,This page intentionally left blank
,MACROECONOMICS
TENTH EDITION
MICHAEL PARKIN
University of Western Ontario
,Editor in Chief Donna Battista
Senior Acquisitions Editor Adrienne D’Ambrosio
Development Editor Deepa Chungi
Managing Editor Nancy Fenton
Assistant Editor Jill Kolongowski
Photo Researcher Angel Chavez
Production Coordinator Alison Eusden
Director of Media Susan Schoenberg
Senior Media Producer Melissa Honig
Executive Marketing Manager Lori DeShazo
Rights and Permissions Advisor Jill Dougan
Senior Manufacturing Buyer Carol Melville
Senior Media Buyer Ginny Michaud
Copyeditor Catherine Baum
Art Director and Cover Designer Jonathan Boylan
Technical Illustrator Richard Parkin
Text Design, Project Management
and Page Make-up Integra Software Services, Inc.
Cover Image: Medioimages/PhotoDisc/Getty Images
Photo credits appear on page C-1, which constitutes a continuation of the copyright page.
Copyright © 2012, 2010, 2008, 2005, 2003 Pearson Education, Inc. All rights reserved. No part of this publica-
tion may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed
in the United States of America. For information on obtaining permission for use of material in this work, please
submit a written request to Pearson Education, Inc., Rights and Contracts Department, 501 Boylston Street, Suite
900, Boston, MA 02116, fax your request to 617-671-3447, or e-mail at http://www.pearsoned.com/legal/
permissions.htm.
Library of Congress Cataloging-in-Publication Data
Parkin, Michael, 1939–
Macroeconomics/Michael Parkin. — 10th ed.
p. cm.
Includes index.
ISBN 978-0-13-139445-2 (alk. paper)
1. Economics. I. Title.
HB171.5.P313 2010
330—dc22 2010045760
1 2 3 4 5 6 7 8 10—CRK—14 13 12 11 10
ISBN 10: 0-13-139445-2
ISBN 13: 978-0-13-139445-2
,TO ROBIN
,ABOUT THE AUTHOR
Michael Parkin is Professor Emeritus in the Department of Economics at
the University of Western Ontario, Canada. Professor Parkin has held faculty
appointments at Brown University, the University of Manchester, the University of
Essex, and Bond University. He is a past president of the Canadian Economics
Association and has served on the editorial boards of the American Economic
Review and the Journal of Monetary Economics and as managing editor of the
Canadian Journal of Economics. Professor Parkin’s research on macroeconomics,
monetary economics, and international economics has resulted in over 160
publications in journals and edited volumes, including the American Economic
Review, the Journal of Political Economy, the Review of Economic Studies, the
Journal of Monetary Economics, and the Journal of Money, Credit and Banking.
He became most visible to the public with his work on inflation that discredited the
use of wage and price controls. Michael Parkin also spearheaded the movement
toward European monetary union. Professor Parkin is an experienced and
dedicated teacher of introductory economics.
iv
, BRIEF CONTENTS
PART ONE PART FOUR
INTRODUCTION 1 MACROECONOMIC FLUCTUATIONS 241
CHAPTER 1 What Is Economics? 1 CHAPTER 10 Aggregate Supply and Aggregate
CHAPTER 2 The Economic Problem 29 Demand 241
CHAPTER 3 Demand and Supply 51 CHAPTER 11 Expenditure Multipliers: The Keynesian
Model 265
PART TWO CHAPTER 12 U.S. Inflation, Unemployment, and
MONITORING MACROECONOMIC Business Cycle 295
PERFORMANCE 83
PART FIVE
CHAPTER 4 Measuring GDP and Economic
Growth 83
MACROECONOMIC POLICY 321
CHAPTER 5 Monitoring Jobs and Inflation 107 CHAPTER 13 Fiscal Policy 321
CHAPTER 14 Monetary Policy 347
PART THREE CHAPTER 15 International Trade Policy 371
MACROECONOMIC TRENDS 133
CHAPTER 6 Economic Growth 133
CHAPTER 7 Finance, Saving, and Investment 159
CHAPTER 8 Money, the Price Level, and Inflation
183
CHAPTER 9 The Exchange Rate and the Balance of
Payments 211
v
,This page intentionally left blank
, ALTERNATIVE PATHWAYS THROUGH THE CHAPTERS
Macro Flexibility
Chapter 1
What is Economics
Chapter 6
Economic Growth
Chapter 2
The Economic Problem
Chapter 7
Chapter 13
Finance, Saving,
Fiscal Policy
Chapter 4 and Investment
Chapter 3
Demand and Supply Measuring GDP and
Economic Growth
Chapter 12
Chapter 10
U.S. Inflation,
Aggregate Supply and
Unemployment, and
Aggregate Demand
Chapter 15 Chapter 5 Business Cycle
International Monitoring Jobs
Trade Policy and Inflation
Chapter 8 Chapter 14
Money, the Price Level, Monetary Policy
and Inflation
Chapter 9
The Exchange Rate and
the Balance of Payments
Chapter 11
Expenditure Multipliers:
The Keynesian Model
Start here ... … then jump to … and jump to any of these after
any of these … doing the pre-requisites indicated
vii
, TABLE OF CONTENTS
PART ONE APPENDIX Graphs in Economics 13
INTRODUCTION 1 Graphing Data 13
Scatter Diagrams 14
CHAPTER 1 ◆ WHAT IS ECONOMICS? 1 Graphs Used in Economic Models 16
Definition of Economics 2 Variables That Move in the Same Direction 16
Variables That Move in Opposite Directions 17
Two Big Economic Questions 3 Variables That Have a Maximum or a
What, How, and For Whom? 3 Minimum 18
Can the Pursuit of Self-Interest Promote the Variables That Are Unrelated 19
Social Interest? 5
The Slope of a Relationship 20
The Economic Way of Thinking 8 The Slope of a Straight Line 20
A Choice Is a Tradeoff 8 The Slope of a Curved Line 21
Making a Rational Choice 8
Benefit: What You Gain 8 Graphing Relationships Among More Than
Cost: What You Must Give Up 8 Two Variables 22
How Much? Choosing at the Margin 9 Ceteris Paribus 22
Choices Respond to Incentives 9 When Other Things Change 23
Economics as Social Science and MATHEMATICAL NOTE
Policy Tool 10 Equations of Straight Lines 24
Economist as Social Scientist 10
Economist as Policy Adviser 10
Summary (Key Points and Key Terms), Study Plan
Problems and Applications, and Additional Problems
and Applications appear at the end of each chapter.
viii
,MACROECONOMICS
TENTH EDITION
MICHAEL PARKIN
University of Western Ontario
,Editor in Chief Donna Battista
Senior Acquisitions Editor Adrienne D’Ambrosio
Development Editor Deepa Chungi
Managing Editor Nancy Fenton
Assistant Editor Jill Kolongowski
Photo Researcher Angel Chavez
Production Coordinator Alison Eusden
Director of Media Susan Schoenberg
Senior Media Producer Melissa Honig
Executive Marketing Manager Lori DeShazo
Rights and Permissions Advisor Jill Dougan
Senior Manufacturing Buyer Carol Melville
Senior Media Buyer Ginny Michaud
Copyeditor Catherine Baum
Art Director and Cover Designer Jonathan Boylan
Technical Illustrator Richard Parkin
Text Design, Project Management
and Page Make-up Integra Software Services, Inc.
Cover Image: Medioimages/PhotoDisc/Getty Images
Photo credits appear on page C-1, which constitutes a continuation of the copyright page.
Copyright © 2012, 2010, 2008, 2005, 2003 Pearson Education, Inc. All rights reserved. No part of this publica-
tion may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed
in the United States of America. For information on obtaining permission for use of material in this work, please
submit a written request to Pearson Education, Inc., Rights and Contracts Department, 501 Boylston Street, Suite
900, Boston, MA 02116, fax your request to 617-671-3447, or e-mail at http://www.pearsoned.com/legal/
permissions.htm.
Library of Congress Cataloging-in-Publication Data
Parkin, Michael, 1939–
Macroeconomics/Michael Parkin. — 10th ed.
p. cm.
Includes index.
ISBN 978-0-13-139445-2 (alk. paper)
1. Economics. I. Title.
HB171.5.P313 2010
330—dc22 2010045760
1 2 3 4 5 6 7 8 10—CRK—14 13 12 11 10
ISBN 10: 0-13-139445-2
ISBN 13: 978-0-13-139445-2
,TO ROBIN
,ABOUT THE AUTHOR
Michael Parkin is Professor Emeritus in the Department of Economics at
the University of Western Ontario, Canada. Professor Parkin has held faculty
appointments at Brown University, the University of Manchester, the University of
Essex, and Bond University. He is a past president of the Canadian Economics
Association and has served on the editorial boards of the American Economic
Review and the Journal of Monetary Economics and as managing editor of the
Canadian Journal of Economics. Professor Parkin’s research on macroeconomics,
monetary economics, and international economics has resulted in over 160
publications in journals and edited volumes, including the American Economic
Review, the Journal of Political Economy, the Review of Economic Studies, the
Journal of Monetary Economics, and the Journal of Money, Credit and Banking.
He became most visible to the public with his work on inflation that discredited the
use of wage and price controls. Michael Parkin also spearheaded the movement
toward European monetary union. Professor Parkin is an experienced and
dedicated teacher of introductory economics.
iv
, BRIEF CONTENTS
PART ONE PART FOUR
INTRODUCTION 1 MACROECONOMIC FLUCTUATIONS 241
CHAPTER 1 What Is Economics? 1 CHAPTER 10 Aggregate Supply and Aggregate
CHAPTER 2 The Economic Problem 29 Demand 241
CHAPTER 3 Demand and Supply 51 CHAPTER 11 Expenditure Multipliers: The Keynesian
Model 265
PART TWO CHAPTER 12 U.S. Inflation, Unemployment, and
MONITORING MACROECONOMIC Business Cycle 295
PERFORMANCE 83
PART FIVE
CHAPTER 4 Measuring GDP and Economic
Growth 83
MACROECONOMIC POLICY 321
CHAPTER 5 Monitoring Jobs and Inflation 107 CHAPTER 13 Fiscal Policy 321
CHAPTER 14 Monetary Policy 347
PART THREE CHAPTER 15 International Trade Policy 371
MACROECONOMIC TRENDS 133
CHAPTER 6 Economic Growth 133
CHAPTER 7 Finance, Saving, and Investment 159
CHAPTER 8 Money, the Price Level, and Inflation
183
CHAPTER 9 The Exchange Rate and the Balance of
Payments 211
v
,This page intentionally left blank
, ALTERNATIVE PATHWAYS THROUGH THE CHAPTERS
Macro Flexibility
Chapter 1
What is Economics
Chapter 6
Economic Growth
Chapter 2
The Economic Problem
Chapter 7
Chapter 13
Finance, Saving,
Fiscal Policy
Chapter 4 and Investment
Chapter 3
Demand and Supply Measuring GDP and
Economic Growth
Chapter 12
Chapter 10
U.S. Inflation,
Aggregate Supply and
Unemployment, and
Aggregate Demand
Chapter 15 Chapter 5 Business Cycle
International Monitoring Jobs
Trade Policy and Inflation
Chapter 8 Chapter 14
Money, the Price Level, Monetary Policy
and Inflation
Chapter 9
The Exchange Rate and
the Balance of Payments
Chapter 11
Expenditure Multipliers:
The Keynesian Model
Start here ... … then jump to … and jump to any of these after
any of these … doing the pre-requisites indicated
vii
, TABLE OF CONTENTS
PART ONE APPENDIX Graphs in Economics 13
INTRODUCTION 1 Graphing Data 13
Scatter Diagrams 14
CHAPTER 1 ◆ WHAT IS ECONOMICS? 1 Graphs Used in Economic Models 16
Definition of Economics 2 Variables That Move in the Same Direction 16
Variables That Move in Opposite Directions 17
Two Big Economic Questions 3 Variables That Have a Maximum or a
What, How, and For Whom? 3 Minimum 18
Can the Pursuit of Self-Interest Promote the Variables That Are Unrelated 19
Social Interest? 5
The Slope of a Relationship 20
The Economic Way of Thinking 8 The Slope of a Straight Line 20
A Choice Is a Tradeoff 8 The Slope of a Curved Line 21
Making a Rational Choice 8
Benefit: What You Gain 8 Graphing Relationships Among More Than
Cost: What You Must Give Up 8 Two Variables 22
How Much? Choosing at the Margin 9 Ceteris Paribus 22
Choices Respond to Incentives 9 When Other Things Change 23
Economics as Social Science and MATHEMATICAL NOTE
Policy Tool 10 Equations of Straight Lines 24
Economist as Social Scientist 10
Economist as Policy Adviser 10
Summary (Key Points and Key Terms), Study Plan
Problems and Applications, and Additional Problems
and Applications appear at the end of each chapter.
viii
