previous editions
have now been moved to the Instructor’s Manual, where suggested answers are also
provided for these thought-provoking questions that require students to test their
knowledge of how the material in the boxed insert is relevant to the applicable con-
cept introduced in the chapter.
Take Note Statements

Throughout the chapters, highlighted Take Note statements of key concepts strate-
gically appear where most pedagogically advantageous. These Take Note statements
have been carefully designed and updated to replace the “Conclusion Statements”
of the previous edition. Students will be able to use these to remember key points
when reviewing the chapter and studying for tests. A summary of these Take Note
statements is provided at the end of each chapter.
Am I on Track? Multiple-Choice Questions

Watch for these! Who said learning economics can’t be fun? This new feature is a
unique approach to generating interest and critical thinking. These questions spark
students to check their progress by asking challenging economics questions. Stu-
dents enjoy thinking through and answering these Am I on Track? multiple-choice
questions and then checking the answers at the end of the chapter. Students who
answer correctly earn the satisfaction of knowing they are on track and ready to
continue progressing through the material and can feel more confident taking tests
because these questions are very similar to those they will face on their exams! All
of these are new for the updated eleventh edition to pique interest and to maximize
mastery of the material presented in the chapters.
Exhibits
Attractive, large graphical presentations with grid lines and real-world numbers are
essential for any successful economics textbook. Each exhibit has been carefully
analyzed to ensure that the key concepts being represented stand out clearly. Brief
descriptions are included with graphs to provide guidance for students as they study
the graph. The MindTap course brings these exhibits to life:
● Students can interact with selected exhibits via Graph Builder.
● Students can watch detailed explanations of selected exhibits via the GuideMe
Videos (a graphing tutorial for students.)
Preface xix
Key Terms
Key terms introduced in the chapter are listed at the end of each chapter and defined
in the margins. Visit the Tucker MindTap to access interactive flashcards.
Visual Summaries
Each chapter ends with a brief point-by-point summary of the key concepts. Many
of these summarized points include miniaturized versions of the important graphs
and causation chains that illustrate many of the key concepts. These are intended to
serve as visual reminders for students as they finish the chapters and are also useful
in reviewing and studying for quizzes and exams.
Study Questions and Problems

These end-of-chapter questions and problems offer a variety of levels ranging from
straightforward recall to deeply thought-provoking applications. The answers to
odd-numbered questions and problems are found in Appendix A in the back of the
text. This feature gives students immediate feedback without requiring the instruc-
tor to check their work. The even-numbered answers are found in the Instructor’s
Manual. Most of the previous edition’s “Checkpoints” have been added as new
Study Questions and Problems in this eleventh edition.
End-of-Chapter Sample Quizzes

These particular assessments are a great help before quizzes and tests. Many instruc-
tors test students using multiple-choice questions. For this reason, the final section
of each chapter provides the type of multiple-choice questions given in the test
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chapter sample quizzes, each section quiz appears in the Tucker MindTap product.
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ple quizzes, students are well prepared for tests. Finally, the Instructor’s Manual also
contains four to five multiple-choice questions per chapter that can also be used to
engage students with the material.
Road Maps
This feature concludes each sectioned part with review questions listed by chapter
from the particular part. These help to reinforce learning and prepare students for
tests. Answers to the questions are also found in Appendix C in the back of the text.
A Supplements Package Designed for Success

Tucker is known for its unequaled resources for instructors and students. To access
additional course material for Economics for Today, visit www.cengagebrain.com.
At the CengageBrain.com home page, search for “Tucker” using the search box on
the page. This will take you to the product page where these resources can be found.
For additional information, contact your Cengage learning consultant.
xx Preface
Instructors’ Resources
Tucker Companion Site
The Tucker website at www.cengagebrain.com provides open access to PowerPoint
chapter review slides; an instructor’s manual prepared by Douglas Copeland of
Johnson County Community College, available in various formats; updates to the
text, describing key concepts relevant to the current states of economics and the
world today; PowerPoint lecture tools elaborating on key concepts and exhibits,
which can be used as supplies or can be customized for instructor intentions; and
test banks in various downloadable formats.
Student Resources
MindTap for Tucker
MindTap engages students and aids them in consistently producing their best work.
By seamlessly integrating course material with interactive media, step-by-step
graphing, activities, apps, and much more, MindTap creates a unique learning path
for courses that fosters increased comprehension and efficiency of the material.
● MindTap delivers real-world relevance with activities, assignments, homework,
media, and study tools that help students build critical thinking and analytic
skills that will carry over to their professional lives.
● MindTap helps students stay organized and efficient with a single destination
that reflects what’s important to the instructor and the tools to master
that content. MindTap empowers students to get their “game face on” by
motivating them with competitive benchmarks in performance.
● Relevant readings, multimedia, and activities are designed to take students up
the levels of learning from basic knowledge to analysis and application.
● Analytics and reports provide a snapshot of class progress, time in course,
engagement, and completion rates.
● News Analysis and Concept Clips help students by bringing real world
economic applications to life. A+ Test Prep provides practice tests that help
students identify topics that need further study.
● Homework and the Math & Graphing Tutorial, both powered by Aplia, and
videos that explain key graphs round out the student learning experience
within MindTap that enable students to master course content.
● New features to this edition are Video Problem Walk-Throughs which walk a
student through a challenging homework problem.
● Interactive Graphing Lessons break down graphing concepts into digestible
assignments with corresponding video support.
Acknowledgments
A deep debt of gratitude is owed to the reviewers of all 11 editions for their expert
assistance. All comments and suggestions were carefully evaluated and served to
improve the final product.
Preface xxi
Special Thanks
Much appreciation goes to Chris Rader, Product Manager, for allowing us contrib-
uting authors, Douglas W. Copeland (Johnson Country Community College) and
Inge O’Connor (Syracuse University), to have the opportunity to revise Irvin Tuck-
er’s Economics for Today for this eleventh edition. Many thanks also goes to Anita
Verma and Colleen Farmer, senior Content Managers; Brian Rodriguez and Eugenia
Belova as senior In-House Subject Matter Experts and Andrew DeJong as In-House
Subject Matter Expert. We also want to express our sincere thanks for a job well
done to the entire team at Cengage.
A Tribute to Irvin B. Tucker

The contributing authors, Douglas W. Copeland, and Inge O’Connor, and the entire
Cengage team want to express our heartfelt gratitude for the opportunity and the
privilege to have been able to work on this textbook. Many of us had the pleasure
of working with Irvin Tucker and this textbook over all these many years. Some of
us, including Doug Copeland, have had the honor of working with Irvin from the
beginning, when this book was just a manuscript. We know of few, if any, other
authors who have consistently demonstrated such a firm commitment and tire-
less dedication to teaching and learning. Irvin always believed that knowledge of
economics can enhance people’s lives and should, therefore, be made accessible to
everyone. And Irvin displayed the rare ability to translate complex concepts into
easily understood principles that have enriched the lives of countless numbers of
students across the globe. He has made economics not only accessible but fun to
learn. For this, he has distinguished himself among the very best economists of our
time! His life has complemented the profession of economics and promoted the
noble cause of education. Beyond having earned our respect as a superb economist
and author, Irvin was also always a joy to work with. He was always kind to every-
one, willing to listen to any new ideas or suggestions, and consistently made every-
one feel needed and appreciated.
We would be remiss if we did not also make a tribute to Irvin’s wife, Nonie.
Nonie has also demonstrated the traits of those you feel blessed to work with. She
has also made countless meaningful contributions to this title from the very begin-
ning. Irvin and Nonie have always been known to be “quite the team!” Thank you,
Irvin, and thank you, Nonie! You have made the world a better place!
This edition is dedicated to the memory of Irvin B. Tucker.
Chapter 1
Introducing the Economic

Way of Thinking
Chapter Objectives
1. Describe economics as a field of study.
2. Describe the three fundamental economic questions that arise from
scarcity.
3. Discuss the steps and common pitfalls in the economic model-building
process.
4. Describe common sources of disagreement among economists.
Have you ever wondered why colleges and universities charge students different tuition
rates for the same education or why some countries grow rich while others remain
poor and less developed? In this text, you will learn what it means to think economi-
cally, and you will come to see how the economic way of thinking is a powerful tool
that can be used to explain a broad array of issues, from small choices we make in
our daily lives to larger issues faced by countries worldwide. So, let’s get started and
begin exploring the economic way of thinking.
1-1 Economics: The Study of Scarcity and Choice

Economics is sometimes referred to as the “science of choice.” We all make choices
every day. Should you get up early to study for a test or sleep in? Should you stop
at a fast food restaurant on the way home or wait to cook dinner when you get
home? The need to make choices is unavoidable. Robert Frost described this in his
poem “The Road Less Traveled” and the Rolling Stones sang “You Can’t Always
2 Part 1 • Introduction to Economics
Get What You Want.” Let’s look a bit more closely now at why we must make
choices and how the economic way of thinking helps us understand the choices
people make.
1-1a The Problem of Scarcity

At the heart of the economic way of thinking is the fact that we live in a world of
Scarcity scarcity. Scarcity is the condition in which human wants are forever greater than the
The condition in which available supply of time, goods, and resources. Because of scarcity, we are unable to
human wants are forever have as much as we would like. Pause for a moment to consider some of your own
greater than the available
supply of time, goods, and
unsatisfied wants. Perhaps you would like a new winter coat, a car, clean air, better
resources. health care, shelter for the homeless, more leisure time, and so on. Unfortunately, there
is not enough time nor are there enough resources to satisfy every want. Instead, there
are always limits on the economy’s ability to satisfy these unlimited wants and as a
result, choices must be made.
The problem of scarcity impacts individuals, governments, and societies through-
out the world. You may think the scarcity problem would disappear if you were rich,
but even the “rich and famous” desire finer homes, faster planes, and more yachts.
What is true for individuals also applies to society. The federal government never
has enough money to spend for education, highways, police, national defense, Social
Security, and all the other programs it wants to fund. Finally, scarcity is a fact of life
throughout the world.
In much of South America, Africa, and Asia, the problem of scarcity is often
life-threatening. On the other hand, even in more developed countries where life is
much less “grueling” such as in North America, Western Europe, and some parts of
Asia, the problem of scarcity still exists because individuals and countries never have
as much of all the goods and services as they would like to have.
As a result of scarcity, every nation must decide what combination of goods and
services to produce, how to produce them, and who is going to get those goods and
services. These economic choices have profound social and political implications.
Take Scarcity forces all societies to make choices regarding what

Note combination of goods and services to produce, how to produce
them and who will get the limited supply of those goods and
services.
1-1b Scarcity and Economics

The perpetual problem of scarcity forcing people and nations to make choices is the
Economics basis for the definition of economics. Economics is the study of how society chooses
The study of how society to allocate its scarce resources to satisfy unlimited wants. You may be surprised by
chooses to allocate its
this definition. People often think economics means studying supply and demand, the
scarce resources to the
production of goods and stock market, money, and banking. Well, those are certainly parts, but economics is
services to satisfy unlimited more all-encompassing. It is the study of the choices we make because we are faced
wants. with scarcity—because we are unable to have as much as we would like.
Society makes two broad levels of choices: economy-wide, or macro choices,
and individual, or micro choices. The prefixes macro and micro come from the
Greek words meaning “large” and “small,” respectively. Reflecting the macro and
micro perspectives, economics consists of two main branches: macroeconomics and
microeconomics.
Chapter 1 • Introducing the Economic Way of Thinking 3
The old saying “look at the forest rather than the trees” describes macroeconomics, Macroeconomics
which is the branch of economics that studies decision making for the economy as a The branch of economics
whole. This “big picture” view is concerned with what causes the broader economy that studies decision
making for the economy as
to sometimes expand and grow and provide for more jobs, while at other times it a whole.
experiences a recession and higher rates of unemployment. In our discussions of the
macroeconomy, we often focus on this “business cycle” and what government can do
to try to smooth out these fluctuations to promote full employment and economic
growth, and to minimize inflation.
Examining individual trees, leaves, and pieces of bark, rather than surveying the
forest, illustrates microeconomics. Microeconomics is the branch of economics that Microeconomics
studies decision making by a single individual, household, firm, industry, or level of The branch of economics
government. It applies a microscope to study specific parts of an economy, as one that studies decision
making by a single
would examine cells in the body. Microeconomics typically focuses on a specific individual, household,
market or industry, or even a specific firm within an industry. firm, industry, or level of
We have described macroeconomics and microeconomics as two separate government.
branches, but they are related. Because the overall economy is the sum, or aggre-
gation, of its parts, micro changes affect the macro economy, and macro changes
produce micro changes.
Take Economics is the study of how society chooses to allocate its

Note scarce resources to the production of goods and services to satisfy
unlimited wants; microeconomics studies how decisions are made
by individuals and firms, while macroeconomics is concerned
with broader issues that impact the economy as a whole.
1-2 Three Fundamental Economic Questions

Because of the problem of scarcity, whether rich or poor, every nation must answer
the same three fundamental economic questions:
1. What products will be produced?
2. How will they be produced? and
3. For Whom will they be produced?
Let’s take a closer look at each fundamental question.
1-2a What to Produce?

The What question requires that an economy decide the mix and quantity of goods
and services it will produce. Should society devote more of its limited resources to
producing health care and less to military goods? Should society produce more elec-
tric cars and fewer SUVs? The problem of scarcity restricts our ability to produce
everything we want during a given period, so the choice to produce “more” of one
good requires producing “less” of another good. The answer to the What question
is determined differently across economic systems, with some relying more heavily
on the decisions of self-interested individual buyers and sellers operating through
markets and others relying more on government decision-making to determine what
gets produced.
1-2b How to Produce?

After deciding what products to make, the second question for society to decide
is how to mix existing technology and resources to produce these goods. Because
of the economic problem of scarcity, no society has enough resources to produce
Resources all the goods and services necessary to satisfy all human wants. Resources are the
The basic categories of basic categories of inputs used to produce goods and services. Resources are also
inputs used to produce called factors of production (or “inputs”). Economists divide resources into three
goods and services.
Resources are also called
categories:
factors of production. 1. Land
Economists divide
resources into three
2. Labor
categories: land, labor, and 3. Capital
capital.
Land is a shorthand expression for any natural resource provided by nature that
Land is used to produce a good or service. Land includes those resources or raw materials
Any natural resource that are gifts of nature available for use in the production process. Farming, building
provided by nature that is
used to produce a good or
factories, and constructing oil refineries would be impossible without land. Land
service. includes anything natural above or below the ground, such as forests, gold, diamonds,
oil, coal, wind, and the ocean.
Labor
Labor is the mental and physical capacity of workers to produce goods and ser-
The mental and physical
capacity of workers to vices. The services of farmers, assembly-line workers, lawyers, professional football
produce goods and players, and economists are all labor. The labor resource is measured both by the
services. number of people available for work and by the skills or quality of workers. One
reason that nations differ in their ability to produce is that human characteristics,
such as the educational opportunities, experience, and health, of workers, differ
among nations. For this reason, education and training, which improve the ability
of workers to perform their work, play an important role in answering the How
question.
Capital Capital can be defined as a human-made good used to produce other goods and
A human-made good used services; it includes physical plants, machinery, equipment, roads, and bridges. The
to produce other goods term capital, as it is used in the study of economics, should not be confused with the
and services.
term financial capital, which when used in everyday conversations refers to money
or stocks and bonds. However, capital as used by economists means a factor of pro-
duction such as a factory or machinery.
The three factors of production are organized, managed, and directed by entre-
Entrepreneurship preneurs. Entrepreneurship is the creative ability of individuals to seek profits by
The creative ability of taking risks and combining resources to produce innovative products. Entrepreneurs,
individuals to seek profits because they are another human resource, could be thought of as a special type of
by taking risks and
combining resources
labor. Entrepreneurs are often successful when they embrace new or existing tech-
to produce innovative nologies (using their “know-how”) in creative ways. For example, consider all of the
products. amazing apps created for use with Androids and the iPhone. An important benefit of
entrepreneurship is that it creates a growing economy.
1-2c For Whom to Produce?

After the What and How questions are resolved, the third question is For Whom are
these products produced? This question concerns how the economic pie is divided.
Who is fed well? Who drives a Mercedes? Who receives organ transplants? In some
economic systems, the For Whom question is largely decided by the government, while
in others, it is decided by the owners of the factors of production.
Am I on 1. Because of scarcity, no society has enough resources

Track? (land, labor, and capital) to produce the goods and
services necessary to satisfy all human wants. As a
result, every nation must:
a. Work to eliminate scarcity
b. Make choices about what, how, and for whom to produce
c. Establish a minimum wage
d. All of the above
Answers at the end of chapter.
1-3 The Methodology of Economics

As used by other disciplines, such as criminology, biology, chemistry, and physics,
economists employ a step-by-step procedure for solving problems.
Step 1: Identify the problem
Step 2: Develop a model
Step 3: Gather data and test whether the theory can be supported by the data
Step 4: Formulate a conclusion
Step 1: Identify the Problem

The first step in applying the economic method is to define the issue. Suppose as
an example, an economist wishes to investigate the microeconomic problem of
why U.S. motorists cut back on gasoline consumption in a given year from, say,
400 million gallons per day in May to 300 million gallons per day in December.
So, the issue we will investigate is, “Why did the consumption of gasoline decrease
during this time?”
Step 2: Develop a Model

The second step in applying the economic method is for the economist to build a
model. A model is a simplified description of reality used to understand and predict Model
the relationship between variables. A model emphasizes only those variables that are A simplified description of
reality used to understand
most important to explaining an event. The purpose of a model is to construct an
and predict the relationship
abstraction from real-world complexities and make events understandable. Consider between variables.
a model airplane that is placed in a wind tunnel to test the aerodynamics of a new
design. For this purpose, the model must represent only the shapes of the wings and
fuselage, but it does not need to include tiny seats, electrical wiring, or other interior
design details.
To be useful, a model requires simplified assumptions. In our gasoline consump-
tion example, several variables might be related to the quantity of gasoline consumed,
including the price of gasoline, consumer incomes, the fuel economy of cars, and
weather conditions. Using their expertise, economists must select the variables that
are related to gasoline consumption and reject variables that have only a slight or
no relationship to gasoline consumption. In this simple case, the economist removes
the cloud of complexity by formulating a theory, which states that increases in the
price of gasoline cause the quantity of gasoline consumed to decrease during the
time period.
Step 3: Gather Data and Test the Theory

The purpose of an economic model is to forecast or predict the results of various
changes in variables. An economic theory can be expressed in the form “If X, then Y,
all other things held constant.” An economic model is useful only if it yields accurate
predictions. In this third step, the economist gathers data to test the theory that if the
price of gasoline rises, then gasoline purchases fall—all other relevant factors held
constant.
Step 4: Formulate a Conclusion

When the evidence is consistent with the theory that X causes outcome Y, there is
confidence in the theory’s validity. When the evidence is inconsistent with the theory
that X causes outcome Y, the researcher rejects this theory. Suppose the investigation
reveals that the price of gasoline rose sharply between May and December. The data,
therefore, appear to support the theory that the quantity of gasoline consumed falls
when its price rises, assuming no other factors which could have caused people to
buy less gasoline have changed.
1-4 Hazards of the Economic Way of Thinking

As we just saw, models help us understand and predict the impact of changes in eco-
nomic variables. As such, a model is an important tool in the economist’s toolkit, but
it must be handled with care. The economic way of thinking seeks to avoid reasoning
mistakes. Two of the most common pitfalls to clear thinking are:
1. failing to understand the ceteris paribus assumption.
2. confusing correlation and causation.
1-4a The Ceteris Paribus Assumption

Ceteris paribus Ceteris paribus is a Latin phrase that means while certain variables change, “all other
A Latin phrase that means things remain unchanged.” In short, the ceteris paribus assumption allows us to isolate
while certain variables or focus attention on selected variables. In our gasoline example, a key simplifying
change, “all other things
remain unchanged.”
assumption of the model is that changes in consumer incomes and certain other
variables do not occur and complicate the analysis. The ceteris paribus assumption
holds everything else constant and therefore allows us to concentrate on the relation-
ship between two key variables: changes in the price of gasoline and the quantity of
gasoline purchased per month.
Now suppose an economist examines a model explaining the relationship between
the price and quantity purchased of Coca-Cola. The theory is “If the price increases,
then the quantity of Coca-Cola purchased decreases, ceteris paribus.” Now assume you
observe that the price of Coca-Cola increased in one summer, and some people actually
bought more, not less. Based on this real-world observation, you might declare that
the theory is incorrect. Think again! Perhaps the reason the model appeared flawed is
because another factor—for example a sharp rise in the temperature—caused people
to buy more Coca-Cola in spite of its higher price. However, if the temperature and
all other factors were held constant, and the ceteris paribus assumption is satisfied,
we would find that as the price of Coca-Cola rises, people will indeed buy less Coca-
Cola, as the model predicts.
Take It is important to make sure the ceteris paribus assumption,

Note that all other things remain unchanged, is satisfied if we
wish to correctly conclude there is a relationship between
two variables.
1-4b Correlation versus Causation

Another common error in reasoning is confusing correlation (or association) and
causation between variables. Stated differently, you err when you read more into a
relationship between variables than is actually there. A model is valid only when a
cause- and-effect relationship is stable or dependable over time, rather than being
an association that occurs by chance and eventually disappears. Suppose Jai baked
cookies during three different months and stock market prices rose during each of
those months. Jai’s cookie baking is correlated with the increase in stock prices, but
this does not mean the baking caused the event. Even though there is a statistical
relationship between these two variables in a number of observations, eventually the
cookie baking will occur and stock prices will fall or remain unchanged. The reason
is that there is no true systematic economic relationship between cookie baking and
stock prices.
Take The fact that one event follows another does not necessarily mean
Note that the first event caused the second event.
Am I on 2. Ajay received an A on the math exam he took last week

Track? while wearing his blue sweater. He plans to wear the
same sweater to his sociology exam this week hoping
to receive an A on that exam as well. Ajay’s behavior is
an example of:
a. The steps in the model-building process
b. The ceteris paribus assumption
c. An error in reasoning by confusing correlation with
causation
d. Macroeconomics
1-5 Why Do Economists Disagree?

Why might one economist say a clean environment should be our most important
priority and another economist say economic growth should be our most important
goal? If economists share the economic way of thinking and carefully avoid reasoning
pitfalls, then why do they disagree? Why are economists known for giving advice by
saying, “On the one hand, if you do this, then A results, and, on the other hand, doing
this causes result B?” George Bernard Shaw once said, “If you took all the econo-
mists in the world and laid them end to end, they would never reach a conclusion.” It
might appear that economists disagree more than other professionals, but physicists,
doctors, business executives, lawyers, and others often disagree as well. Actually,
economists agree on a wide range of issues. Many economists, for example, agree
that the benefits from free trade outweigh the costs, that a market-driven healthcare
delivery system has many flaws, and that government deficit spending (which adds
to the national debt) can be a good thing if we want to recover more quickly from a
recession. When disagreements do exist, the reason can often be explained by either
the tradeoff between efficiency and equity or the difference between positive economics
and normative economics.
A Closer Look Applicable Concept: Correlation versus Causation
Unusual Economic Indicators

While we now understand that correlation does not necessarily discovered that when the number of marriages increases,
mean causation, many economic indicators have been created the economy rises significantly, and a slowdown in marriages
that show interesting and sometimes unusual correlations is followed by a decline in the economy. Chan explains that
which may or may not reflect causation. Here are just a few. there is usually about a 1-year lag between a change in the
marriage rate and the economy.3
Super Bowl Indicator
Our first example is the Super Bowl Indicator, which shows The Diaper Rash Indicator
that a Super Bowl win by a National Football Conference (NFC)
Could an increase in the sale of diaper rash creams indicate
team predicts that in the following December the stock market
a recession? It’s possible. During a recession, families cut
will be higher than the year before. A win by an old American
back on all kinds of spending, including spending on
Football League (AFL) team predicts a dip in the stock market.
diapers. An unintended consequence of this may be an
Seem unlikely? The Super Bowl Indicator has been correct
increase in diaper rash. SymphonyIRI data indicate that
nearly 80 percent of the time over the past 50 years!1 What
between August 2010 and August 2011, although the
do you think? Does correlation mean causation in this case?
number of babies under the age of two fell by 3 percent,
The Boston Snow Index sales of disposable diapers fell by 9 percent. During that
same time period, sales of diaper rash creams and ointments
The Boston Snow Index (BSI) is the brainchild of a vice
rose 2.8 percent.4
president of a New York securities firm. It predicts a rising
economy for the next year if there is snow on the ground in
Boston on Christmas Day. The BSI predicted correctly about The Champagne Index
73 percent of the time over a 30-year period. However, its Sales of champagne have been used as a barometer of the
creator, David L. Upshaw, did not take it too seriously and economy’s strength. Champagne is often used as part of a
views it as a spoof of other forecasters’ methods.2 celebration, and people may have less to celebrate during an
economic downturn. Mark Reeth reported that “shipments
Marriage Indicator of champagne to the U.S. reached 23.1 million bottles in
Anthony Chan, chief economist for Bank One Investment 2006. Then the recession hit, and shipments plummeted to
Advisors, studied marriage trends over a 34-year period. He 12.5 million bottles by 2009.”5
1. Mike Murphy, “Patriots’ Super Bowl Win Bodes Ill for the Stock Market,” Market Watch, February 6, 2017.
2. “Economic Indicators, Turtles, Butterflies, Monks, and Waiters,” The Wall Street Journal, August 27, 1979, pp. 1, 16.
3. Sandra Block, “Worried? Look at Wedding Bell Indicator,” The Charlotte Observer, April 15, 1995, p. 8A.
4. Guss Lubin, “The Diaper Rash Economic Indicator” Business Insider, Sept. 6, 2011.
5. Mark Reeth, “9 Unusual Economic Indicators to Watch” UsNews & World Report, April 13, 2020.
1-5a Efficiency versus Equity

Economists generally use the term efficiency to describe a situation where society is Efficiency
“doing the best it can” with its existing resources and technology. This implies soci- A situation where society
is “doing the best it can”
ety is producing the best combination of goods and services as well as maximizing
with existing resources and
production. Equity, on the other hand, focuses on fairness in the way production technology.
is distributed among members of society. Simply stated, and shown in Exhibit 1,
efficiency is concerned with maximizing the size of the economic pie while equity Equity
Fairness in the way
is concerned with how the pie is divided. Often society faces a trade-off between production is distributed
efficiency and equity. among members of society.
Consider a simple example. You are in line at the grocery store on a busy Friday
afternoon. Many other customers are also in line. The store opens a new check-out
lane to get more customers through the line faster (to increase efficiency). Typically,
when a new lane opens, it’s the customer at the back of the existing lines who is most
able to move to the new lane as they do not yet have their items on the conveyor belt.
Here we see the trade-off between efficiency, more items being scanned, and equity,
those who have waited the shortest amount of time moving through more quickly.
Many economic policies encounter the efficiency versus equity trade-off. For
example, it may be more efficient for foreign companies to produce a particular
good because they have lower costs of production. This reduces the prices paid by
consumers. However, this could also drive domestic firms out of businesses and create
job loss in that industry. Many government policies face the efficiency versus equity
trade-off including those pertaining to the environment, income taxes, international
trade, and much more. Economists may disagree on the importance of efficiency versus
equity in any given situation because of differences in their subjective value judgments
concerning what they consider to be “fair” or “just.” This brings us to the importance
of distinguishing positive economics from normative economics.
E x h i b i t 1 Efficiency vs. Equity
Generally speaking, efficiency refers to maximizing the size of the economic pie
while equity refers to fairly distributing the pie. Government policies often face a
trade-off between the two.
1-5b Positive versus Normative Economics

Economists must distinguish between positive economics and normative economics
Positive economics when analyzing any economic problem or issue. Positive economics objectively deals
An analysis limited to with facts that can be tested and therefore addresses “what is” true or false regarding
statements about “what how the economy works. “The minimum wage in California is $15 per hour” is a
is” that can be tested and
determined to be true
positive statement. It may be true or it may be false, but it can be tested. Normative
or false. economics, on the other hand, subjectively deals with “what ought to be” based on
value judgments and cannot be proven by facts to be true or false. Certain words or
Normative economics
An analysis based on
phrases, such as “good,” “bad,” “need,” and “should” indicate that we have entered
subjective value judgments the realm of normative economics. “All states should have a $15 minimum wage”
regarding “what ought to is a normative statement. It reflects an opinion or value judgement that cannot be
be” that cannot be tested. tested by facts.
These subjective value judgements are the result of ever-present social and political
influences that shape our opinions. One person may argue that government ought
to take steps to ensure a more fair distribution of income and wealth. Another may
argue that health care is a basic human right that needs to be made available to all
regardless of their ability to pay. And the real “art” of economics is applying the
knowledge gained from positive economics, about “what is” true concerning how the
economy actually works, to formulating policies that will best achieve our normative
economic goals regarding “what ought to be.”
Take Positive economics deals with “what is” while normative

Note economics deals with “what ought to be.” The “art” of economics
is applying the knowledge gained from positive economics to
formulate policies to best achieve the goals of “what ought to be”
in normative economics.
Am I on 3. Which of the following statements is a positive

Track? economic statement?
a. The unemployment rate is 4.5 percent.
b. Too many people are unemployed.
c. We should cut unemployment benefits to encourage
people to go back to work.
d. The government needs to be an employer of last resort
to ensure everyone has a job when they want one.
A Closer Look Applicable Concepts: Positive and Normative Analyses
Does the Minimum Wage Really Help the Working Poor?

The distinction between positive and normative economics
can be especially important when considering a controversial
public policy proposal like raising the minimum wage. See
if you can distinguish the positive and normative economic
Tony Stock/Shutterstock.com
statements in this debate.
Minimum wages exist in more than 100 countries. In
1938, Congress enacted the federal Fair Labor Standards
Act, commonly known as the “minimum-wage law.” Today,
a minimum wage worker who works full-time still earns a
deplorably low annual income. One approach to help the
working poor earn a living wage might be to raise the minimum
wage. Many have recently argued that it should be raised to are not poor. For example, many minimum wage workers
$15 per hour. are students living at home or workers whose spouse earns
The dilemma for Congress is that a higher minimum a much higher income. To help only the working poor, some
wage for the employed is enacted at the expense of jobs economists argue that the government should target only
for unskilled workers. Opponents forecast that the increased those who need assistance, rather than using the “shotgun”
labor cost from a large minimum wage hike would jeopardize approach of raising the minimum wage.
hundreds of thousands of unskilled jobs. For example, Supporters of raising the minimum wage are not
employers may opt to purchase more capital and less convinced by these arguments. They say it just isn’t right
expensive labor. Restaurants can use iPads instead of servers that a worker who works full-time should live in poverty. They
to take orders and install robotic burger flippers. The fear of point to the fact that the minimum wage has not kept pace
such sizable job losses forces Congress to perform a difficult with the typical worker’s wage or with the cost of living. As a
balancing act to ensure that a minimum wage increase is result, a growing underclass has to rely on some form of public
large enough to help the working poor, but not so large as to assistance, like food stamps. And this, they argue, only adds to
threaten their jobs. income inequality as taxpayers end up subsidizing profitable
Some politicians claim that raising the minimum wage is a companies who don’t pay their workers a living wage.
way to help the working poor without cost to taxpayers. Others Moreover, people on this side of the debate believe that
believe the cost is hidden in inflation and lost employment opponents exaggerate many of their claims, especially the
opportunities for marginal workers, such as teenagers, extent to which unemployment and higher prices result from a
older adults, and underrepresented groups. One study by higher minimum wage. They provide evidence that the benefits
economists, for example, examined 60 years of data and from a higher minimum wage may more than offset these
concluded that minimum wage increases resulted in reduced costs.2 For example, when earning a higher wage, workers
employment and hours of work for low-skilled workers.1 will spend more money, generating a need for companies
Another problem with raising the minimum wage to aid to expand production and to hire even more workers. In
the working poor is that the minimum wage is a blunt weapon addition, the gain from these higher incomes far exceed the
for redistributing wealth. Some studies show that only a small cost of higher prices, leaving workers better off. To proponents,
percentage of minimum wage earners are full-time workers increasing the minimum wage is a win-win proposition. We
whose family income falls below the poverty line. This means return to this issue in Chapter 4 as an application of supply
that most increases in the minimum wage go to workers who and demand analysis.
1. David Neumark and William Wascher, Minimum Wages, Cambridge, MA, The MIT Press, 2008.
2. Economic Policy Institute, “The impact of raising the federal minimum wage to $12 by 2020 on workers, businesses, and the economy.” Testimony before
the U.S. House Committee on Education and the Workforce Member Forum. April 27, 2016, found at http://www.epi.org/publication/the-impact-of-raising-the
-federal-minimum-wage-to-12-by-2020-on-workers-businesses-and-the-economy-testimony-before-the-u-s-house-committee-on-education-and-the-workforce
-member-forum/.
Key Terms
Scarcity Entrepreneurship Macroeconomics Ceteris paribus
Resources Capital Microeconomics Positive economics
Land Economics Model Normative economics
Labor Equity Efficiency
Summary
● Scarcity is the fundamental economic problem ● Models are simplified descriptions of reality used
that human wants exceed the available time, to understand and predict economic events. If the
goods, and resources. Individuals and society event is not consistent with the model, the model
therefore can never have everything they desire. is rejected.
● Economics is the study of how individuals and
society choose to allocate scarce resources to Identify the Develop a
Gather data and
test whether the
Formulate a
data are
satisfy unlimited wants. Faced with unlimited problem model
consistent with
the theory
conclusion
wants and scarce resources, we must make

choices among alternatives. ● Ceteris paribus holds “all other factors
● Macroeconomics applies an economy-wide unchanged” that might affect a particular
perspective that focuses on such issues as relationship. If this assumption is violated, a
inflation, unemployment, and the growth rate model may not predict accurately. Another
of the economy while microeconomics examines reasoning pitfall is to think that correlation
individual decision-making units within an means causation.
economy, such as a consumer’s response to ● Society often faces a tradeoff between efficiency,
changes in the price of coffee and the reasons for or doing the best we can with our existing
changes in the market price of personal computers. resources, and equity, which is concerned with
● Because of the problem of scarcity, whether rich distributing that limited production fairly among
or poor, every nation must answer the same three members of society.
fundamental economic questions: (1) What goods ● Positive economics deals with “what is” true
and services to produce (2) How to produce about how the economy actually works, while
those goods and services, and (3) For Whom will normative economics deals with value judgments
they be produced? regarding “what ought to be.” The “art” of
● Resources are factors of production classified economics is using the knowledge gained in
as land, labor, and capital. Entrepreneurs seek positive economics to develop policies that will
profits by taking risks and combining resources help us realize the goals established in normative
to produce innovative products. economics.
Take
Take ● Scarcity forces all societies to make choices regarding what combination of goods
Note
Note and services to produce, how to produce them and who will get the limited supply
of those goods and services.
Revisited ● Economics is the study of how society chooses to allocate its scarce resources to
the production of goods and services to satisfy unlimited wants; microeconomics
studies how decisions are made by individuals and firms, while macroeconomics is
concerned with broader issues that impact the economy as a whole.
● It is important to make sure the ceteris paribus assumption, that all other
things remain unchanged, is satisfied if we wish to correctly conclude there is a
relationship between two variables.
● The fact that one event follows another does not necessarily mean that the first
event caused the second event.
● Positive economics deals with “what is” while normative economics deals with
“what ought to be.” The “art” of economics is applying the knowledge gained from
positive economics to formulate policies to best achieve the goals of “what ought
to be” in normative economics.
Study Questions and Problems

Please see Appendix A for answers to the odd-numbered questions. Your instructor has access to the answers for
even-numbered questions.
1. Explain why both nations with high living stan- 5. What are two other terms that might be used
dards and nations with low living standards face interchangeably with the term “resources”?
the problem of scarcity. If you won $1 million in 6. Why isn’t money considered capital in
a lottery, would you escape the scarcity problem? economics?
2. Why do you think economics is sometimes 7. Explain why it is important for an economic
referred to as “the science of choice”? model to be an abstraction from the real world.
3. Explain the difference between macroeconomics 8. Explain the importance of the ceteris paribus
and microeconomics. Give examples of the areas assumption for an economic model.
of concern to each branch of economics.
9. Suppose Congress cuts spending for the military,
4. Which of the following are microeconomic and then unemployment rises in the U.S. defense
issues? Which are macroeconomic issues? industry. Is there causation in this situation, or
a. How will an increase in the price of Coca- are we observing a correlation between events?
Cola affect the quantity of Pepsi Cola sold? 10. Use the analogy of a pie to explain the terms
b. What will cause the nation’s inflation rate efficiency and equity.
to fall?
11. Suppose universities that belong to big-time
c. How does a quota on textile imports affect athletic conferences have higher graduation rates
the textile industry? than nonmembers. Does this mean Nebraska
d. Does a large federal budget deficit reduce the State should join a big-time athletic conference?
rate of unemployment in the economy?
Am I on 1. b 2. c 3. a
Track?
Answers
Sample Quiz
Please see Appendix B for answers to Sample Quiz questions.
1. Which of the following illustrates the concept b. There is usually more than one use of your
of scarcity? “free” time in the evening.
a. More clean air is wanted than is available c. There are many competing uses for the
in large polluted metropolitan areas such as annual budget of your city, county, or state.
Mexico City. d. All of the above are correct.
2. Which of the following correctly identifies the d. Economists come to believe that some
factors of production? economic models are true simply because
a. The outputs generated by the production prominent leading economists say they
process transforming land, labor, and capital are true.
into goods and services 6. Which of the following represents causality
b. Resources restricted to the land, such as rather than correlation?
natural resources that are unimproved by
a. In years that fashion dictates wider lapels on
human economic activity
men’s jackets, the stock market grows by at
c. Land (natural resources), labor (human least 5 percent.
capital, entrepreneurship), and capital b. Interest rates are higher in years ending with
(constructed inputs such as factories) a 1 or a 6.
d. Just labor and capital in industrialized coun- c. Unemployment falls when the AFC champion
tries, where natural resources are no longer wins the Super Bowl.
used to produce goods and services
d. Quantity demanded goes up when price falls
3. Which of the following best describes the three because lower prices increase consumer pur-
fundamental economic questions? chasing power and because some consumers
a. What to produce, when to produce, and of substitute goods switch.
where to produce 7. Which of the following describes the ceteris
b. What time to produce, what place to produce, paribus assumption?
and how to produce
a. If we increase the price of a good, reduce
c. What to produce, when to produce, and for consumer income, and lower the price of sub-
whom to produce stitutes and if quantity demanded is observed
d. What to produce, how to produce, and for to fall, we know that the price increase caused
whom to produce the decline in quantity demanded.
4. Which of the following is the best definition of b. If the federal government increases gov-
economics? ernment spending and the Federal Reserve
Bank lowers interest rates, we know that
a. Economics is the study of how to manage
the increase in government spending caused
corporations to generate the greatest return
unemployment to fall.
on shareholder investment.
b. Economics is the study of how to manage c. If a company reduces its labor costs, negoti-
city and county government to generate the ates lower materials costs from its vendors,
greatest good to its citizens. and advertises, we know that the reduced
labor costs are why the company’s profits
c. Economics is the study of how society
are higher.
chooses to allocate its scarce resources.
d. If we decrease the price of a good and observe
d. Economics is the study of how to track
that there is an increase in the quantity
revenues and costs in a business.
demanded, holding all other factors that
5. Which of the following best illustrates the applica- influence this relationship constant.
tion of the model-building process to economics?
8. The condition of scarcity
a. On a Sunday morning talk show, two econ-
a. cannot be eliminated.
omists with differing political agendas argue
b. prevails in poor economies.
about the best way to solve the Social Security
problem. c. prevails in rich economies.
b. A labor economist notices that unemployment d. all of the above are correct.
tends to be higher among teenagers than more 9. Which of the following best describes an
experienced workers, develops a model, and entrepreneur?
gathers data to test the hypotheses in the model.
a. A person who works as an office clerk at a
c. A Ph.D. student in economics makes up data major corporation
on the lumber market and develops a model b. A person who combines the factors of pro-
for their dissertation that seems to be consis- duction to produce innovative products
tent with the data.
c. A special type of capital 15. All of the following describe positive economics
d. Wealthy individuals who provide savings that except
stimulates the economy a. describes “what ought to be.”
10. If, in the current situation, no one is able to be b. can be tested.
made better off without someone else being made c. describes “what is.”
worse off, then this situation is said to be d. uses facts.
a. equitable. 16. Which of the following would eliminate scarcity
b. normative. as an economic problem?
c. efficient. a. Moderation of people’s competitive instincts
d. effective. b. Discovery of new, sufficiently large energy
11. Because of scarcity, reserves
c. Resumption of steady productivity growth
a. it is impossible to satisfy every desire and
choices must be made. d. None of the above is correct
b. the available supply of time, goods, and 17. Which resource is not an example of capital?
resources is greater than human wants. a. Equipment
c. every desire is fulfilled. b. Machinery
d. there are no limits on the economy’s ability c. Physical plants
to satisfy unlimited wants. d. Stocks and bonds
12. Which of the following represents positive 18. Which of the following is the second step in the
economics? model-building process?
a. Policy X is fair. a. Collect data and test the model.
b. Outcome Y is the best objective to achieve. b. Develop a model based on simplified
c. If policy X is followed, then outcome assumptions.
Y results. c. Identify the problem.
d. All of the above are positive economic d. Include all possible variables that affect the
analyses. model.
13. Which of the following is the last step in the 19. Which of the following is a type of economic
model-building process? analysis?
a. Collect data and test the model. a. Positive
b. Develop a model based on simplified b. Resources
assumptions.
c. Association
c. Identify the problem.
d. None of the above is correct.
d. Formulate a conclusion.
20. Economic policies often face a trade-off between
14. Which of the following is not a type of economic efficiency, or maximizing the size of the economic
analysis? pie, and equity, which describes
a. Positive a. the ingredients used to make the pie.
b. Resources b. how the pie is sliced.
c. Normative c. who owns the pie.
d. None of the above d. all of the above.
Appendix to
Chapter 1
Applying Graphs to Economics

Economists are famous for their use of graphs. The reason is “a picture is worth a thou-
sand words.” Graphs are used throughout this text to present economic models. By draw-
ing a line, you can use a two-dimensional illustration to analyze the effects of a change in
one variable on another variable. You could describe the same information using other
model forms, such as verbal statements, tables, or equations, but a graph is the simplest
way to present and understand the relationship between economic variables.
Don’t be worried that graphs will “throw you for a loop.” Relax! This appendix
explains all the basic graphical language you will need. The following illustrates the sim-
plest use of graphs for economic analysis.
1A-1 A Direct Relationship

Basic economic analysis typically concerns the relationship between two variables, both
having positive values. Hence, we can confine our graphs to the upper-right (northeast)
quadrant of the coordinate number system. In Exhibit A-1, notice that the scales on the
horizontal axis (x-axis) and the vertical axis (y-axis) do not necessarily measure the same
numerical values.
The horizontal axis in Exhibit A-1 measures annual income, and the vertical axis
shows the amount spent per year for a personal computer (PC). The intersection of the
horizontal and vertical axes is the origin and the point at which both income and expen-
diture are zero. In Exhibit A-1, each point is a coordinate that matches the dollar value
of income and the corresponding expenditure for a PC. For example, point A on the
graph shows that people with an annual income of $10,000 spent $1,000 per year for
a PC. Other incomes are associated with different expenditure levels. For example, at
$30,000 per year (point C), $3,000 will be spent annually for a PC.
The straight line in Exhibit A-1 allows us to determine the direction of change in PC
Direct relationship expenditure as annual income changes. This relationship is positive because PC expen-
A positive association diture, measured along the vertical axis, and annual income, measured along the hor-
between two variables. izontal axis, move in the same direction. PC expenditure increases as annual income
When one variable increases. As income declines, so does the amount spent on a PC. Thus, the straight line
increases, the other
representing the relationship between income and PC expenditure is a direct relation-
variable increases,
and when one variable ship. A direct relationship is a positive association between two variables. When one
decreases, the other variable increases, the other variable increases, and when one variable decreases, the
variable decreases. other variable decreases. In short, both variables change in the same direction.
16
Appendix 1 • Applying Graphs to Economics 17
E x h i b i t A - 1 Direct Relationship between Variables
The line with a positive slope shows that the expenditure per year for a personal computer has a direct
relationship to annual income, ceteris paribus. As annual income increases along the horizontal axis, the
amount spent on a PC also increases, as measured by the vertical axis. Along the line, each 10-unit
increase in annual income results in a 1-unit increase in expenditure for a PC. Because the slope is constant
along a straight line, we can measure the same slope between any two points. Between points A and D,
the slope 5 DY@DX 5 13@130 5 11@110 5 1@10.
Personal
Computer
Expenditure D
(thousands of 4
dollars per year)
C
3
Y=1 Y=3
B
2
X = 10
A
1
X = 30
0 10 20 30 40
Annual Income
(thousands of dollars)
Expenditure for a Personal Computer at Different Annual Incomes

Personal Computer Expenditure Annual Income
Point (thousands of dollars per year) (thousands of dollars)
A 1 10
B 2 20
C 3 30
D 4 40
Finally, an important point to remember: A two-variable graph, like any model, iso-
lates the relationship between two variables and holds all other variables constant under
the ceteris paribus assumption. In Exhibit A-1, for example, factors such as the prices of
PCs and education are held constant by assumption. In Chapter 3, you will learn that
allowing variables not shown in the graph to change can shift the position of the line
or curve.
Take A direct (positive) relationship is expressed graphically as an

Note upward sloping curve (or line).
1A-2 An Inverse Relationship

Now consider the relationship between the price of T-shirts and the quantity consumers
will buy per year, shown in Exhibit A-2. These data indicate an inverse (or negative) rela-
tionship between the price and quantity variables. When the price is low, consumers pur-
Inverse relationship chase a greater quantity of T-shirts than when the price is high.
A negative association An inverse relationship is a negative association between two variables. When one
between two variables. variable increases, the other variable decreases, and when one variable decreases, the
When one variable
other variable increases. Stated simply, the variables move in opposite directions.
increases, the other
variable decreases,
The line drawn in Exhibit A-2 is an inverse relationship. By long-established tra-
and when one variable dition, economists put price on the vertical axis and quantity on the horizontal axis. In
decreases, the other Chapter 3, we will study in more detail the relationship between the price and the quan-
variable increases. tity demanded called the law of demand.
E x h i b i t A - 2 An Inverse Relationship between Variables
The line with a negative slope shows an inverse relationship between the price per T-shirt and the quantity
of t-shirts consumers purchase, ceteris paribus. As the price of a T-shirt rises, the quantity of T-shirts
purchased falls. A lower price for T-shirts is associated with more T-shirts purchased by consumers. Along
the line, with each $5 decrease in the price of T-shirts, consumers increase the quantity purchased by
25 units. The slope 5 DY@DX 5 25@125 5 21@5.
Price Per
T-shirt
(dollars) A
25
B
20
C
15
Y = –5
D
10
X = 25
E
5
0 25 50 75 100
Quantity of T-shirts Purchased
(millions per year)
The Quantity of T-Shirts Consumers Purchase at Different Prices

Price Quantity of T-shirts Purchased
Point per T-shirt (millions per year)
A $25 0
B 20 25
C 15 50
D 10 75
E 5 100
In addition to observing the inverse relationship (negative slope), you must interpret
the intercept at point A in the exhibit. The intercept in this case means that at a price of
$25, no consumer is willing to buy a single T-shirt.
Take An inverse (negative) relationship is expressed graphically as a

Note downward sloping curve (or line).
1A-3 The Slope of a Straight Line

Plotting numbers provides a clear visual expression of the relationship between two vari-
ables, but it is also important to know how much one variable changes as another variable
changes. To find out, we calculate the slope. The slope is the ratio of the change in the vari- Slope
able on the vertical axis (the rise or fall) to the change in the variable on the horizontal axis The ratio of the change in
(the run). Algebraically, if Y is on the vertical axis and X is on the horizontal axis, the slope the variable on the vertical
axis (the rise or fall) to the
is expressed as follows (the delta symbol, D, means “change in”):
change in the variable on
the horizontal axis (the run).
rise change in vertical axis DY
Slope 5 5 5
run change in horizontal axis DX
Consider the slope between points B and C in Exhibit A-1. The change in expen-
diture for a PC, Y, is equal to 11 (from $2,000 to $3,000 per year), and the change
in annual income, X, is equal to 110 (from $20,000 to $30,000 per year). The slope
is therefore 11/110 5 0.10. The sign is positive because computer expenditure is
directly, or positively, related to annual income. The steeper the line, the greater the slope
because the ratio of DY to DX rises. Conversely, the flatter the line, the smaller the slope.
Exhibit A-1 also illustrates that the slope of a straight line is constant. That is, the slope
between any two points along the line, such as between points A and D, is equal to
13@130 5 1@10 5 0.10
What does the slope of 1/10 mean? It tells you that a $1,000 increase (decrease)
in PC expenditure each year occurs for each $10,000 increase (decrease) in annual
income. The line plotted in Exhibit A-1 has a positive slope, and we describe the line as
“upward-sloping.”
On the other hand, the line in Exhibit A-2 has a negative slope. The change in Y
between points C and D is equal to 25 (from $15 down to $10), and the change in X is
equal to 125 (from 50 million up to 75 million T-shirts purchased per year). The slope is
therefore 25@125 5 21@5, and this line is described as “downward-sloping.”
What does this slope of 21@5 mean? It means that raising (lowering) the price
per T-shirt by $1 decreases (increases) the quantity of T-shirts purchased by 5 million
per year.
Suppose we calculate the slope between any two points on a flat line—for example,
points B and C in Exhibit A-3. In this case, there is no change in Y (expenditure for Independent
toothpaste) as X (annual income) increases. Consumers spend $20 per year on tooth- relationship
A zero association between
paste regardless of annual income. It follows that DY 5 0 for any DX, so the slope is two variables. When one
equal to 0. The two variables along a flat line (horizontal or vertical) have an indepen- variable changes, the
dent relationship. An independent relationship is a zero association between two vari- other variable remains
ables. When one variable changes, the other variable remains unchanged. unchanged.
E x h i b i t A - 3 An Independent Relationship between Variables
The flat line with a zero slope shows that the expenditure per year for toothpaste is unrelated to annual income.
As annual income increases along the horizontal axis, the amount spent each year for toothpaste remains
unchanged at 20 units. If annual income increases 10 units, the corresponding change in expenditure is zero.
The Slope 5 DY@DX 5 0@110 5 0
Toothpaste
Expenditure
(dollars per year)
40
30
A B C D
20
X = 10
Y=0
10
0 10 20 30 40
Annual Income
(thousands of dollars)
Expenditure for Toothpaste at Different Annual Incomes
Toothpaste Expenditure Annual Income

Point (dollars per year) (thousands of dollars)
A 20 10
B 20 20
C 20 30
D 20 40
1A-4 A Three-Variable Relationship in One Graph

The two-variable relationships drawn so far conform to a two-dimensional flat piece of
paper. For example, the vertical axis measures the price per T-shirt variable, and the hori-
zontal axis measures the quantity of T-shirts purchased variable. All other factors, such as
consumer income, that may affect the relationship between the price and quantity variables
are held constant by the ceteris paribus assumption. But reality is frequently not so accom-
modating. Often a model must take into account the impact of changes in a third variable
(consumer income) drawn on a two-dimensional piece of paper.
Economists’ favorite method of depicting a three-variable relationship is shown in
Exhibit A-4. As explained earlier, the cause-and-effect relationship between price and
quantity of T-shirts determines the downward-sloping curve. A change in the price per
T-shirt causes a movement downward along either of the two separate curves. As the
price falls, consumers increase the quantity of T-shirts demanded. The location of each
curve on the graph, however, depends on the annual income of consumers. As the annual
E x h i b i t A - 4 Changes in Price, Quantity, and Income in Two Dimensions
Economists use a multicurve graph to represent a three-variable relationship in a two-dimensional graph.

A decrease in the price per T-shirt causes a movement downward along each curve. As the annual income
of consumers rises, there is a shift rightward in the position of the demand curve.
Price Per
T-shirt
(dollars) 30
25
Annual income
$60,000
20
15
10 Annual income
$30,000
5
0 25 50 75 100 125 150

Quantity of T-shirts Purchased
(millions per year)
income variable increases from $30,000 to $60,000 and consumers can afford to pur-
chase more at any price, or pay more at any quantity, the price–quantity demanded
curve shifts rightward. Conversely, as the annual income variable decreases and consum-
ers have less to spend, the price–quantity demand curve shifts leftward.
This is an extremely important concept that you must understand: throughout this
text, you must distinguish between movements along and shifts in a curve. Here’s how
to tell the difference. A change in one of the variables shown on either of the coordinate
axes of the graph causes movement along a curve. On the other hand, a change in a
variable not shown on one of the coordinate axes of the graph causes a shift in a curve’s
position on the graph.
Take A shift in a curve occurs only when the ceteris paribus

Note assumption is relaxed and a third variable not shown on either
axis of the graph is allowed to change.
1A-5 A Helpful Study Hint for Using Graphs

To some students, studying economics is a little frightening because many chapters are full
of graphs. Just remember that a graph is simply a visual aid that illustrates the relationship
between economic variables. Noting these relationships is the ticket to understanding how
the economy really works. So, keep in mind that all inverse (negative) relationships are
expressed as downward sloping curves (or lines), and all direct (positive) relationships are
expressed as upward sloping curves. This will help you to do well on tests!
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yet tempting often to extravagance in those weeks when it is high; a
twelve-year limit permitted by the child labor law, and adult wages
that necessitate the children’s going to work as soon as that law
allows; the father rarely earning much more, and sometimes even
less, than the younger members of the family; scant amusement,
usually only the moving picture show, possible on the meager
income; poor health with the doctor often an impossible luxury.
JOTTINGS
DETROIT BOOSTING FOR SAFETY
The campaign for safety is taking firm root in Detroit. The Detroit
Manufacturers’ Association has in its employ two safety inspectors
who are at the call of members for work in their plants at any time.
They are constantly hunting for danger points and suggesting
methods of eliminating them.
More recently, following the enactment of the Workmen’s
Compensation Law, there has been organized the Detroit Accident
Prevention Conference. There have been three meetings so far, with
such men as John Calder of the Cadillac Motor Car Company and W.
H. Bradshaw, safety director of the New York Central lines as
speakers and papers by those members who were equipped by
reason of experience to give instructive information. The meetings
are held in the evening in a down town hotel where a moderate
priced dinner is served, the addresses and discussions following. The
average attendance has been about one hundred. As no membership
fee is charged and as great enthusiasm is displayed it is hoped that
shortly the attendance will be double this number.
TRADE SCHOOL FOR PRINTERS
In Printing Trade News the recently established School for

Printers’ Apprentices in New York is described by A. L. Blue, director
of the school. The school is co-operative in the extreme; it is
managed by a joint committee of employers (The Printers’ League),
workmen (the New York Typographical Union) and the public (the
Hudson Guild). Its headquarters are at the guild. The courses, which
are for working apprentices, are so planned as to develop
individuality. Afternoon classes are held for boys employed on the
morning papers, evening classes for others. The present enrolment is
ninety-six.
SICKNESS INSURANCE IN WISCONSIN
A bill marking the initial step towards the establishment of state

accident and sick benefit insurance is pending in the Legislature of
Wisconsin. This is one of the first proposals of the kind submitted in
any state. Its insurance features are modelled after the English act.
The bill applies solely to vocational diseases. Both employer and
employe are to contribute toward the premiums. Single employes
earning less than $600 a year, who have someone dependent upon
them, are eligible to protection under the provisions of the bill; no
person may come under its terms who earns over $900. Persons
earning $800 a year must have two dependent upon them, and those
earning $900 annually must have four persons dependent upon
them in order to come within the proposed statute.
Employers are to be allowed to deduct 1 per cent of the wages of
employes and they must add to this sum one-half of 1 per cent of the
pay roll, the entire sum to be paid into a state insurance fund. When
ill, the employe is to receive 65 per cent of his wages during the
period of his illness, but for not more than twenty-six consecutive
weeks nor more than thirty-nine weeks in a single year. If the
employe is sent to a hospital, his regular wages are to be paid to him
weekly. The State Industrial Commission is empowered to enforce
the provisions of the act in the event of its passage.
MUNICIPAL MINIMUM WAGE
A minimum wage of 25s. ($6.08) a week for all able-bodied men

will henceforth rule, says Life and Labor, in the municipal service in
Glasgow. It is now many years since the corporation of Glasgow
acknowledged the principle of a minimum wage, the rate then
introduced being 21s. ($5.11). Since that time improvements have
brought the wages up to an average minimum of about 23s. ($5.60).
so that the proposal for a minimum of 25s., which was carried in the
town council, means an advance of about 2s. ($0.48 2–3) weekly to
many of the lower-paid workmen. To give effect to the proposal an
additional expenditure of $41,365 will, it is estimated, be involved.
The position in Manchester is better, from the workers’ point of
view, than it will be in Glasgow even when the minimum weekly
wage is raised to 25s. ($6.08). Seven years ago the Manchester city
council raised the minimum wage to 25s. Early in the present year
there was an agitation for an increase of 2s. ($0.48 2–3) a week in
view of the increased cost of living. A special committee reported in
favor of an advance to 26s. ($6.33) a week, and this the council
agreed to. This sum is paid to all the laborers (as distinct from skilled
workers in the several departments) throughout the city.
FULL CREW BILLS
An unusual publicity campaign on the part of railroads has

resulted from the passage by the state Legislatures of the so-called
Full Crew Bills in New Jersey and New York, regulating the number
of employes on trains. In the New York newspapers for several days
in succession the railroads used three-quarter page advertisements
for a joint statement of their opposition. In this space they urged the
governor to veto the bill, and the public to protest against its
enactment. It is claimed by the railroads that the law will cost them
$2,000,000 annually in the state of New York without bringing any
increase in efficiency or safety. They point out that Governors
Hughes and Dix both refused to approve similar measures on the
ground that such questions should logically be decided by the Public
Service Commission.
In their advertisements the railroads urged that the matter be left
to the state Public Service Commissions, and promised to abide by
their decisions.
The Brotherhood of Railway Trainmen, which is urging such
legislation all over the country, insists that it is necessary to promote
safety. The Railroad Trainman, organ of the brotherhood says:
“Today our men are asking for legislation that is no more of a
departure from the beaten path than the safety device legislation of
twenty years ago was. They have tried to regulate the car limit of
trains and the number of men to be employed on them through their
contracts. They have failed in the first instance altogether and for the
most part in the other. They realize that, operated as trains are,
freight train service is often performed under unsafe conditions. Two
men for an unlimited number of cars is the rule for the most part.
Because of it there are freight trains running today averaging
between fifty and one hundred and thirty-five cars and two men are
in charge with the conductor.
“There will be trains, perhaps, on which the extra man will not be
needed, but if the companies had been forehanded enough to put
men where they were needed they could have saved the ones not
needed, but they did not and legislation does not find a way to
discriminate as readily as the exercise of common sense does.”
The bills have been signed and have become laws in both New
Jersey and New York.
CHURCH AND COMMUNITY
Edited by GRAHAM TAYLOR
TERRE HAUTE’S LABOR PARLIAMENT

BENJAMIN B. TOWNE
Failure on the part of the churches of Terre Haute, Ind., to grasp
the problems of its 11,000 workingmen led to the holding of a “labor
parliament.” This parliament, convened last May, was directed by
Harry F. Ward of the Methodist Federation for Social Service. There
were three meetings in different churches, where the problems of
industry and Christianity were discussed in an open and frank
manner.
But the prime movers realized, early in April, that to make this
parliament a success much local work would have to be done. As a
stepping-stone, the ministers adopted an industrial creed, which was
floated over the city, with the result that the laboring man discovered
that he and the church had common ideals toward which to aim.
The local work in the churches was adapted to the particular
condition of the locality, all efforts, however, being focused on the
labor parliament to be held in May. Shop meetings were held,
lantern slides of existing conditions were shown, and mass meetings
for working men and girls conducted. Besides these features, the
newspapers helped this most interesting scheme along, so that by the
time set for the labor parliament, all Terre Haute was prepared for
the co-operative discussion, which was to prove so beneficial to the
church and organized labor. The Central Labor Union co-operated
well with the movement and appointed a committee of three
prominent labor men to help the ministerial committee.
The labor parliament was, indeed, a success. Dr. Ward chose as his
subjects, Industry and Social Waste, Democracy in Industry, and the
Industrial Problem of Christianity. In all his talks Dr. Ward opened
the eyes of labor world and church. One, he showed, could not be of
full benefit in its community without the co-operation of the other.
And now, nearly a year after this industrial revival, what are the
results? Are any permanent effects apparent from these efforts, or
did the movement, swelling into the three days’ parliament,
gradually fade away and become forgotten by the laboring man? A
few pointed statements of those nearest the problem of both the
church and laboring man will show the result.
A. M. Powers, president of the Central Labor Union, has this to say
of its success. “The movement has been beneficial, as far as I can see,
to both sides. When the church can show that the laboring man is not
an insect to be placed upon a sociological dissecting table for amused
speculations of theologians, but a man to be helped and to help
advance the cause of the brotherhood of man through the church,
then the antagonism will be replaced by a hearty co-operation
because this spirit of brotherhood is the basis of the organized labor
movement.
“I believe the churches of Terre Haute have shown that this is the
spirit of their activity in their last year’s efforts, and as an individual I
endorse the movement and think that as long as the same spirit is
shown the labor unions will be willing to work hand in hand with the
church.”
George W. Greenleaf, secretary-treasurer of District Lodge No. 72,

International Association of Machinists, and city councilman, says:
“The labor parliament and the preceding church services held in Terre Haute last
winter were beyond the question of a doubt a benefit to organized labor. The chief
benefit derived, in my estimation, consisted in the dispelling of the popular
prejudice against our organizations and the placing of our cause on a higher plane
in the minds of the public.”
Terre Haute’s Industrial Creed

United we stand:
For equal rights and perfect justice to all men.
For the principle of conciliation and arbitration.
For the protection of workers from dangerous machinery, occupational
diseases, injuries and mortality.
For the abolition of child labor.
For such regulations of conditions of labor for women as shall safeguard
the physical and moral health of the community.
For the suppression of “the sweating system.”
For a reasonable reduction of the hours of labor to the lowest practical
point with labor for all and a reasonable degree of leisure.
For release from employment one day in seven, and whenever at all
possible that this be the Sabbath Day.
For the highest wage that each industry can afford and for the most
equitable division of the profits of industry that can be devised.
For the recognition of the Golden Rule (Matt. 7:12) and the teachings of
Christ as the supreme law of society and the sure remedy of all ills.
The ministers of the city feel much the same way about the effects
of the parliament.
Rev. A. E. Monger, pastor of the largest Methodist church in the
city and one of the promoters of the movement, says:
“Since the campaign there has been crystalized in the churches a sentiment of
responsibility for the welfare of the laboring man. The laboring men have found
that the gospel does have a message against the great sins under which they are
struggling.”
As a further evidence of the parliament’s lasting effect, Rev. John
G. Benson, another of its promoters, may be quoted:
“We are getting requests from every quarter for a repetition of the parliament.”
NEW RECOGNITION OF SOCIAL
CHRISTIANITY
In religious periodical literature two high notes of social
significance have recently been struck. The Constructive Quarterly
has appeared from the press of the George H. Doran Company in
America and Hodder & Stoughton in England. It is planned to be a
free forum where all the churches of Christendom may frankly and
fully state their “operative beliefs” and their distinctive work,
“including and not avoiding differences,” but making “no attack with
polemical animus on others.”
The purpose of this undertaking is to afford opportunity for the
churches, without compromise, “to re-introduce themselves to one
another through the things they themselves positively hold to be vital
to Christianity,” “so that all may know what the differences are and
what they stand for, and that all may respect them, in order to
cherish and preserve whatever is true and helpful and to discover
and grow out of whatever is harmful and false.”
As it has no editorial pronouncements and no scheme for the unity
of Christendom to promote, the Quarterly will depend upon the
catholicity and representative influence of its editorial board,
selected from all countries and communions, to promote a fellowship
of work and spirit. The middle term of the Quarterly’s subtitle—a
journal of the Faith, Work and Thought of Christendom—is likely to
prove the basis for the correlation of the other two. For long before
the faith and the thought of Christendom may be correlated, the
churches will surely co-operate in their common work.
The Hibbert Journal, which for ten years has been the ablest
technical quarterly review of theology and philosophy, announces a
department of social service. This policy was foreshadowed by the
editor as early as October, 1906, in a notably direct and able protest
against the church standing aloof from “the world.” He stoutly
maintained that
“the alienation from church life of so much that is good in modern culture, and so
much that is earnest in every class, is the natural sequel to the traditional attitude
of the church to the world.”
How false and unintelligible, as well as untenable, this attitude is
appears in these categorical imperatives:
“If by ‘the world’ we mean such things as parliamentary or municipal
government, the great industries of the nation, the professions of medicine, law,
and arms, the fine arts, the courts of justice, the hospitals, the enterprises of
education, the pursuit of physical science and its application to the arts of life, the
domestic economy of millions of homes, the daily work of all the toilers—if, in
short, we include that huge complex of secular activities which keeps the world up
from hour to hour, and society as a going concern—then the churches which stand
apart and describe all this as morally bankrupt are simply advertising themselves
as the occupiers of a position as mischievous as it is false.
“If, on the other hand, we exclude these things from our definition, what, in
reason, do we mean by ‘the world?’ Or shall we so frame the definition as to ensure
beforehand that all the bad elements belong to the world, and all the good to the
church? Or, again, shall we take refuge in the customary remark that whatever is
best in these secular activities is the product of Christian influence and teaching in
the past? This course, attractive though it seems, is the most fatal of all. For if the
world has already absorbed so much of the best the churches have to offer, how can
these persist in declaring that the former is morally bankrupt?
“Extremists have not yet perceived how disastrously this dualistic theory thus
recoils upon the cause they would defend. The church in her theory has stood aloof
from the world. And now the world takes deadly revenge by maintaining the
position assigned her and standing aloof from the church.”
No better prospectus for the social work of either of these great
quarterlies could be framed than the intention to demonstrate and
bear home to the intelligence, conscience and heart of the churches
these very affirmations. For, while enough of church leaders and
followers thus face forward to warrant Professor Rauschenbusch in
declaring that it has at last become orthodox to demand the social
application of Christianity, yet there is a sharp reaction within every
denomination, which threatens to retard this hopeful movement of
the churches to serve their communities and thereby save
themselves.
But the ultimate issue between those who are thus fearlessly facing
the present and those who persist in backing up into the future
cannot be doubtful. Social Christianity is not only demonstrably
orthodox, but has won its recognition and its own place in any
theological, philosophical, historical or experiential conception of
Christianity that claims to be comprehensive, not to say intelligent.
Without a much larger emphasis upon the social aims and efforts of
Christianity in the thought, belief and work of the church, the need
that is finding expression in every parish and community cannot be
met—that which the Constructive Quarterly well states to be “the
need of the impact of the whole of Christianity on the race.”
THE FIRST ORPHAN ASYLUM IN THE
[8]
UNITED STATES
THAT OF THE URSULINE NUNS AT NEW
ORLEANS
8. This account of the founding of our first orphanage in the quaint language
of the time was obtained for The Survey from a friend of the institution by Albert
H. Yoder.
At the outset of the colonization of Louisiana by the French, ten
Ursuline nuns of France, with noble generosity and self-sacrifice,
volunteered to go to New Orleans, there to instruct the children of
the colonists. They left Rouen in January, 1727.
After great difficulties and countless perils, they reached the
mouth of the Mississippi whose waters they ascended in pirogues.
They finally landed in the Crescent City on the morning of August 7,
1727, after a sea voyage of nearly six months. They had set sail from
the port of Havre on February 23, 1727 after a month spent in Paris.
Arriving in New Orleans, they were met by Bienville, governor of
the province of Louisiana. As there were no proper accommodations
yet provided, the governor vacated his own residence and placed it at
their disposal for a convent and school. Immediately was begun the
erection of a new building which was completed in 1734.
The Ursuline nuns upon its completion took possession and
occupied it till 1824 when they removed to their present home below
the city. This structure, which is now the Archbishopric, or official
place for the transaction of the business of the Archdiocese of New
Orleans, is the oldest building in Louisiana and also in the vast
extent of what was known as the Louisiana Purchase.
The Ursulines began their self-sacrificing work immediately upon
their arrival on August 8, 1727 and opened a free school to which
were added a select boarding school and then a little later a hospital.
Moreover, in order to inculcate principles of civilization and,
especially, of religion in the hearts of the wives and daughters of the
Negroes and Indians, the nuns devoted one hour each day to their
instruction.
Shortly after their arrival a new field of labor was open to their zeal
in the shape of a poor orphan whom Father de Beaubois, had
withdrawn from a family of dissolute morals. Although their lodgings
at the time were insufficient, the nuns being still in Bienville’s house
(their new convent, the present old Archbishopric, was not ready for
occupancy until July 17, 1734), they adopted the child. This was the
tiny mustard-seed from which sprang the flourishing orphanage
which exists to the present day. It proved a real providence for the
country, especially in colonial times, as may be gleaned from
history’s record of the Natchez massacre, which took place on
November 28, 1729.
After this frightful tragedy, so pathetically described by
Chateaubriand, the Indians, who had spared only the young wives
and daughters of their French victims, were forced to give up their
hostages or to be massacred in turn. The generous Ursulines then
opened their home to these unfortunate little ones and mothered
them.
This act of disinterestedness and charity was truly heroic,
considering the great difficulties usually attendant on the founding of
a colony and was highly commended by Rev. Father le Petit, Jesuit,
in a letter addressed, July 12, 1730, to Rev. Father d’ Avaugour,
procurator of the American missions. Having given an account of the
appalling massacre of the French at Fort Rosalie by the Natchez
Indians, Rev. Father le Petit adds:
“The little girls, whom none of the inhabitants wished to adopt, have greatly
enlarged the interesting company of orphans whom the religieuses [Ursulines] are
bringing up. The great number of these children serves but to increase the charity
and the delicate attentions of the good nuns. They have been formed into a
separate class of which two teachers have charge.
“There is not one of this holy community that would not be delighted at having
crossed the ocean, were she to do no other good save that of preserving these
children in their innocence, and of giving a polite and Christian education to young
French girls who were in danger of being little better raised than slaves. The hope
is held out to these holy religieuses that, ere the end of the year, they will occupy
the new house which is destined for them, and for which they have long been
sighing. When they shall be settled there, to the instruction of the boarders, the
orphans, the day scholars, and the Negresses, they will add also the care of the sick
in the hospital, and of a house of refuge for women of questionable character.
Perhaps later on they will even be able to aid in affording regularly, each year, the
retreat to a large number of ladies, according to the taste with which we have
inspired them.
“So many works of charity would, in France, suffice to occupy several
communities and different institutions. But what cannot a great zeal effect? These
various labors do not at all startle seven Ursulines; and they rely upon being able,
with the help of God’s grace, to sustain them without detriment to the religious
observance of their rules. As for me, I fear that, if some assistance does not arrive,
they will sink under the weight of so much fatigue. Those who, before knowing
them, used to say they were coming too soon and in too great a number, have
entirely changed their views and their language; witnesses of their edifying conduct
and great services which they render to the colony, they find that they have arrived
soon enough, and that there could not be too many of the same virtue and the same
merit.”
After giving details relative to the visit of the Illinois chiefs, who
had come to condole with the French and to offer help against the
Natchez, Father Le Petit adds:
“The first day that the Illinois saw the religieuses, Mamantouenza, perceiving
near them a group of little girls, remarked: ‘I see, indeed, that you are not
religieuses without an object.’ He meant to say that they were not solitaries,
laboring only for their own perfection. ‘You are,’ he added, ‘like the black robes,
our fathers; you labor for others. Ah! if we had above there two or three of your
number, our wives and daughters would have more sense.’ ‘Choose those whom
you wish.’ ‘It is not for me to choose,’ said Mamantouenza. ‘It is for you who know
them. The choice ought to fall on those who are most attached to God, and who
love him most....’”
The records make mention of Therese Lardas, daughter of a
Mobile surgeon. After her father’s death, her mother brought her to
the Ursuline orphanage, where she intended leaving her just long
enough to make her first communion; but, when she came to take
her home, so earnestly did the child plead to remain, that the mother
could not resist her entreaties. At the age of sixteen, she entered the
novitiate. She led the life of an exemplary lay sister, and died at the
age of twenty-nine on November 22, 1786.
In testimony of the good education given to all classes by the
Ursulines, the Rt. Rev. Luis Penalvery Cardemas said in a dispatch
forwarded to the Spanish court, November 1, 1795:
“Since my arrival in this town, on July 17, I have been studying with the keenest
attention the character of its inhabitants, in order to regulate my ecclesiastical
government in accordance with the information which I may obtain on this
important subject.... Excellent results are obtained from the Convent of the
Ursulines, in which a good many young girls are educated. This is the nursery of
those future matrons who will inculcate in their children the principles which they
here imbibe. The education which they receive in this institution is the cause of
their being less vicious than the other sex....”
Up to 1824, that is, for well nigh a century, the Ursulines
maintained their orphanage in what is now the old Archbishopric. At
this period, New Orleans having spread considerably and become too
densely populated to afford the advantages and charms of the
country so necessary to a large boarding school, the institution was
removed three miles lower down, to the magnificent place which the
Ursulines hold to the present day. Owing to the encroachments of
the great Father of Waters, they are to transfer again, within a year,
to another site.
After 1824, several asylums having been founded for orphans of
both sexes, the Ursulines received but thirty or forty poor children.
In keeping with their sphere of life and future career, these children
are taught English, French, geography, arithmetic, elementary
history, and some housekeeping, sewing and laundry work. The nuns
endeavor, above all, by religions instruction and careful training, to
inculcate in the hearts and minds of their youthful charges principles
of duty, so as to form for the future women of confidence, courage,
self-sacrifice and devotion.
SOCIAL SERVICE OF THE PRESBYTERIAN
CHURCH IN CANADA
J. G. SHEARER
The Presbyterian church in Canada does social service work

through its Department of Social Service and Evangelism. Efforts are
directed along several lines.
Social surveys of both urban and rural communities are
conducted, considering not only religious and moral, but also social
and economic conditions. An expert is employed who gives all his
time to the work. He secures the co-operation of a large number of
volunteer helpers, many of whom are proficient in various phases of
social service work.
The problems of the city are studied and practical solutions
sought. This is attempted in the following ways:
By evangelical social settlements, of which there are one in
Montreal, one in Toronto and one in Winnipeg. Eight or ten others
in the not distant future are planned for various other growing
cities in the Dominion, especially where non-Anglo-Saxon
immigrants are numerous. Our organizer and supervisor of this
work is Sara Libby Carson, founder of Christodora House and
various other settlements in New York, St. Christopher House,
Toronto, and Chalmers House, Montreal. We also have established
a training school for settlement workers, in connection with St.
Christopher House, Toronto.
By securing the co-operation of churches and sympathetic
organizations in every variety of general social betterment effort.
By establishing special redemptive and social missions on the
crowded thoroughfares. The first of these was Evangel Hall,
Toronto, in which evangelistic work, as well as various sorts of
social work, is carried on.
The department has taken up in a large way redemptive and
preventive work in the interest of girls, and associated with that
educational work along the line of sex teaching among boys and men.
There are five homes which are called social service houses, in which
girls and women requiring special help are taken care of. Fifteen
trained Christian women give their time to this phase of the
department’s endeavor, and there is also a large army of volunteer
helpers. In connection with this work an educational campaign
through pulpit and platform and the distribution of literature
throughout the Dominion is carried on. From time to time
legislation, federal or provincial, for the more adequate protection of
girls and women is sought.
In co-operation with other interested bodies the department keeps
up a steady campaign for the suppression of gambling,
intemperance, sale of immoral literature, unclean theatricals, the
social vice, and the promotion of the positive virtues, the opposite of
these.
Special attention is being directed to positive effort and
constructive work along all lines aiming at social uplift, and a good
deal of legislation toward this end has been successfully put through.
The department has established a lantern slide and film service,
and is endeavoring to supply through illustrated means elevating
entertainment as well as information and inspiration.
All the evangelistic work of the Presbyterian church is done
through this department, so that evangelism and social service are
kept in close association in all effort undertaken.
SYNAGOGUE AND COMMUNITY
RABBI HORACE J. WOLF
Temple ‘Berith Kodesh’, Rochester, N. Y.
The changing relation of the synagogue and the community is

proving the truth of the hoary platitude that history repeats itself.
During the Middle Ages the synagogue was the heart of the secular as
well as of the religious life of the community; it was a social center as
well as a house of prayer. There the poor man found succor, the
stranger acquaintances, the children their teachers, and the young
people “their fates.” It would be almost impossible to list all the
private and public interests which, clustering about the synagogue,
bore witness to the vital part this institution played in medieval
Jewish life.
This prominent role was due to the enforced isolation of the
Jewish community; thanks to the Ghetto walls the Jewish group
constituted a city within a city. Once the Jewish population was
concentrated into separate quarters, the synagogue became to the
segregated community what the home was to the individual family; it
was not only a place of meeting, but also a clearing house for
individual and communal joys and sorrows.
But the intimacy was broken down by the political emancipation
that came to Jewry at the end of the eighteenth century. Slowly, as
the old functions of the synagogue were taken over by special
institutions housed in their own buildings, the synagogue began to
be used purely as a house of worship; aside from this, its sole
concern seemed to be the Sunday school. Applicants for charity were
referred to the charity office across the street; social functions took
place at the clubs; legal disputes were no longer decided by a
rabbinical court. True, there were few large cities in this country in
which the Jewish community did not point with pride to its
magnificent house of worship; but in the majority of cases these
gorgeous buildings (I am writing throughout of the synagogues of the
reform wing) were dark six days and nights a week. In this respect,
they differed little from the churches about them.
But the last decade, which has seen the rise of the institutional
church, is witnessing the return of the synagogue to its former close
relationship to communal Jewish life. The change is due to the same
causes that made for the broadening of the work of city churches.
The popular criterion of a social institution’s value, it was seen, is its
working efficiency. Men who judged by concrete and tangible
standards, and their number is legion, were becoming indifferent to
religion because it appeared divorced from life. The leaders of
American Judaism began to appreciate that it was insufficient to
proclaim from the pulpit that religion included charity, social
amelioration, good citizenship, as well as morality and reverence;
they began to insist that the synagogue should “monument its
claims.” It was urged that the synagogue should not only strive to
touch the religious nature of the people with the conventional
methods of prayer and praise and preachment, but should also bring
to bear a system of institutional activities, social, educational and
philanthropic which would bring it into contact with its members’
physical, mental and social nature as well.
As a result of this awakening there is hardly a synagogue in the
United States which has not some form of institutionalism—be it
only a sewing circle. A questionnaire sent out by the Committee on
Social and Religious Union of the Central Conference of American
Rabbis to its various members elicited ninety-seven replies. In these
answers seventy-one report the existence of congregational libraries;
eleven congregations conduct classes for the teaching of the English
language and instruction in citizenship; six maintain settlements;
two have labor bureaus; fifty list philanthropic activities, glee and
choral societies, athletic clubs, kindergartens, industrial schools and
dancing classes.
The committee in summarizing its report says: “The majority [of
our colleagues] feel that all these institutional creations have helped
to deepen the interest of the members in the synagogue and in each
other; that they have helped to make the temple a center for Jewish
communal life; ... that they religionize social functions; that they
stimulate the Jewish consciousness; that they prevent
disintegration....”
Once again the synagogue is playing a splendid role in Jewish
communal life. Men are beginning to perceive that the ideal
synagogue will be in use at practically all hours every day in the
week, will never be dark and deserted. The impressive appearing
edifice that was tenanted by silence and gloom on every day except
the Sabbath is becoming an anachronism. Our hope is that the
synagogues that continue to slumber may awaken before it is too
late, and take their proper share in the work of communal uplift.
DR. HOWARD KELLY’S APPEAL FOR
CHURCH CIVIC SERVICE
The demands for a better trained ministry and membership in the
churches are being strongly emphasized by such statements of what
the community expects of them as Dr. Howard A. Kelly of the Johns
Hopkins University medical faculty recently made in an address at
the annual meeting of the New York Probation and Protective
Association. In giving his consent to print some of his remarks, he
writes, with special reference to his efforts against the social evil:
“I feel as though my own work in this field were to bring the churches together
for neighborhood social interests. If we do not get the churches actively to work, I
believe all the social developments of the last thirty years are destined to failure. I
fully believe that a few strong men, say five or six in a city like Baltimore, can
effectively put persistent effort into the work of amalgamating our churches for the
expression of the Christian life in the active service of their fellow men.”
In his address in New York, after stoutly combating, from his
professional and public points of view, the policy of segregating vice,
he declared that the social work of the church is indispensable to
progress, and that it is the duty and the opportunity of the church to
fulfil the need in this direction. He spoke substantially as follows:
“The most effective of all agencies in breaking down the strongholds of vice and
in building up the national character is the church. For some reason unknown and
unfathomable, some of my associates in this beneficent work who don’t go to
church fight shy of discussing any enlistment of the churches everywhere. Not a
few who have never had any personal interests in the church even stand ready to
declare, with a distinguished head of our public libraries, that the church
represents the largest outlay of capital for the smallest return in interest the world
has ever seen.
“The utility of the church in the social field is best defended perhaps by citing an
investigation of over 1000 social workers of all kinds showing that over 90 per cent
are church people, and I venture confidently to affirm that if the inspiration of the
church direct and indirect is taken away from our various social movements, they
will die outright in short order. I can furthermore now aver what I could not have
said twenty years ago, of a group of splendid humanitarian workers who have no
church affiliations, that this indefatigable but weary band has at last come to
realize that unless the church comes to the front and does her duty this great
purifying work will never be done.
“The difficulty has been that our churches have been too much afflicted with
myopia, seeing little beyond the confines of their own four walls. They have also
one and all slipped into the easy ways of formalism, and worse still, the laity have
thrust the burden of their religious obligations onto the shoulders of a groaning,
overladen clergy, trusting to discharge their own personal responsibilities on a
cash basis by check. I am sure that the clergy are well aware that there is much to
be desired in the social relations of the church to the community and I believe no
set of men will show themselves more ready to advance on new lines if they can see
that the movement is really a spiritual one and that a large service can thus be
inaugurated.
“There are many reasons why the churches must be depended upon as the
backbone of any morals movement:
They are ideally distributed among the people.
They have the intelligence and the means.
They have a source of continuous inspiration needed in dealing with chronic
distressing problems.
They alone can guarantee perpetuity of effort.
“In utilizing the church, the minister must be the organizer and leader of his
people. A new relationship between pastor and layman will ensue, and laymen,
once drawn into a local work, will soon branch out into all forms of civic work for
the weal of the community. Again, the churches possess the community buildings
so much needed. The only other similar institution capable of a similar co-
operation on a large scale is the public school which, while valuable and necessary
in this movement, has not the independence and lacks the great inspiration.
“What, then, is the specific program for the church? First, of all, she must not
abate but rather increase her dependence upon God. She must never yield to
temptation to abandon the one really valuable quality she possesses by relegating
to the background the living fountains of inspiration she holds in God’s word, for a
mere mundane horizontal social Gospel which makes a religion of the human
activities which are but its appropriate outward expression. First a glance upward,
then outward to God for the life, and to the human arena for the sphere in which
the life must be manifested. This does not hinder but quickens the impulse to
effective service.
“The profounder my faith, the more am I able to work in affectionate association
and harmony with the many who do not see eye to eye with me here on earth; I
cannot, however, continue to work with any who demand as the price of their help
that I shall stifle all outward expression of my faith. He who walks in the light must
sing of the light lest the light he has shall fade into darkness, and he too shall be
left to flounder along the dead level of merely human self-guided impulses.
A PRAYER FOR EFFICIENCY

O God, as to an earthly father, we bring thee each our yearning confession
of failure to realize to the full the powers thou hast given us as laborers in
thy kingdom on earth. May we learn through this, our mutual prayer, to be
charitable to one another’s shortcoming. Teach us, by love if it may be, by
bitter rebellion, if it must be, that our prayer may be answered only as we
are firm to lend a hand in mutual aid and sympathy to the less fortunate.
Let each in strength supply his neighbors’ weakness, and build up in him the
efficiency which is his birthright.
Thus, in humility of heart, we pray for justice to our overstrained and
blighted brothers who never catch up, who grind their lives into sieves of
despair and deficit, each grist the harder because there is less of life to
spare. Think upon the handicapped in body and in soul, for whose
backwardness we are jointly responsible through our inefficiency. May we
give them health and leisure and knowledge and so joy and inspiration so
that, restored to themselves, they may in free good will repay them a
hundredfold, in deeds of brotherly gratitude and justice to others, for thy
sake.
And chiefly we pray for those in whom we have put our trust; that their
strength may be equal to the temptations of the power we have given them
from thee. May they realise that not their own gain, but social justice, must
measure the efficiency of their efforts. Bring home to their minds and hearts
the far-reaching power, for evil and for good, of industry and government,
of church and press; let them remember vividly the remote effects of
indifference and negligence in the web of modern life.
May the getters of gold give justice to its producers; may its earners have
charity toward its spenders; may the givers of gold be gifted with wisdom
and courage; and may all social workers feel the weight of an especial
responsibility; that the surplus wealth of which they are guardians may be
husbanded for its true purposes and not be betrayed, nor delayed, nor
wasted in their hands; that thou mayst have gratitude in turn toward all,
for thy children’s sake. Thus may thy kingdom grow on earth into fuller and
more abundant life for each and all.—AMEN.
“The church must be a great, perennial fountain of spiritual and moral energy to
the whole people in all the avenues of human interests. She must realize her
obligation to champion the cause of the oppressed, whatever the cause and
whoever the oppressor, whether in her fold or out of it. She must watch to prevent
the rich from grinding the faces of the poor. She must when necessary provide for
every legitimate desire of the people. If politics are corrupt, then she must enter
aggressively into the field of politics, only for purity and not for party. She must
fight all saloons and organize neighborhood opposition to their continuance, but
provide too for some form of social life to replace them.
“The rich churches most be big sisters to the poor, providing means and sending
talented workers wherever they are needed. If the church needs money for
neighborhood enterprise, let her lop off her choirs and stained glass windows and
bells, expensive altars, and put the money saved into human lives. She must
discourage all extravagances which give the poor just cause for bitterness and
arouse envy and set up unworthy standards. Let the church make a map of
neighborhood conditions. This will serve as an object lesson and as a basis for
action. In weekly classes she should then study such social problems as:
Social teachings in the Bible.

Tuberculosis in our city.
Prostitution.
Housing the poor.
Amusements.
Wages paid in department stores and factories.
Near town places of recreation.
Hotels, saloons and rathskellers.
The laws of city and state affecting social questions.
Our prison system—what help have the men?
Our various relief agencies—how far do they co-operate?”
ONE OF DAYTON’S MENACES
A heap of dead horses awaiting skinning and rendering at the

fertilizer plant
HEALTH
SANITATION AT DAYTON
[The widespread flood disaster in Ohio during the last week of
March led members of the Pittsburgh Flood Commission to study
the situation. Morris Knowles, a member of the Engineering
Committee of this commission, has had two assistants in the field
for this purpose. One of these, M. R. Scharff, who had previously
been employed by Mr. Knowles in making a sanitary survey of
the coal-mining camps in Alabama, paid particular attention to
the sanitary conditions resulting from the flood. The present
article embodies observations made on this trip.—Ed.]
Following in the wake of great disasters which descend from time
to time upon our cities, paralyzing the public services that make
crowded city conditions possible, is the outcropping of disease that
may, if unchecked, prove more disastrous even than the catastrophe
itself. This tendency was discernible in the first reports of the floods
that have recently devastated Ohio, Indiana and adjoining states, due
to the heavy rains of March 24–28. Nearly every flooded city
reported that its water works plant had been put out of commission,
or the water supply polluted, which with the increased chance of
infection, and the general lowering of vitality presented a situation of
unusual menace and one demanding complete and immediate
handling.
The most serious situation is Dayton, for here every sanitary
problem presented at any other point was involved. The complete,
immediate and effective organization to handle the situation which
was formed there was typical of the effective work now done at such
emergency periods.
At Dayton the water works plant was incapacitated by water that
reached ten feet above the boiler grates; there was unknown damage
to water distribution and sanitary sewerage and drainage systems;
storm sewers and catch basins were clogged with filth and debris;
dead animals were strewn on every side; the population was at high
nervous tension, their vitality lowered by shock, exposure, cold, and
lack of food and drink; hundreds of people were crowded for days in
single buildings or dwellings; thousands, probably, had been exposed
to intestinal infection by drinking the dirty flood water as it swirled
through the streets; hundreds had only wet cellars and rooms to
return to, if their homes were not altogether destroyed; and
everywhere on everything—walls, ceilings, floors, furniture, streets
and sidewalks—was a thick coating of the black, sticky, slimy mud
left by the retreating waters. This in a measure pictures the situation
at Dayton as the flood waters receded. And Dayton knew at once that
the toll of the flood would be as nothing compared to the pestilence,
unless attention and energy were directed to these problems.
This appreciation of the paramount importance of sanitation was a
striking revelation of the success of the campaign of sanitary
education that has characterized the last century. In every phase of
the work of recovery, in the warning signs and directions on almost
every post, in the placards on the automobiles of the sanitary
department stating that “This car must not be stopped or delayed day
or night,” in the daily exhortations in the free newspapers distributed
throughout the city, in a thousand ways, Dayton declared again and
again:
“Sanitation first and foremost. Then everything else.”
Such was the spirit of the members of the Dayton Bicycle Club,
when they met as the waters receded from their club-house to
consider what service they could best render to their stricken city,
and volunteered to remove the dead animals strewn it the streets.
Such also was the message reiterated by the Ohio State Board of
Health, the city health officials, the representatives of the national
government, the Red Cross, the Relief Committee, the Ohio National
Guard, and every one of the splendid organizations that are working
shoulder to shoulder to clean up Dayton and to prevent conditions
more costly in toll of life than the deluge itself.
One of the remarkable features of the handling of the relief work at
Dayton was the entire absence of red tape, the lack of conflict, and
the universal evidence of harmonious co-operation between the
various organizations at work, notwithstanding that there was no
complete centralization of direction and that some of the
organizations were proceeding practically independent of the others.
“Results, not credit,” was the watchword, and the results were such
as to reflect the most lasting credit upon all engaged in the work.
The Dayton Bicycle Club showed wisdom in volunteering to
remove the dead animals from the street. Nearly every horse in the
more than seven square miles of the city that was under water—and
this area contained all the important livery stables—was drowned,
and quick action was needed to remove the bodies to prevent serious
results. A sanitary department was organized, and as rapidly as
automobile trucks and wagons were volunteered, they were pressed
into service. Over 100 vehicles and about 600 men were engaged on
this work. A rendering company, which handles all the garbage
collected in the city, agreed to take care of the horses and did so as
fast as they came for a time. When the carcasses came so rapidly that
it was necessary to heap them up on the grounds of the plant, and
then on a vacant field nearby, the plant was a grewsome place
indeed. Up to the night of March 31, 1,002 had been received. A
number were picked up the next two days, so that the final total was
probably in the neighborhood of 1,100.
At about the time this work was started, a reconstruction
department was organized, under the Citizens Relief Committee,
with divisions, each under an engineer, assigned to street cleaning,
sewers and drains, streets, and levees. By March 31, the removal of
dead animals had been practically completed, and the organization
and equipment of the sanitary department were merged with those
of the street cleaning division of the reconstruction department.
Sanitary notices directed that all mud and rubbish be deposited at
the curb, the city was divided into districts and collection progressed
rapidly, considering the wagons and trucks available. More wagons
could have been put into service, but horses were lacking. All mud
and rubbish was hauled to one of the half-dozen city rubbish dumps
located in low outlying sections, or was dumped off bridges into the
river. The employes of the city water works department were able to
get into the pumping station on March 28 and the following day
pumping was resumed. Dayton’s water supply comes from a number
of deep drilled wells along the Mad River. It is pumped direct into
the mains without storage, by means of a Holly vertical, triple-
expansion, crank and fly-wheel engine. This pump has given rise to
the local name of “Hollywater” applied to the city supply. It was
feared at first that the distribution system had been badly damaged,
but investigation showed that only three small mains had been
broken. Water, at reduced pressure, was therefore possible, except in
one or two small sections.
AN IMPROVISED COMFORT
STATION
Dayton water is exceptionally pure, but it was feared that there

might have been leakage of flood water into the pipes while the
pressure was cut off and so notices to “boil all water, even the
Hollywater” were posted. Samples were promptly taken for analysis
from various portions of the distribution system by the chemist of
the National Cash Register Company, the bacteriologist of the city
Board of Health, and by the State Board of Health, but the injunction
to boil water was continued, even though the first analysis was
favorable.
The catch basins and storm sewers throughout the city were badly
clogged with wreckage and filth, and early cleaning was imperative.
The city was divided into seven drainage districts, and gangs of men
and wagons assigned to shoveling out catch basins and hauling the
rubbish to the dumps. At the same time systematic inspection of the
sanitary sewerage system was begun. It had been expected that the
sewers would be clogged, like the storm drains, and the early sanitary
notices issued contained these warnings:
IMPORTANT
Sanitary Notice
FOR YOUR OWN HEALTH
(1.) Do not use Sanitary sewers and Closets until notified by the Board of
Health. Even if the hollywater system is on, the sewers are full of mud and
will clog. Burn or bury all excreta garbage and filth. Add lime and bury deep.
Use disinfectant in out-door trenches also.
(2.) Thoroughly scrub, clean and dry your cellar. Keep your cellar
windows open. Remove and burn or bury all rubbish. Sprinkle lime around
cellar, especially in damp places. Sprinkle floor with disinfectant sent
herewith (two tablespoons-full to one quart of water.)
(3.) Thoroughly clean your in and out door premises.
(4.) Place concentrated lye or a tablespoon of disinfectant in each sink or
trap in toilet, basement and kitchen. Allow to stand over night. Do this every
evening.
(5.) Boil all water, even holly water, and thoroughly cook all food. Boil all
cooking utensils. Do this for months to come.
(6.) Do not enter houses which have been flooded until thoroughly
cleaned and dried.
(7.) Keep your own self clean.
Do these things to avoid pestilence and sickness.
Do it for yourself.
Do it for Dayton.
Take care of yourself and you will take care of Dayton.
Maj. L. T. Rhoades,
U. S. Army.
ONE OF THE EARLY NOTICES
“Do not use water closets. Contents will reach cellars. Use vessels, disinfect, and
bury in back-yards. Disinfectants: carbolic acid, chloride of lime, bichloride of
mercury, and creolin.”
“Do not use sanitary sewers and closets until notified by the Board of Health.
Even if the “Hollywater” system is on, the sewers are full of mud and will clog.
Burn or bury all excreta, garbage and filth. Add lime and bury deep. Use
disinfectant in out-door trenches also.”
Inspection showed a much better condition than was anticipated.
In all but three districts, the sanitary sewers were running freely and
the warnings were replaced by new notices:
“Sewers are open and ready for use. If the water supply is not sufficient for
flushing, fill the tank of the closet with a bucketful of water, and flush as usual.”
Wooden public convenience stations were also established over
sewer manholes in the business sections and in residential sections
without sewer connections.
The three sewer districts that were out of commission were the St.
Francis, the North Dayton, and the Riverdale low line. The St.
Francis sewer is a gravity line, and a manhole at the lower end was
completely choked up. It was necessary finally to dynamite this
manhole in order to open the line. The two latter lines are both low,
and sewage has to be pumped into the river by pneumatic ejectors.
The air lines from the compressor plant in the water works pumping
station were laid in the levees which were washed out and at one
point about 200 feet of pipe was lost. This was difficult to repair, and
these districts had to be left without sewerage until April 2, when a
by-pass on each line into the storm drains was opened, and the
backed-up sewage lowered sufficiently to clear most of the cellars
and to permit the use of water closets.
While this work was proceeding the organizations devoting their
energies to control of infectious disease, inspection, and
administration had been far from idle. The State Board of Health had
three sanitary engineers and two physicians, trained in public health
work, in the city before the waters receded. The city Board of Health
was one of the first in the field, and the medical corps of the Ohio
National Guard promptly took up the work. Co-operating with one
another, under the direction of Major L. T. Rhoades of the United

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Part 1 Introduction to Economics 1

Chapter 1 Introducing the Economic Way of Thinking 1

Part 2 Microeconomics Fundamentals 48

Chapter 3 Market Demand and Supply 48

Part 3 Macroeconomics Fundamentals 110

Chapter 5 Gross Domestic Product 110

Part 4 Macroeconomics Theory and Policy 188

Chapter 8 The Keynesian Model 188

Part 5 Money, Banking, and Monetary Policy 350

Chapter 14 Money and the Federal Reserve System 350

Part 6 The International Economy 455

Chapter 18 International Trade and Finance 455

Appendix A Answers to Odd-Numbered Study Questions and Problems 535

Part 1 Introduction to Economics 1

Chapter 1 Introducing the Economic Way of Thinking 1

Chapter 2 Production Possibilities, Opportunity Cost, and Economic Growth 26

Part 1: Road Map: Introduction to Economics 46

Part 2 Microeconomics Fundamentals 48

Chapter 3 Market Demand and Supply 48

Chapter 4 Markets in Action 78

Part 2: Road Map: Microeconomics Fundamentals 107

Part 3 Macroeconomics Fundamentals 110

Chapter 5 Gross Domestic Product 110

Chapter 6 Business Cycles and Unemployment 139

6-5 Nonmonetary and Demographic Consequences of Unemployment 158

Chapter 7 Inflation 165

Part 3: Road Map: Macroeconomics Fundamentals 185

Part 4 Macroeconomics Theory and Policy 188

Chapter 8 The Keynesian Model 188

Chapter 9 The Keynesian Model in Action 210

Chapter 10 Aggregate Demand and Supply 233

Appendix to Chapter 10: The Self-Correcting Aggregate

Chapter 11 Fiscal Policy 276

Chapter 12 The Public Sector 300

Chapter 13 Federal Deficits, Surpluses, and the National Debt 322

Part 4: Road Map: Macroeconomics Theory and Policy 346

Part 5 Money, Banking, and Monetary Policy 350

Chapter 14 Money and the Federal Reserve System 350

Chapter 15 Money Creation 373

Chapter 16 Monetary Policy 395

Chapter 17 The Phillips Curve and Expectations Theory 429

Part 5: Road Map: Money, Banking, and Monetary Policy 451

Part 6 The International Economy 455

Chapter 18 International Trade and Finance 455

A Closer Look: World Trade Slips on a Banana Peel 466

Chapter 19 Economies in Transition 487

Chapter 20 Growth and the Less-Developed Countries 511

Part 6: Road Map: The International Economy 532

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How It Fits Together

How Not to Study Economics

Changes to the Eleventh Edition

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E x h i b i t 1 Efficiency vs. Equity