Welcome to the eighteenth edition of Economics, the bestselling economics textbook in the world. An estimated 14 million students have used Economics or its companion editions, Macroeconomics and Microeconomics. Economics has been adapted into Australian and Canadian editions and translated into Italian, Russian, Chinese, French, Spanish, Portuguese, and other languages. We are pleased that Economics continues to meet the market test: nearly one out of four U.S. students in principles courses used the seventeenth edition.

A Note about the Cover and New Coauthor

In the tradition of the previous two covers, the cover for this edition includes a photograph of steps. The new edition’s cover is a metaphor for the step-by-step approach that we use to present basic economic principles. It also represents the simplicity, beauty, and power of basic economic models. We have chosen a highly modern photo to reflect the addition of our new coauthor, Sean M. Flynn, who has helped modernize the content of the book from cover to cover. Sean did his undergraduate work at USC, received his Ph.D. from U.C. Berkeley (in 2002), teaches principles at Vassar, and is the author of Economics for Dummies. We are greatly pleased to have Sean working on the text since he shares our commitment to present economics in a way that is understandable to all.

Fundamental Objectives

We have three main goals for Economics:

• Help the beginning student master the principles essential for understanding the economizing problem, specific economic issues, and the policy alternatives.

• Help the student understand and apply the economic perspective and reason accurately and objectively about economic matters.

• Promote a lasting student interest in economics and the economy.

Distinguishing Features

Comprehensive Explanations at an Appropriate Level Macroeconomics is comprehensive, analytical, and challenging yet fully accessible to a wide range of students. The thoroughness and accessibility enable instructors to select topics for special classroom emphasis with confidence that students can read and comprehend other independently assigned material in the book. Where needed, an extra sentence of explanation is provided. Brevity at the expense of clarity is false economy.

Fundamentals of the Market System Many economies throughout the world are still making difficult transitions from planning to markets while a handful of other countries such as Venezuela seem to be trying to reestablish government-controlled centrally planned economies. Our detailed description of the institutions and operation of the market system in Chapter 2 is therefore even more relevant than before. We pay particular attention to property rights, entrepreneurship, freedom of enterprise and choice, competition, and the role of profits because these concepts are often misunderstood by beginning students worldwide.

Early and Full Integration of International Economics We give the principles and institutions of the global economy early treatment. Chapter 5 examines the growth of world trade and its major participants, specialization and comparative advantage, the foreign exchange market, tariffs and subsidies, and various trade agreements. This strong introduction to international economics permits “globalization” of later discussions. We delve into the more difficult, graphical analysis of international trade and finance in Chapters 20 and 21. Early and Extensive Treatment of Government Government is an integral component of modern capitalism. This book introduces the economic functions of government early and accords them systematic treatment in Chapter 4. Government’s role (including the role of the “Fed”) in promoting full employment, price-level stability, and economic growth is central to the macroeconomic policy chapters.

Step-by-Step, Two-Path Macro As in the previous edition, our macro continues to be distinguished by a systematic step-by-step approach in developing ideas and building models. Explicit assumptions about price and wage stickiness are posited and then systematically peeled away, yielding new models and extensions, all in the broader context of growth, expectations, shocks, and degrees of price and wage stickiness over time. In crafting this step-by-step macro approach, we took care to preserve the “two-path macro” that many instructors appreciated. Instructors who so choose can bypass the immediate short-run model (Chapter 11) and can proceed without loss of continuity directly to the short-run AD-AS model (Chapter 12), fiscal policy, money and banking, monetary policy, and the long-run analysis.

Emphasis on Technological Change and Economic Growth This edition continues to emphasize economic growth. Chapter 1 uses the production possibilities curve to show the basic ingredients of growth. Chapter 8 explains how growth is measured, discusses the causes of growth, looks at productivity growth, and addresses some controversies surrounding economic growth. Chapter 8’s Last Word examines the rapid economic growth in China. Chapter 18 discusses growth and inflation in the context of aggregate demand and long-run aggregate supply. Chapter 21Web focuses on developing countries and the growth obstacles they confront. Integrated Text and Web Site Macroeconomics and its Web site are highly integrated through in-text Web buttons, Web-based end-of-chapter questions, bonus Web chapters, multiple-choice self-tests at the Web site, math notes, and other features. Our Web site is part and parcel of our student learning package, customized to the book. The in-text Web buttons (or indicators) merit special mention. Three differing colors of rectangular indicators appear throughout the book, informing readers that complementary content on a subject can be found at our Web site, www.mcconnell18e.com The indicator types are: Worked Problems Written by Norris Peterson of Pacific Lutheran University (WA), these pieces consist of side-by-side computational questions and computational procedures used to derive the answers. In essence, they extend the textbook’s explanations involving computations—for example, of real GDP, real GDP per capita, the unemployment rate, the inflation rate, per-unit production costs, economic profit, and more. From a student’s perspective, they provide “cookbook” help for problem solving. Interactive Graphs These pieces (developed under the supervision of Norris Peterson) depict more than 30 major graphs and instruct students to shift the curves, observe the outcomes, and derive relevant generalizations. This hands-on- graph work will greatly reinforce the graphs and their meaning. Origin of the Ideas These pieces, written by Randy Grant of Linfield College (OR), are brief histories of 70 major ideas identified in the book. They identify the particular economists who developed ideas such as opportunity costs, equilibrium price, the multiplier, comparative advantage, and elasticity.

Organizational Alternatives

Although instructors generally agree on the content of principles of economics courses, they sometimes differ on how to arrange the material. Macroeconomics includes 6 parts, and thus provides considerable organizational flexibility. For example, the two-path macro enables covering the full aggregate expenditures model or advancing directly from the basic macro relationships chapter to the AD-AS model. Also, the section of Chapter 18 that discusses the intricacies of the relationship between short-run and long-run aggregate supply can easily be appended to Chapter 12 on AD and AS.

Acknowledgments

We give special thanks to Norris Peterson of Pacific Lutheran University and Randy Grant of Linfield College, who created the “button” content on our Web site. We again thank James Reese of the University of South Carolina at Spartanburg, who wrote the original Internet exercises. Although many of those questions were replaced or modified in the typical course of revision, several remain virtually unchanged. We also thank Nora Underwood at the University of Central Florida for updating the PowerPoint slides for the eighteenth edition and Darlene DeVera of Deanza College for the Narrated PowerPoint presentations. Shawn Knabb of Western Washington University deserves a great thanks for updating the Instructor’s Manual as well as for accuracy checking the many parts making up 18e and the ancillaries. Thanks to Mohammad Bajwa of Northampton Community College, who accuracy checked both Test Banks I and II, and to Benjamin Pappas, who updated the art in both Test Banks. Finally, we thank William Walstad and Tom Barbiero (the coauthor of our Canadian edition) for their helpful ideas and insights.

We are greatly indebted to an all-star group of professionals at McGraw-Hill—in particular Douglas Reiner, Elizabeth Clevenger, Harvey Yep, Melissa Larmon, and Brent Gordon—for their publishing and marketing expertise.

We thank Keri Johnson for her selection of the Consider This and Last Word photos and Cara Hawthorne for the design.

The eighteenth edition has benefited from a number of perceptive formal reviews. The contributors, listed at the end of the Preface, were a rich source of suggestions for this revision. To each of you, and others we may have inadvertently overlooked, thank you for your considerable help in improving Macroeconomics.

Stanley L. Brue

Sean M. Flynn

Campbell R. McConnell