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About the Authors
Daron Acemoglu is the Elizabeth and James Killian Professor of Economics in the Depart-
ment of Economics at the Massachusetts Institute of Technology. He has received a B.A.
in economics from the University of York, 1989; an M.Sc. in mathematical economics and
econometrics from the London School of Economics, 1990; and a Ph.D. in economics from
the London School of Economics in 1992.
He is an elected fellow of the National Academy of Sciences, the American Academy of
Arts and Sciences, the Econometric Society, the European Economic Association, and the
Society of Labor Economists. He has received numerous awards and fellowships, including
the inaugural T. W. Schultz Prize from the University of Chicago in 2004, the inaugural
Sherwin Rosen Award for outstanding contribution to labor economics in 2004, the Distin-
guished Science Award from the Turkish Sciences Association in 2006, and the John von
Neumann Award, Rajk College, Budapest, in 2007.
He was also the recipient of the John Bates Clark Medal in 2005, awarded every two
years to the best economist in the United States under the age of 40 by the American Eco-
nomic Association, and the Erwin Plein Nemmers Prize, awarded every two years for work
of lasting significance in economics. He holds honorary doctorates from the University of
Utrecht and Bosporus University.
His research interests include political economy, economic development and growth,
human capital theory, growth theory, innovation, search theory, network economics, and
learning.
His books include Economic Origins of Dictatorship and Democracy ( jointly with
James A. Robinson), which was awarded the Woodrow Wilson and the William Riker
prizes, Introduction to Modern Economic Growth, and Why Nations Fail: The Origins of
Power, Prosperity, and Poverty ( jointly with James A. Robinson), which has become a New
York Times bestseller.
David Laibson is the Chair of the Harvard Economics Department and the Robert I.
Goldman Professor of Economics at Harvard University. He is also a member of the Na-
tional Bureau of Economic Research, where he is Research Associate in the Asset Pricing,
Economic Fluctuations, and Aging Working Groups. His research focuses on the topics
of behavioral economics, intertemporal choice, macroeconomics, and household finance,
and he leads Harvard University’s Foundations of Human Behavior Initiative. He serves
on several editorial boards, as well as the Pension Research Council (Wharton), Harvard’s
Pension Investment Committee, and the Board of the Russell Sage Foundation. He has
previously served on the boards of the Health and Retirement Study (National Institutes of
Health) and the Academic Research Council of the Consumer Financial Protection Bureau.
He is a recipient of a Marshall Scholarship and a Fellow of the Econometric Society and
the American Academy of Arts and Sciences. He is also a recipient of the T. W. Schultz
Prize from the University of Chicago and the TIAA-CREF Paul A. Samuelson Award for
Outstanding Scholarly Writing on Lifelong Financial Security. Laibson holds degrees
from Harvard University (A.B. in economics), the London School of Economics (M.Sc. in
econometrics and mathematical economics), and the Massachusetts Institute of Technol-
ogy (Ph.D. in economics). He received his Ph.D. in 1994 and has taught at Harvard since
then. In recognition of his teaching excellence, he has been awarded Harvard’s Phi Beta
Kappa Prize and a Harvard College Professorship.
viii

John A. List is the Kenneth C. Griffin Distinguished Service Professor in Economics at
the University of Chicago, and Chairman of the Department of Economics. He received
his B.S. in economics from the University of Wisconsin–Stevens Point and his Ph.D. in
economics from the University of Wyoming. Before joining the University of Chicago in
2005, he was a professor at the University of Central Florida, University of Arizona, and
University of Maryland. He also served in the White House on the Council of Economic
Advisers from 2002–2003, and is a Research Associate at the NBER.
List was elected a Member of the American Academy of Arts and Sciences in 2011, and
a Fellow of the Econometric Society in 2015. He also received the Arrow Prize for Senior
Economists in 2008, the Kenneth Galbraith Award in 2010, the Yrjo Jahnsson Lecture Prize
in 2012, and the Klein Lecture Prize in 2016. He received an honorary doctorate from
Tilburg University in 2014 and from the University of Ottawa in 2017. In addition, List
was named a Top 50 Innovator in the Non-Profit Times for 2015 and 2016 for his work on
charitable giving.
His research focuses on questions in microeconomics, with a particular emphasis on
using field experiments to address both positive and normative issues. For decades his field
experimental research has focused on issues related to the inner workings of markets, the
effects of various incentive schemes on market equilibria and allocations, and how behav-
ioral economics can augment the standard economic model. This includes research into
why inner city schools fail, why people discriminate, why people give to charity, why firms
fail, why women make less money than men in labor markets, and why people generally
do what they do.
His research includes over 200 peer-reviewed journal articles and several published
books, including the 2013 international best-seller, The Why Axis: Hidden Motives and the
Undiscovered Economics of Everyday Life (with Uri Gneezy).
About the Authors ix

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Brief Contents
PART I Introduction to Economics 2

Chapter 1 The Principles and Practice of Economics 2
Chapter 2 Economic Methods and Economic Questions 20
Chapter 3 Optimization: Doing the Best You Can 42
Chapter 4 Demand, Supply, and Equilibrium 58
PART II Introduction to Macroeconomics 86

Chapter 5 The Wealth of Nations: Defining and Measuring
Macroeconomic Aggregates 86
Chapter 6 Aggregate Incomes 116
PART III Long-Run Growth and Development 140

Chapter 7 Economic Growth 140
Chapter 8 Why Isn’t the Whole World Developed? 176
PART IV Equilibrium in the Macroeconomy 202

Chapter 9 Employment and Unemployment 202
Chapter 10 Credit Markets 228
Chapter 11 The Monetary System 252
PART V Short-Run Fluctuations and Macroeconomic

Policy 280
Chapter 12 Short-Run Fluctuations 280
Chapter 13 Countercyclical Macroeconomic Policy 308
PART VI Macroeconomics in a Global Economy 336

Chapter 14 Macroeconomics and International Trade 336
Chapter 15 Open Economy Macroeconomics 360
xi

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Contents
PART I Introduction to Economics 2 Evidence-Based Economics: How much do

wages increase when mandatory schooling laws
force people to get an extra year of schooling? 30
Chapter 1: The Principles and Practice 2.3 Economic Questions and Answers 31
of Economics 2 Summary 32
Key Terms 33
1.1 The Scope of Economics 3
Questions 33
Economic Agents and Economic Resources 3
Problems 33
Definition of Economics 4
Appendix: Constructing and Interpreting
Positive Economics and Normative Economics 5
Charts and Graphs 35
Microeconomics and Macroeconomics 6
A Study about Incentives 35
1.2 Three Principles of Economics 6 Experimental Design 35
1.3 The First Principle of Economics: Describing Variables 36
Optimization 7
Cause and Effect 38
Trade-offs and Budget Constraints 8
Appendix Key Terms 41
Opportunity Cost 9
Appendix Problems 41
Cost-Benefit Analysis 10
Evidence-Based Economics: Is Facebook
free? 11
Chapter 3: Optimization: Doing
1.4 The Second Principle of Economics:
the Best You Can 42
Equilibrium 13
3.1 Optimization: Choosing the Best Feasible
The Free-Rider Problem 14 Option 43
1.5 The Third Principle of Economics: Empiricism 15 Choice & Consequence: Do People Really
1.6 Is Economics Good for You? 16 Optimize? 44
Summary 17 3.2 Optimization Application: Renting the
Key Terms 17 Optimal Apartment 44
Questions 17 Before and After Comparisons 47
Problems 18 3.3 Optimization Using Marginal Analysis 48
Marginal Cost 49
Chapter 2: Economic Methods and Evidence-Based Economics: How does
Economic Questions 20 location affect the rental cost of housing? 52
Summary 55
2.1 The Scientific Method 21 Key Terms 56
Models and Data 21 Questions 56
An Economic Model 23 Problems 56
Evidence-Based Economics: How much more
do workers with a college education earn? 24 Chapter 4: Demand, Supply, and
Means and Medians 25 Equilibrium 58
Argument by Anecdote 25
2.2 Causation and Correlation 26 4.1 Markets 59
The Red Ad Blues 26 Competitive Markets 60
Causation versus Correlation 26 4.2 How Do Buyers Behave? 61
Choice & Consequence: Spend Now and Pay Demand Curves 62
Later? 29 Willingness to Pay 62
Experimental Economics and Natural Experiments 29
xiii


From Individual Demand Curves to Aggregated 5.3 What Isn't Measured by GDP? 99
Demand Curves 63 Physical Capital Depreciation 100
Building the Market Demand Curve 64 Home Production 100
Shifting the Demand Curve 65 The Underground Economy 101
Evidence-Based Economics: How much more Negative Externalities 102
gasoline would people buy if its price were lower? 67
Gross Domestic Product versus Gross
4.3 How Do Sellers Behave? 69 National Product 102
Supply Curves 69 The Increase in Income Inequality 103
Willingness to Accept 69 Leisure 104
From the Individual Supply Curve to the Does GDP Buy Happiness? 104
Market Supply Curve 70 5.4 Real versus Nominal 105
Shifting the Supply Curve 71 The GDP Deflator 107
4.4 Supply and Demand in Equilibrium 73 The Consumer Price Index 109
Curve Shifting in Competitive Equilibrium 75 Inflation 110
Letting the Data Speak: Technological Adjusting Nominal Variables 110
Breakthroughs Drive Down the Equilibrium Summary 111
Price of Oil 76
Key Terms 112
4.5 What Would Happen If the Government Questions 112
Tried to Dictate the Price of Gasoline? 78
Problems 112
Choice & Consequence: The Unintended
Consequences of Fixing Market Prices 80
Chapter 6: Aggregate Incomes 116
Summary 81
Key Terms 82 6.1 Inequality Around the World 117
Questions 82 Measuring Differences in GDP per Capita 117
Problems 83 Letting the Data Speak: The Big Mac Index 119
Inequality in GDP per Capita 119
GDP per Worker 119
PART II Introduction to Productivity 120
Macroeconomics 86 Incomes and the Standard of Living 121
Choice & Consequence: Dangers of Just
Chapter 5: The Wealth of Focusing on GDP per Capita 123
Nations: Defining and Measuring 6.2 Productivity and the Aggregate
Production Function 125
Macroeconomic Aggregates 86
Productivity Differences 125
5.1 Macroeconomic Questions 87 The Aggregate Production Function 125
5.2 National Income Accounts: Production = Labor 126
Expenditure = Income 89 Physical Capital and Land 126
Production 89 Technology 126
Expenditure 90 Representing the Aggregate Production Function 127
Income 90 6.3 The Role and Determinants
Circular Flows 91 of Technology 128
National Income Accounts: Production 92 Technology 128
Dimensions of Technology 128
National Income Accounts: Expenditure 94
Letting the Data Speak: Moore’s Law 130
Evidence-Based Economics: In the United
States, what is the total market value of annual Choice & Consequence: Academic
economic production? 96 Misallocation in Nazi Germany 131
Letting the Data Speak: Saving versus Letting the Data Speak: Efficiency of
Investment 98 Production and Productivity at the
Company Level 131
National Income Accounting: Income 99
xiv Contents

Entrepreneurship 132 Growth and Poverty 162
Letting the Data Speak: Monopoly and GDP 132 How Can We Reduce Poverty? 163
Evidence-Based Economics: Why is the Summary 164
average American so much richer than the Key Terms 164
average Indian? 133 Questions 165
Summary 135 Problems 165
Key Terms 135
Appendix: The Solow Growth Model 167
Questions 135
The Three Building Blocks of the
Problems 136 Solow Model 167
Appendix: The Mathematics of Aggregate Steady-State Equilibrium in the Solow Model 168
Production Functions 138
Determinants of GDP 169
Dynamic Equilibrium in the Solow Model 171
PART III Long-Run Growth and Sources of Growth in the Solow Model 172
Development 140 Calculating Average (Compound)
Growth Rates 174
Appendix Key Terms 175
Chapter 7: Economic Growth 140 Appendix Problems 175
7.1 The Power of Economic Growth 141

A First Look at U.S. Growth 141
Chapter 8: Why Isn’t the Whole
Exponential Growth 142 World Developed? 176
Choice & Consequence: The Power
8.1 Proximate Versus Fundamental
of Exponential Growth 144
Causes of Prosperity 177
Patterns of Growth 145
Geography 178
Letting the Data Speak: Levels versus
Culture 179
Growth 148
Institutions 179
7.2 How Does a Nation’s Economy Grow? 150
A Natural Experiment of History 180
Optimization: The Choice Between Saving and
Consumption 150 8.2 Institutions and Economic Development 182
What Brings Sustained Growth? 151 Inclusive and Extractive Economic Institutions 182
Choice & Consequence: Is Increasing the How Economic Institutions Affect
Saving Rate Always a Good Idea? 152 Economic Outcomes 183
Knowledge, Technological Change, and Growth 152 Letting the Data Speak: Democracy
and Growth 184
Letting the Data Speak: Technology
and Life Expectancy 154 Letting the Data Speak: Divergence and
Convergence in Eastern Europe 186
Letting the Data Speak: The Great
Productivity Puzzle 155 The Logic of Extractive Economic Institutions 189
Evidence-Based Economics: Why are you Inclusive Economic Institutions and the Industrial
so much more prosperous than your Revolution 189
great-great-grandparents were? 156 Letting the Data Speak: Blocking
the Railways 190
7.3 The History of Growth and Technology 158
Evidence-Based Economics: Are
Growth Before Modern Times 158
tropical and semitropical areas condemned to
Malthusian Limits to Growth 159 poverty by their geographies? 191
The Industrial Revolution 160
8.3 Is Foreign Aid the Solution to
Growth and Technology Since the World Poverty? 196
Industrial Revolution 160
Choice & Consequence: Foreign Aid and
7.4 Growth, Inequality, and Poverty 160 Corruption 197
Growth and Inequality 160 Summary 198
Letting the Data Speak: Income Key Terms 199
Inequality in the United States 161 Questions 199
Choice & Consequence: Inequality Problems 199
versus Poverty 162
xv
Contents

PART IV Equilibrium in the Credit Markets and the Efficient Allocation
of Resources 237
Macroeconomy 202 10.2 Banks and Financial Intermediation:
Putting Supply and Demand Together 237
Chapter 9: Employment and Letting the Data Speak: Financing
Unemployment 202 Start-ups 239
Assets and Liabilities on the Balance Sheet
9.1 Measuring Employment and of a Bank 239
Unemployment 203 10.3 What Banks Do 241
Classifying Potential Workers 203 Identifying Profitable Lending Opportunities 241
Calculating the Unemployment Rate 204 Maturity Transformation 241
Trends in the Unemployment Rate 205 Management of Risk 242
9.2 Equilibrium in the Labor Market 206 Bank Runs 243
The Demand for Labor 206 Bank Regulation and Bank Solvency 244
Shifts in the Labor Demand Curve 208 Evidence-Based Economics: How
The Supply of Labor 209 often do banks fail? 245
Shifts in the Labor Supply Curve 210 Choice & Consequence: Too Big to Fail 247
Letting the Data Speak: Who Is Unemployed? 211 Choice & Consequence: Asset Price
Fluctuations and Bank Failures 248
Equilibrium in a Competitive Labor Market 212
Summary 248
9.3 Why Is There Unemployment? 213
Key Terms 249
Voluntary Unemployment 213
Questions 249
Job Search and Frictional Unemployment 213
Problems 250
9.4 Wage Rigidity and Structural
Unemployment 214
Chapter 11: The Monetary
Minimum Wage Laws 214
Choice & Consequence: Luddites and Robots 215
System 252
Labor Unions and Collective Bargaining 217 11.1 Money 253
Efficiency Wages 217
The Functions of Money 253
Choice & Consequence: Minimum Wage
Laws and Employment 218 Types of Money 254
Downward Wage Rigidity 219 The Money Supply 254
9.5 Cyclical Unemployment and the Choice & Consequence: Non-Convertible
Natural Rate of Unemployment 220 Currencies in U.S. History 255
Evidence-Based Economics: What 11.2 Money, Prices, and GDP 256
happens to employment and unemployment Nominal GDP, Real GDP, and Inflation 256
if local employers go out of business? 222
The Quantity Theory of Money 257
Summary 224
11.3 Inflation 258
Key Terms 225
Questions 225 What Causes Inflation? 258
Problems 225 The Consequences of Inflation 258
The Social Costs of Inflation 260
Chapter 10: Credit Markets 228 The Social Benefits of Inflation 261
Evidence-Based Economics: What caused
10.1 What Is the Credit Market? 229 the German hyperinflation of 1922–1923? 262
Borrowers and the Demand for Loans 229 11.4 The Federal Reserve 263
Real and Nominal Interest Rates 230 The Central Bank and the Objectives of
The Credit Demand Curve 231 Monetary Policy 263
Saving Decisions 233 What Does the Central Bank Do? 264
The Credit Supply Curve 233
11.5 Bank Reserves and the Plumbing of
Choice & Consequence: Why Do the Monetary System 265
People Save? 234
Bank Reserves and Liquidity 266
Equilibrium in the Credit Market 236
xvi Contents

The Demand Side of the Federal Funds Market 267 Other Tools of the Fed 314
The Supply Side of the Federal Funds Market and Expectations, Inflation, and Monetary Policy 315
Equilibrium in the Federal Funds Market 268 Contractionary Monetary Policy: Control
Choice & Consequence: Obtaining Reserves of Inflation 315
Outside the Federal Funds Market 272 Letting the Data Speak: Managing
The Fed’s Influence on the Money Supply and the Expectations 316
Inflation Rate 272 Zero Lower Bound 318
The Relationship Between the Federal Funds Choice & Consequence: Policy Mistakes 319
Rate and the Long-Term Real Interest Rate 273 Policy Trade-offs 320
Choice & Consequence: Two Models 13.3 Countercyclical Fiscal Policy 321
of Inflation Expectations 274 Fiscal Policy Over the Business Cycle:
Summary 277 Automatic and Discretionary Components 321
Key Terms 277 Analysis of Expenditure-Based Fiscal Policy 322
Analysis of Taxation-Based Fiscal Policy 324
Questions 278
Letting the Data Speak: The Response
Problems 278 of Consumption to Tax Cuts 326
Fiscal Policies That Directly Target the
Labor Market 326
PART V Short-Run Fluctuations
Letting the Data Speak: A Different
and Macroeconomic Type of Fiscal Policy 327
Policy 280 Policy Waste and Policy Lags 328
Evidence-Based Economics: How much
does government expenditure stimulate GDP? 329
Chapter 12: Short-Run
Choice & Consequence: The New
Fluctuations 280 Administration’s Fiscal Policies 331
Summary 331
12.1 Economic Fluctuations and
Business Cycles 281 Key Terms 332
Patterns of Economic Fluctuations 283 Questions 332
Problems 333
The Great Depression 285
12.2 Macroeconomic Equilibrium and
Economic Fluctuations 287 PART VI Macroeconomic in
Labor Demand and Fluctuations 287 a Global Economy 336
Sources of Fluctuations 289
Letting the Data Speak: Unemployment
and the Growth Rate of Real GDP: Okun’s Law 290 Chapter 14: Macroeconomics and
Multipliers and Economic Fluctuations 294 International Trade 336
Equilibrium in the Medium Run: Partial Recovery
and Full Recovery 295
14.1 Why and How We Trade 337
Absolute Advantage and Comparative Advantage 337
12.3 Modeling Expansions 299
Evidence-Based Economics: What caused Comparative Advantage and International Trade 340
the recession of 2007–2009? 300 Efficiency and Winners and Losers from Trade 341
Summary 304 How We Trade 343
Key Terms 306 Letting the Data Speak: Living in an
Questions 306 Interconnected World 344
Problems 306 Trade Barriers: Tariffs 344
Choice & Consequence: Trade Policy
Chapter 13: Countercyclical and Politics 345
Macroeconomic Policy 308 14.2 The Current Account and the
Financial Account 346
13.1 The Role of Countercyclical Policies Trade Surpluses and Trade Deficits 347
in Economic Fluctuations 309 International Financial Flows 347
13.2 Countercyclical Monetary Policy 310 The Workings of the Current Account and the
Controlling the Federal Funds Rate 311 Financial Account 348
xvii
Contents

14.3 International Trade, Technology Co-Movement Between the Nominal and
Transfer, and Economic Growth 352 the Real Exchange Rates 373
Letting the Data Speak: From IBM The Real Exchange Rate and Net Exports 374
to Lenovo 353 Letting the Data Speak: Why Did the
Evidence-Based Economics: Are companies Chinese Authorities Keep the Yuan Undervalued? 375
like Nike harming workers in Vietnam? 354 15.4 GDP in the Open Economy 376
Summary 357 Revisiting Black Wednesday 377
Key Terms 357 Interest Rates, Exchange Rates, and Net Exports 377
Questions 357 Letting the Data Speak: The Costs of Fixed
Problems 358 Exchange Rates 379
Summary 380
Chapter 15: Open Economy Key Terms 380
Macroeconomics 360 Questions 381
Problems 381
15.1 Exchange Rates 361
Nominal Exchange Rates 361 Endnotes 385
Flexible, Managed, and Fixed Exchange Rates 363 Glossary 389
15.2 The Foreign Exchange Market 364 Credits 397
Index 399
How Do Governments Intervene in the Foreign
Exchange Market? 366
Defending an Overvalued Exchange Rate 367 CHAPTERS ON THE WEB
Choice & Consequence: Fixed Exchange Web chapters are available on MyEconLab.
Rates and Corruption 369 WEB Chapter 1 Financial Decision Making
Evidence-Based Economics: How did
George Soros make $1 billion? 370 WEB Chapter 2 Economics of Life, Health, and
the Environment
15.3 The Real Exchange Rate and Exports 372
WEB Chapter 3 Political Economy
From the Nominal to the Real Exchange Rate 372
xviii Contents

Preface
We love economics. We marvel at the way economic systems work. When we buy a smart-
phone, we think about the complex supply chain and the hundreds of thousands of people
who played a role in producing an awe-inspiring piece of technology that was assembled
from components manufactured around the globe.
The market’s ability to do the world’s work without anyone being in charge strikes us as
a phenomenon no less profound than the existence of consciousness or life itself. We believe
that the creation of the market system is one of the greatest achievements of humankind.
We wrote this book to highlight the simplicity of economic ideas and their extraordinary
power to explain, predict, and improve what happens in the world. We want students to
master the essential principles of economic analysis. With that goal in mind, we identify
three key ideas that lie at the heart of the economic approach to understanding human
behavior: optimization, equilibrium, and empiricism. These abstract words represent three
ideas that are actually highly intuitive.
The breakneck speed of modern technological change has, more than ever, injected econom-
ics into the lives—and hands—of our students. The technologies that they use daily illustrate
powerful economic forces in action: Uber users observe real-time congestion in the transportation
market when they confront surge pricing, and Airbnb travelers explore the relationships among lo-
cation, convenience, and price by comparing listings near different subway stops in the same city.
As educators, it’s our job to transform economic concepts into language, visual repre-
sentations, and empirical examples that our students understand. Today, markets are much
more interactive than they were only a decade ago, and they exemplify that it is not just
competitive markets with perfect information that are relevant to our economic lives. Our
students routinely take part in auctions, purchase goods and services via organized plat-
forms such as Uber, have to struggle with pervasive informational asymmetries as they
participate in online exchanges, and have to guard themselves against a bewildering array
of mistakes and traps that are inherent in these new transactions.
In this ever-changing world, students must understand not just well-known economic con-
cepts such as opportunity cost, supply, and demand, but also modern ones such as game theory,
auctions, and behavioral mistakes. It is these modern concepts, which are small parts in most
Principles textbooks, that occupy center stage in ours. Today economic analysis has expanded its
conceptual and empirical boundaries and, in doing so, has become even more relevant and useful.
This new world provides incredible opportunities for the teaching of economics as well, pro-
vided that we adjust our Principles canon to include modern and empirically based notions of eco-
nomics. This has been our aim from day one and continues to be our goal in this second edition.
New to the Second Edition

In our new edition of Macroeconomics, we have completely revised the macro portion of
the course, not just to bring it up to date with the firehose of current data and events, but,
just as importantly, to re-evaluate and improve the pedagogy for the students.
The most important conceptual change begins in Chapter 9 (Employment and Unemploy-
ment), which then enables substantial pedagogical improvements in Chapters 12 (Short-Run
Fluctuations) and 13 (Countercyclical Macroeconomic Policy). Our framework for the analysis
of economic fluctuations centers on the labor market. In this framework, downward wage rigid-
ity plays a vital role as a central mechanism preventing wages from adjusting to a negative labor
demand shock and thus generating increases in unemployment during economic contractions.
In the previous edition, we went through most examples of the labor market twice: first
with and then without downward nominal wage rigidity. We have now eliminated much of
this repetition by studying both cases in Chapter 9, but then in Chapters 12 and 13 focusing
the analysis on the case in which downward nominal wage rigidity is present.
To implement this strategy, we frequently deploy an empirically realistic and pedagogi-
cally effective two-part labor supply curve, which has a downward nominal wage tied to the
xix


current wage and is infinitely inelastic beyond full employment. Accordingly, the two-part
labor supply curve is first horizontal (at the current nominal wage) and then vertical (at full
employment). This enables us to present a much simpler unified approach that is far easier to
understand and has enabled us to overwhelmingly streamline the analysis in Chapters 12 and
13. We have eliminated some of the most complex figures without loss of conceptual richness.
Our two-part labor supply curve also emphasizes why further rightward shifts of the
labor demand curve in the middle of an expansion will not increase employment by very
much, and instead will primarily contribute to increases in wages and prices.
The two-part labor supply curve is used consistently in Chapters 12 and 13 in our discussion
of short-run fluctuations and fiscal and monetary policy designed to offset such fluctuations.
In addition, we have enriched the macro split with new features, exhibits, and sections that
illustrate economic concepts with recent events of interest. These include:
• New Choice & Consequence that forces students to wrestle with the question of
causality. We discuss a recent research paper that reports a positive correlation be-
tween expensive weddings and high rates of divorce. We ask our students to use this
finding as a springboard from which to wrestle with the difference between correla-
tion and causality, and to understand the role of omitted variables (Chapter 2).
• New Letting the Data Speak that tells the story of the fracking revolution and its
remarkable impact on oil and gasoline prices. Supply and demand come alive when
students can see how the recent rightward shift in the oil supply curve, due to the
development of fracking technologies, has played a role in halving the equilibrium
price of oil (Chapter 4).
• New section describing the growth of economic inequality, and emphasizing that
inequality is not measured in economic aggregates, such as GDP (Chapter 5).
• New Choice & Consequence about the societal consequences of the expulsion of
Jewish faculty from universities in Nazi Germany (Chapter 6).
• New Letting the Data Speak on the great productivity puzzle, discussing how we
may be experiencing a slow-down of aggregate productivity despite the rapid intro-
duction of a range of new technologies in the economy (Chapter 7).
• New Letting the Data Speak on democracy and growth, showing the positive im-
pact of democratic political institutions on economic growth (Chapter 8).
• Expanded Choice & Consequence on Luddite resistance to new technology and
what this can teach us about the disruption that new and more productive robots are
bringing to the economy today (Chapter 9).
• New Choice & Consequence on minimum wage laws and employment (Chapter 9).
• New Letting the Data Speak feature on financing start-ups (Chapter 10).
• New Choice & Consequence on obtaining reserves outside of the federal funds
market (Chapter 11).
• New Letting the Data Speak on the response of consumption to tax cuts (Chapter 13).
• New Choice & Consequence on the Trump administration’s fiscal policy proposals
(Chapter 13).
• New Choice & Consequence about the political forces that influence trade policy
(Chapter 14).
• New graphical Exhibit describing the relationship between interest rates and net
capital outflows, unifying material from several chapters for the analysis of open
economy macroeconomics (Chapter 15).
Introductory economics classes draw students with diverse interests and future career
paths: with this textbook, we show them how to apply economic thinking creatively to
improve their work, their choices, and their daily lives.
One of our main objectives in writing this textbook was to show that the fundamentals of
economics are not just exciting, but also alive with myriad personal applications. In the first
edition, the themes of optimization, equilibrium, and empiricism were our primary tools for
communicating both the surprising power and broad applicability of economics. We believe
that the intervening years have confirmed these conceptual priorities; these concepts have
become even more relevant for our students.
At a time when competing empirical claims abound and news sources across the politi-
cal spectrum are denounced as “fake,” our students need the skills to systematically ques-
tion and evaluate what they read. That is why, in our Evidence-Based Economics segments,
xx Preface

we examine both the implications and the limitations of academic studies. We hope that
our textbook will help form a new generation of careful thinkers, smart decision-makers,
engaged citizens, and even a few future economists!
Our Vision: Three Unifying Themes

The first key principle is that people try to choose the best available option: optimization.
We don’t assume that people always successfully optimize, but we do believe that people
try to optimize and often do a relatively good job of it. Because most decision makers try
to choose the alternative that offers the greatest net benefit, optimization is a useful tool
for predicting human behavior. Optimization is also a useful prescriptive tool. By teaching
people how to optimize, we improve their decisions and the quality of their lives. By the
end of this course, every student should be a skilled optimizer—without using complicated
mathematics, simply by using economic intuition.
The second key principle extends the first: economic systems operate in equilibrium, a
state in which everybody is simultaneously trying to optimize. We want students to see that
they’re not the only ones maximizing their well-being. An economic system is in equilib-
rium when each person feels that he or she cannot do any better by picking another course
of action. The principle of equilibrium highlights the connections among economic actors.
For example, Apple stores stock millions of iPhones because millions of consumers are
going to turn up to buy them. In turn, millions of consumers go to Apple stores because
those stores are ready to sell those iPhones. In equilibrium, consumers and producers are
simultaneously optimizing, and their behaviors are intertwined.
Our first two principles—optimization and equilibrium—are conceptual. The third is
methodological: empiricism. Economists use data to test economic theories, learn about the
world, and speak to policymakers. Accordingly, data play a starring role in our book, though
we keep the empirical analysis extremely simple. It is this emphasis on matching theories with
real data that we think most distinguishes our book from others. We show students how econo-
mists use data to answer specific questions, which makes our chapters concrete, interesting,
and fun. Modern students demand the evidence behind the theory, and our book supplies it.
For example, we begin every chapter with an empirical question and then answer that
question using data. One chapter begins by asking:
Why are you so much more prosperous than your great-great-grandparents were?
Later in that chapter, we demonstrate the central role played by technology in explaining U.S.
economic growth and why we are much better off than our relatives a few generations ago.
In our experience, students taking their first economics class often have the impression
that economics is a series of theoretical assertions with little empirical basis. By using data,
we explain how economists evaluate and improve our scientific insights. Data also make
concepts more memorable. Using evidence helps students build intuition, because data
move the conversation from abstract principles to concrete facts. Every chapter sheds light
on how economists use data to answer questions that directly interest students. Every chap-
ter demonstrates the key role that evidence plays in advancing the science of economics.
Features
All of our features showcase intuitive empirical questions.
• In Evidence-Based Economics (EBE), we show how economists use data to answer
the question we pose in the opening paragraph of the chapter. The EBE uses actual data
from field experiments, lab experiments, or naturally occurring data, while highlight-
ing some of the major concepts discussed within the chapter. This tie-in with the data
gives students a substantive look at economics as it plays out in the world around them.
The questions explored aren’t just dry intellectual ideas; they spring to life the minute
the student sets foot outside the classroom—Is Facebook free? Is college worth it? Are
tropical and semitropical areas condemned to poverty by their geographies? What caused
the recession of 2007–2009? Are companies like Nike harming workers in Vietnam?
xxi
Preface

7.1 EVIDENCE-BASED ECONOMICS
Q: Why are you so much more prosperous than your great-great-
7.2
grandparents were?
T
7.3 he theoretical discussion in the previous section supports the central role of tech-
nology in explaining sustained growth. We will now see that empirical evidence
also bolsters the conclusion that technology plays a key role.
7.4
To evaluate the sources of U.S. economic growth, we follow the same strategy as in
Chapter 6. There, we used the aggregate production function and estimates of the physi-
cal capital stock and the efficiency units of labor across different countries to evaluate
their contributions to cross-country differences in GDP (PPP-adjusted). The only major
difference here is that higher-quality U.S. data enable us to conduct the analysis for real
GDP per hour worked rather than real GDP per worker, thus allowing us to measure the
labor input more accurately. We start the analysis in 1950.
Exhibit 7.11 records average real GDP per hour worked (in 2011 constant dollars),
the average value of the physical capital stock per hour worked, and the most impor-
• Letting the Data Speak is another
tant component of feature
the humanthat analyzes
capital an economic
of workers—the question
average years by using
of schooling—for
real data as the foundation of thestarting
10-year periods discussion. Among
in 1950. (To theshort-term
remove the many issues
effects ofwe explore
the last recessionare
from our calculations on long-term growth, the last period is 2000–2007.) The exhibit
such topics as life expectancy
shows the steadyandincrease
innovation,
in real GDPliving inworked,
per hour an interconnected world,
physical capital stock and
per hour
why Chinese authorities historically
worked, keptattainment
and educational the yuan undervalued
in the (but no
United States between longer
1950 do so).
and 2007.
We then use a methodology similar to that used in the previous chapter to compute the
contribution of physical capital, human capital (efficiency units of labor), and technol-
LETTING THE ogy to the growth of real GDP in the United States. Once again, you should remember
7.1
DATA SPEAK that, just as in Chapter 6, here “technology” captures not just the fruits of technological
progress due to innovations and the deployment of better knowledge in the economy but
also the level of the efficiency of production, which is affected by a range of factors. The
7.2
Technology and Life results
Expectancy
are recorded in columns (4), (5), and (6) of the exhibit (in percentages). Column
(7) then gives the annual growth rate of real GDP per hour worked, which is the sum of
the contributions of physical capital, human capital, and technology.
Technology has not improved our lives just by increasing such as oral rehydration and boiling water to prevent chol-
7.3 real GDP per capita. It has also improved the health and era, spread to poorer countries.
longevity of billions of people around the world. Some economists believe that improvements in health
Life expectancy around the world was much lower and life expectancy directly translate into greater productiv-
70 years ago than it is today. In 1940, child and infant mor- ity and higher real GDP per capita.4 The spectacular
3 (7) nar-
7.4 tality rates were so high and adult diseases, (2) such as pneu- rowing (4) of the gap (5)in life expectancy between richAnnual
and poor
(1) Physical (3) Growth Growth
monia and tuberculosis, were so deadly (and without any countries during the several decades following World War (6) Growth Rate
Real GDP Capital Stock Average
cure) that life expectancy at birth in many nations stood at Resulting Resulting
II does not support Growth
this view—there was noofcorresponding
Real GDP
per Hour per Hour Years of from Physical from Human Resulting from per Hour
less than 40 years. For example, the life expectancy at birth narrowing of the gaps in real GDP per capita.5 But at some
Period Worked Worked Schooling Capital (K) Capital (H) Technology (A) Worked
of an average Indian was an incredibly low 30 years. In Ven- level this is secondary. Even though it is no easy fix to the
ezuela, 1950–1959 $9.31
it was 33; in Indonesia, $115,042.24
34; in Brazil, 36. 9.38 0.89% 0.28% the agenda
problem of poverty, 2.37% of continued3.54%
healthcare
In the course of the
1960–1969 next three$134,163.97
$12.90 or four decades, this pic- 0.89%
10.16 innovations is a0.17%
potent weapon2.20%in our efforts to 3.26%
improve the
ture changed
1970–1979dramatically.
$16.78 As we saw in Chapter
$144,258.27 6, while 0.88%
11.15 quality of life for billions of people
0.01% 1.22% around the world.
2.11%
the gap in life expectancy between rich and poor nations
1980–1989 $19.59 $154,406.42 12.07 0.86% 0.30% 0.45% 1.61%
still remains today, health conditions have improved signifi-
cantly1990–1999 $23.50
all over the world, $161,941.80
particularly 12.77 Life 0.84%
for poorer nations. 0.36% 0.87% 2.07%
expectancy at birth in
2000–2007 India in 1999
$30.36 was 60 years,
$178,097.39 13.22almost 0.99% 0.19% 1.29% 2.47%
twice as high as the country’s life expectancy in the 1940s.
It was also 50 percent higher thanExhibit 7.11 Contributions
life expectancy at birth of Factors to the Growth of real GDP per Hour
in Britain in 1820 (around 40 years), Worked
which atin the
the time
UnitedhadStates between 1950 and 2007 (2011 Constant Dollars)
approximately the same PPP-adjusted GDP per capita as
The exhibit shows the contributions of physical capital, human capital, and tech-
India in 1999. How did this tremendous improvement in
nology to the growth of real GDP per hour. Column (6) is computed by subtract-
health conditions in poor nations take place?
ing columns (4) and (5) from column (7).
The answer lies in technology and in scientific break-
Sources:
throughs that took place in the United Data from
States and Bureau of Labor Statistics, Bureau of Economic Analysis, and United States Census
Western
Bureau.
Europe throughout the twentieth century. First came a wave
of global drug innovation, most importantly the develop-
ment of antibiotics, which produced many products that
were highly effective against major killers in developing
156countries.
Chapter 7 | Economic
Penicillin, which Growth
provided an effective treatment
for a range of bacterial infections, became widely available
by the early 1950s. Also important during the same period
was the development of new vaccines, including those for
yellow fever and smallpox.
M07_ACEM2056_02_SE_CH07_pp140-175.indd 156 5/25/17 2:55 PM
The second major factor was the discovery of DDT
(dichloro-diphenyl-trichloroethane). Although eventually
the excess use of DDT as an agricultural pesticide would turn
out to be an environmental hazard, its initial use in disease
control was revolutionary. DDT allowed a breakthrough in
attempts to control one of the major killers of children in
relatively poor parts of the world—malaria. Finally, with the
establishment and help of the World Health Organization,
simple but effective medical and public health practices,
• In keeping with the optimization theme, in a feature entitled Choice & Consequence
we ask students to make a real
production economic
do run decision
into diminishing marginalorproduct).
evaluate thereason,
For this consequences
improvements of
in
past real decisions. We then explain
technology how
appear to be an economist
the most plausible enginemight analyze
of sustained growth.the same deci-
By now you will have realized that there is a nice symmetry between our treatment of
sion. Among the choices investigated
differences in PPP-adjustedareGDP
suchper questions and concepts
capita across countries as the
in the previous power
chapter and
of exponential growth, foreign inaid
of differences andtime,
it over corruption,
correspondingand policies
to growth, that
in this address
chapter. the
In both, theprob-
physi-
lem of banks that arecal capital stock and efficiency units of labor play important roles, but they are insufficient
“too big to fail.”
to explain the major differences. Both across countries and over time, technology instead
plays the central role.
xxii Preface
154 Chapter 7 | Economic Growth

1820 1836 1852 1868 1884 1900 1916 1932 1948 1964 1980 1996 2012
Year
Exhibit 7.3 Real GDP per Capita in the United States Using a Nonproportional
Scale (2011 Constant Dollars)
Source: Data from Maddison Project (1820–1959) and the Penn World Table version 9.0 (Robert C. Feenstra,
Robert Inklaar, and Marcel P. Timmer, June 2016).
CHOICE
&CONSEQUENCE
The Power of Exponential Growth
You have two choices. You can either start a job with a An even more dramatic illustration of the power of expo-
salary of $1,000 per month and a 6 percent increase in nential growth comes from the story of the invention of the
your salary every month, or you can start with a salary of game of chess in ancient India. According to legend, the
$2,000, but never get a raise. Which one of these two inventor of the game exploited the power of exponential
options do you prefer? growth when asked for a reward for his invention by the
The answer might naturally vary from person to person. king.1 He proposed that the king place a single grain of
If you have an immediate need for money, you may be at- wheat on the first square of the chessboard, two on the
tracted by the prospect of a $2,000 paycheck. But before second, four on the third, and eight on the fourth. Then,
you rush to sign on the dotted line for the $2,000-per- continue doubling the number of grains for all sixty-four
month job, think of the implications of the 6 percent squares on the board, and he would receive the total amount
monthly increase. With a 6-percent-per-month increase, of wheat on the board. The king, hearing the request,
your monthly salary will already exceed $2,000 after only thought it trivial—but when his treasurers calculated the
a year. After 4 years, it will be approximately $16,400 a final tally, they returned to him in shock. The total amount,
month. So if you were thinking of staying in this job for they found, was more than 18,000,000,000,000,000,000
more than a year, starting with a lower salary might be a grains of wheat—far more than they could ever produce in
much better idea. their entire kingdom. Indeed, today, this amount of wheat
The first option is attractive, at least for those of you would allow you to distribute a ton of wheat to every per-
intending to stay with it for a while, precisely because of son in the world every day for 6 months. A good story to
exponential growth. The 6-percent-per-month increases remember both as a reminder of the power of exponential
in salary do not apply to the base salary (if they did, this growth and as a pointer for you if you have to make choices
would have increased your salary by $60 every month). between different options with varying growth prospects.
Rather, they compound, meaning that each 6 percent
applies to the amount that has accumulated up to that
point. Thus after 1 month, your salary will be $1,060.
After 2 months, it is $1,060 * 1.06 = $1,123.60. After
3 months, it is $1,123.60 * 1.06 = $1,191.02, and so
on. We will next see that exponential growth plays the
same role in countries’ growth trajectories as in your
potential income from these two hypothetical jobs.
144 Chapter 7 | Economic Growth
Organization
Part I Introduction to Economics lays the groundwork for understanding the economic
way of thinking about the world. In Chapter 1, we show that the principle of optimization
explains most of our choices. In other words, we make choices based on a consideration
of benefits and costs, and to do this we need to consider trade-offs, budget constraints, and
opportunity cost. We then explain that equilibrium is the situation in which everyone is
simultaneously trying to individually optimize. In equilibrium, there isn’t any perceived
benefit to changing one’s own behavior. We introduce the free-rider problem to show that
individual optimization and social optimization do not necessarily coincide.
Because data plays such a central role in economics, we devote an entire chapter—
Chapter 2—to economic models, the scientific method, empirical testing, and the critical
distinction between correlation and causation. We show how economists use models and
data to answer interesting questions about human behavior. For the students who want to
brush up their graphical skills, there is an appendix on constructing and interpreting graphs,
which is presented in the context of an actual experiment on incentive schemes.
Chapter 3 digs much more deeply into the concept of optimization, including an intuitive
discussion of marginal analysis. We use a single running example of choosing an apartment,
which confronts students with a trade-off between the cost of rent and the time spent com-
muting. We demonstrate two alternative approaches—optimization using total value and op-
timization using marginal analysis—and show why economists often use the latter technique.
Chapter 4 introduces the demand and supply framework via a running example of the
market for gasoline. We show how the price of gasoline affects the decisions of buyers, like
commuters, and sellers, like ExxonMobil. As we develop the model, we explore how individ-
ual buyers are added together to produce a market demand curve and how individual sellers
are added together to generate a market supply curve. We then show how buyers and sellers
jointly determine the equilibrium market price and the equilibrium quantity of goods trans-
acted in a perfectly competitive market. Finally, we show how markets break down when
prices aren’t allowed to adjust to equate the quantity demanded and the quantity supplied.
Part II Introduction to Macroeconomics provides an introduction to the field. In
Chapter 5 we explain the basic measurement tools. Here we explore the derivation of the
xxiii
Preface

aggregate output of the economy, or the gross domestic product (GDP), with the produc-
tion, expenditure, and income methods, explaining why all these methods are equivalent
and lead to the same level of total GDP. We also consider what isn’t measured in GDP, such
as production that takes place at home for one’s family. Finally, we discuss the measure-
ment of inflation and the concept of a price index.
In Chapter 6 we show how income (GDP) per capita can be compared across countries
using two similar techniques—an exchange rate method and a purchasing power method.
We explain how the aggregate production function links a country’s physical capital stock,
labor resources (total labor hours and human capital per worker), and technology to its
GDP and thus draw the link between income per capita and a country’s physical capital
stock per worker, human capital, and technology. We then use these tools to investigate the
roles of physical capital, human capital, and technology in accounting for the great differ-
ences in prosperity across countries.
In Part III, Long-Run Growth and Development, we turn to a comprehensive treat-
ment of growth and development. In Chapter 7, we show that economic growth has trans-
formed many countries over the past 200 years. For example, in the United States today,
GDP per capita is about 25 times higher than it was in 1820. In this discussion, we explain
the “exponential” nature of economic growth, which results from the fact that new growth
builds on past growth, and implies that small differences in growth rates can translate into
huge differences in income per capita over several decades. We explain how sustained
economic growth relies on advances in technology and why different countries have expe-
rienced different long-run growth paths. We also emphasize that economic growth does not
benefit all citizens equally. For some citizens, poverty is the unintentional by-product of
technological progress. For the instructors who want a more in-depth treatment of growth
and the determinants of GDP, we present a simplified version of the Solow Model in an
optional appendix to the chapter.
Why do some nations not invest enough in physical and human capital, adopt the best
technologies, and organize their production efficiently? Put another way, why isn’t the
whole world economically developed? Chapter 8 probes this question and considers the
fundamental causes of prosperity. We discuss several potential fundamental causes, in par-
ticular, geography, culture, and institutions, and argue why the oft-emphasized geograph-
ic factors do not seem to account for much of the wide cross-country gaps in economic
prosperity.
In Part IV, Equilibrium in the Macroeconomy, we discuss three key markets that
play a central role in macroeconomic analysis: the labor market, the credit market, and the
market for bank reserves. Chapter 9 begins with the labor market—labor demand and labor
supply. We first describe the standard competitive equilibrium, where the wage and the
quantity of labor employed are pinned down by the intersection of the labor demand and
labor supply curves. We then show how downward rigid wages lead to unemployment. We
use this framework to discuss the many different factors that influence unemployment,
including both frictional and structural sources.
Chapter 10 extends our analysis by incorporating the credit market. We explain how
the modern financial system circulates funds from savers to borrowers. We describe the
different types of shocks that can destabilize a financial system. We analyze how banks and
other financial intermediaries connect supply and demand in the credit market, and we use
banks’ balance sheets to explain the risks of taking on short-term liabilities and making
long-term investments.
Chapter 11 introduces the monetary system. We begin by explaining the functions of
money. The chapter then introduces the Federal Reserve Bank (the Fed) and lays out the
basic plumbing of the monetary system, especially the role of supply and demand in the
market for bank reserves. We explain in detail the Fed’s role in controlling bank reserves
and influencing interest rates, especially the interest rate on bank reserves (the federal
funds rate). The chapter explains the causes of inflation and its social costs and benefits.
In Part V, Short-Run Fluctuations and Macroeconomic Policy, we use a modern
framework to analyze and explain short-run fluctuations. Our analysis is inclusive and in-
tegrative, enabling us to combine the most relevant and useful insights from many different
xxiv Preface

schools of economic thought. We believe that the labor market is the most informative lens
through which first-year economics students can understand economic fluctuations. We
therefore put the labor market and unemployment at the center of our analysis. In this part
of the book, we also extend our discussion of the role of financial markets and financial
crises. We present a balanced perspective that incorporates the diverse range of important
insights that have emerged in the last century of theoretical and empirical research.
Chapter 12 lays the foundations of this approach, showing how a wide range of eco-
nomic shocks cause short-run fluctuations and how these can be studied using the labor
market. We trace out the impact of technological shocks, shocks to sentiments (including
animal spirits), and monetary and financial shocks that work through their impact on the
interest rate or by causing financial crises. In each case, we explain how multipliers amplify
the impact of the initial shock. We also explain how downward wage rigidity affects the
labor market responds to these shocks. We apply our labor market model to both economic
contractions and expansions and look at the problems that arise when the economy grows
too slowly or too quickly.
Chapter 13 discusses the wide menu of monetary and fiscal policies that are used to
partially offset aggregate fluctuations. We describe the most important strategies that have
recently been adopted by central banks. We then discuss the role of fiscal policy and pro-
vide an analytic toolkit that students can use to estimate the impact of countercyclical
expenditures and taxation.
In Part VI, Macroeconomics in a Global Economy, we provide a wide-angle view of the
global economy and the relationships that interconnect national economies. In Chapter 14
we show how international trade works, using the key concepts of specialization, com-
parative advantage, and opportunity cost. We study the optimal allocation of tasks inside a
firm and show that firms should allocate their employees to tasks—and individuals should
choose their occupations—according to comparative advantage. We then broaden the pic-
ture by focusing on the optimal allocation of tasks across countries and show that here, too,
the same principles apply. We analyze international flows of goods and services and the
financial consequences of trade deficits. We describe the accounting identities that enable
economists to measure the rich patterns of global trade. We also discuss the critical role of
technology transfer.
Chapter 15 studies the determinants of exchange rates—both nominal and real—
between different currencies and how they impact the macroeconomy. We describe the
different types of exchange rate regimes and the operation of the foreign exchange market.
Finally, we study the impact of changes in the real exchange rate on net exports and GDP.
MyEconLab®
MyEconLab’s powerful assessment and tutorial system works hand-in-hand with the Second
Edition of Macroeconomics. It includes comprehensive homework, quiz, test, interactive, en-
gagement and tutorial options which allow students to test their knowledge and instructors to
manage all of their assessment and engagement needs in one program. Students and instruc-
tors can register, create and access all of their MyLab courses at www.pearsonmylab.com.
Key Features in the MyEconLab for Macroeconomics, Second Edition include the fol-
lowing resources for instructors and students:
Personalized Learning
Not every student learns the same way or at the same rate. With the growing need for ac-
celeration through many courses, it’s more important than ever to meet students where they
learn. Personalized learning in the MyEconLab gives you the flexibility to incorporate the
approach that best suits your course and your students.
Interactive Graphs
The Interactive Graphs in MyEconLab enhance the student learning experience. Students
can manipulate the coordinates and parameters of these graphs and watch the graphs change
in real time, thereby deepening their conceptual understanding of the material.
xxv
Preface

Study Plan
The Study Plan acts as a tutor, providing personalized recommendations for each of your
students based on his or her ability to master the learning objectives in your course. This al-
lows students to focus their study time by pinpointing the precise areas they need to review,
and allowing them to use customized practice and learning aids—such as videos, eText,
tutorials, and more—to get them back on track. Using the report available in the gradebook,
you can then tailor course lectures to prioritize the content for which students need the most
support—offering you better insight into classroom and individual performance.
With comprehensive homework, quiz, test, activity, practice, and tutorial options, in-
structors can manage all their assessment and online activity needs in one program.
MyEconLab saves time by automatically grading questions and activities and tracking
results in an online gradebook.
Each chapter contains two preloaded homework exercise sets that can be used to build
an individualized study plan for each student. These study plan exercises contain tutorial
resources, including instant feedback, links to the appropriate chapter section in the eText,
pop-up definitions from the text, and step-by-step guided solutions, where appropriate.
Within its rich assignment library, instructors will find a vast array of assessments that ask
the students to draw graph lines and shifts, plot equilibrium points, and highlight important
graph areas, all with the benefit of instant, personalized feedback. This feedback culmi-
nates, when needed, with the correct graph output alongside the student’s personal answer,
creating a powerful learning moment.
After the initial setup of the MyEconLab course for Acemoglu/Laibson/List, there are
two primary ways to begin using this rich online environment. The first path requires no
further action by the instructor. Students, on their own, can use MyEconLab’s Study Plan
problems and tutorial resources to enhance their understanding of concepts. The online
gradebook records each student’s performance and time spent on the assessments, activi-
ties, and the study plan and generates reports by student or chapter.
Alternatively, instructors can fully customize MyEconLab to match their course ex-
actly: reading assignments, homework assignments, video assignments, current news as-
signments, digital activities, experiments, quizzes, and tests. Assignable resources include:
• Preloaded exercise assignment sets for each chapter that include the student tutorial
resources mentioned earlier.
• Preloaded quizzes for each chapter.
• Assignable and gradable exercises that are similar to the end-of-chapter questions and
problems and numbered exactly as in the book to make assigning homework easier.
• Real-Time Data Analysis Exercises allow students and instructors to use the very lat-
est data from the Federal Reserve Bank of St. Louis’s FRED site. By completing the
exercises, students become familiar with a key data source, learn how to locate data,
and develop skills in interpreting data.
• In MyEconLab, select exhibits labeled MyEconLab Real-Time Data display updated
graphs with real-time data from FRED.
• Current News Exercises provide a turnkey way to assign gradable news-based exer-
cises in MyEconLab. Each week, Pearson scours the news, finds current economics
articles, creates exercises around the news articles, and then automatically adds them
to MyEconLab. Assigning and grading current news-based exercises that deal with
the latest economics events and policy issues have never been more convenient.
• Econ Exercise Builder allows you to build customized exercises. Exercises include
multiple-choice, graph drawing, and free-response items, many of which are gener-
ated algorithmically so that each time a student works them, a different variation is
presented.
• Test Item File questions that allow you to assign quizzes or homework that will look
just like your exams.
MyEconLab grades every problem type (except essays), even problems with graphs.
When working homework exercises, students receive immediate feedback, with links to
additional learning tools.
xxvi Preface

• Experiments in MyEconLab are a fun and engaging way to promote active learn-
ing and mastery of important economic concepts. Pearson’s Experiments program is
flexible and easy for instructors and students to use.
• Single-player experiments allow your students to play against virtual players from
anywhere at any time so long as they have an Internet connection.
• Multiplayer experiments allow you to assign and manage a real-time experiment
with your class.
Pre- and post-questions for each experiment are available for assignment in MyEconLab.
Dynamic Study Modules

Dynamic Study Modules help students study effectively on their own by continuously as-
sessing their activity and performance in real time. Here’s how it works: students com-
plete a set of questions with a unique answer format that also asks them to indicate their
confidence level. Questions repeat until the student can answer them all correctly and con-
fidently. Once completed, Dynamic Study Modules explain the concept using materials
from the text. These are available as graded assignments prior to class, and accessible on
smartphones, tablets, and computers. NEW! Instructors can now remove questions from
Dynamic Study Modules to better fit their course.
Enhanced eText
The Enhanced eText keeps students engaged in learning on their own time, while helping
them achieve greater conceptual understanding of course material. The concept checks,
animations, and interactive graphs bring learning to life, and allow students to apply the
very concepts they are reading about. Combining resources that illuminate content with ac-
cessible self-assessment, MyEconLab with Enhanced eText provides students with a com-
plete digital learning experience—all in one place.
And with the Pearson eText 2.0 mobile app students can now access the Enhanced
eText and all of its functionality from their computer, tablet, or mobile phone. Because
students’ progress is synced across all of their devices, they can stop what they’re doing on
one device and pick up again later on another one—without breaking their stride.
Digital Interactives
Economic principles are not static ideas, and learning them shouldn’t be a static process.
Digital Interactives are dynamic and engaging assessment activities that promote critical
thinking and application of key economic principles.
Each Digital Interactive has 3 to 5 progressive levels and requires approximately
20 minutes to explore, apply, compare, and analyze each topic. Many Digital Interactives
include real-time data from FRED™ allowing professors and students to display, in graph
and table form, up-to-the-minute data on key macro variables.
Digital Interactives can be assigned and graded within MyEconLab or used as a lecture
tool to encourage engagement, classroom conversation, and group work.
Learning Catalytics
Learning Catalytics helps you generate class discussion, customize your lecture, and pro-
mote peer-to-peer learning with real-time analytics. As a student response tool, Learning
Catalytics uses students’ smartphones, tablets, or laptops to engage them in more interac-
tive tasks and thinking.
• Help your students develop critical thinking skills.
• Monitor responses to find out where your students are struggling.
• Rely on real-time data to adjust your teaching strategy.
• Automatically group students for discussion, teamwork, and peer-to-peer learning.
xxvii
Preface

LMS Integration
You can now link from Blackboard Learn, Brightspace by D2L, Canvas, or Moodle to
Pearson MyEconLab. Access assignments, rosters, and resources, and synchronize grades
with your LMS gradebook.
For students, single sign-on provides access to all the personalized learning resources
that make studying more efficient and effective.
Instructor Resources
The Instructor’s Manual for Macroeconomics was updated by Rashid Al-Hmoud of
Texas Tech University and includes:
• A chapter-by-chapter outline of the text
• Lecture notes highlighting the big ideas and concepts from each chapter
• Teaching Tips on how to motivate the lecture
• Common Mistakes or Misunderstandings students often make and how to correct them
• Short, real-world Alternative Teaching Examples, different from those in the text
Active Learning Exercises, included online and at the end of each Instructor’s Manual
chapter, were updated by Rashid Al-Hmoud and include:
• 5 to 10 Active Learning Exercises per chapter that are ideal for in-class discussions
and group work
The Solutions Manual, updated by Maggie Yellen, includes solutions to all end-of-chapter
Questions and Problems in the text. It is available as downloadable Word documents and
PDFs.
Three flexible PowerPoint Presentation packages make it easy for instructors to design
presentation slides that best suit their style and needs:
• Lecture notes with some animated text figures and tables, as well as alternative
examples with original static figures
• Figures from the text with step-by-step animation
• Static versions of all text figures and tables
Each presentation maps to the chapter’s structure and organization and uses terminology
used in the text. Rashid Al-Hmoud of Texas Tech University updated the Lecture Power-
Point presentation. Paul Graf of Indiana University, Bloomington, scripted and recorded
the animations in MyEconLab.
The Test Bank for Macroeconomics was updated by Paul Holmes of Ashland Univer-
sity, Ross vanWassenhove of University of Houston, Alexandra Nica of University of Iowa,
and Gregory Glipin of Montana State University. The Test Bank contains approximately
2,600 multiple-choice, numerical, short-answer, and essay questions. These have been ed-
ited and reviewed to ensure accuracy and clarity, and include terminology used in the book.
Each question can be sorted by difficulty, book topic, concept covered, and AACSB learn-
ing standard to enhance ease of use. The Test Bank is available in Word, PDF, and TestGen
formats.
TestGen is a computerized test generation program, available exclusively from Pear-
son, that allows instructors to easily create and administer tests on paper, electronically,
or online. Instructors can select test items from the publisher-supplied test bank, which is
organized by chapter and based on the associated textbook material, or create their own
questions from scratch. With both quick-and-simple test creation and flexible and robust
editing tools, TestGen is a complete test generator system for today’s educators.
Instructor’s Resource Center

Instructor resources are available online via our centralized supplements Web site, the In-
structor Resource Center (www.pearsonhighered.com/irc). For access or more informa-
tion, contact your local Pearson representative or request access online at the Instructor
Resource Center.
xxviii Preface

Acknowledgments
As the three of us worked on this project, we taught each other a lot about economics,
teaching, and writing. But we learned even more from the hundreds of other people who
helped us along the way. For their guidance, we are thankful and deeply humbled. Their
contributions turned out to be critical in ways that we never imagined when we started, and
our own ideas were greatly improved by their insights and advice.
Our reviewers, focus group participants, and class testers showed us how to better for-
mulate our ideas and helped us sharpen our writing. Through their frequently brilliant feed-
back, they corrected our economic misconceptions, improved our conceptual vision, and
showed us how to write more clearly. Their contributions appear in almost every paragraph
of this book. All of their names are listed below.
Our research assistants—Alec Brandon, Justin Holz, Josh Hurwitz, Xavier Jaravel,
Angelina Liang, Daniel Norris, Yana Peysakhovich, Maggie Yellen, and Jan Zilinsky—
played a critical role at every phase of the project, from analyzing data to editing prose to
generating deep insights about pedagogical principles that are woven throughout the book.
We learned to trust their instincts on every element of the book, and quickly realized that
their contributions were indispensable to the project’s success. We are especially indebted
to Josh Hurwitz and Maggie Yellen, who have earned our eternal gratitude for many late
work nights and for their brilliant editorial and economic insights.
We are also deeply grateful to the many inspiring economists who contributed major
components of the project. Maggie Yellen contributed extensively to the updates of the end-
of-chapter questions and problems, which stand out as examples of inspiring pedagogy.
Rashid Al-Hmoud of Texas Tech University updated the innovative and intuitive Instruc-
tor’s Manual and Active Learning Exercises. Rashid Al-Hmoud of Texas Tech University
and Paul Graf of Indiana University, Bloomington, updated the outstanding PowerPoint
slides and animations that illuminate and distill the key lessons of the book. Paul Holmes,
Ross vanWassenhove of University of Houston, Alexandra Nica of University of Iowa, and
Gregory Glipin of Montana State University updated the expansive test bank.
Most importantly, we acknowledge the myriad contributions of our editors and all of our
amazing colleagues at Pearson. They have marched with us every step of the way. We wouldn’t
dare count the number of hours that they dedicated to this project, including evenings and week-
ends. Their commitment, vision, and editorial suggestions touched every sentence of this book.
Most of the key decisions about the project were made with the help of our editors, and this
collaborative spirit proved to be absolutely essential to our writing. Dozens of people at Pearson
played key roles, but the most important contributions were made by Adrienne D’Ambrosio,
Director of Portfolio Management; Christina Masturzo, Senior Portfolio Manager; Cydney
Westmoreland, Development Editor; Nancy Freihofer, Content Producer; Heidi Allgair, Project
Manager; Noel Lotz, Digital Content Team Lead; and Melissa Honig, Digital Studio Producer.
We are particularly grateful to Adrienne, who has been deeply committed to our project
from the first day and has tirelessly worked with us on every key decision. We also wish to
thank Denise Clinton, who first got us started, and Donna Battista, Vice President, Business
Publishing, who championed the project along the way. All of these publishing profes-
sionals transformed us as writers, teachers, and communicators. This book is a testimony
to their perseverance, their dedication, and their brilliant eye for good (and often bad!)
writing. Their commitment to this project has been extraordinary and inspirational. We are
profoundly grateful for their guidance and collaboration.
Finally, we wish to thank our many other support networks. Our own professors, who
first inspired us as economists and showed, through their example, the power of teaching
and the joy that one can take from studying economics. Our parents, who nurtured us in
so many ways and gave us the initial human capital that made our entire careers possible.
Our kids, who implicitly sacrificed when our long hours on this book ate into family life.
And, most profoundly, we thank our partners, who have been supportive, understanding,
and inspirational throughout the project.
xxix


This book is the product of many streams that have flowed together and so many people
who have contributed their insights and their passion to this project. We are deeply grateful
for these myriad collaborations.
Reviewers
The following reviewers, class test par- Derek Berry, Calhoun Community College Jay Corrigan, Kenyon College
ticipants, and focus group participants Prasun Bhattacharjee, East Tennessee State Antoinette Criss, University of South Florida
provided invaluable insights. University Sean Crockett, City University of New York
Benjamin Blair, Columbus State University Patrick Crowley, Texas A&M University,
Adel Abadeer, Calvin College
Douglas Blair, Rutgers University Corpus Christi
Ahmed Abou-Zaid, Eastern Illinois University
John Bockino, Suffolk County Community Kelley Cullen, Eastern Washington
Temisan Agbeyegbe, City University of New College University
York
Andrea Borchard, Hillsborough Community Scott Cunningham, Baylor University
Carlos Aguilar, El Paso Community College College Muhammed Dalgin, Kutztown University
Rashid Al-Hmoud, Texas Tech University Luca Bossi, University of Pennsylvania David Davenport, McLennan Community
Frank Albritton, Seminole Community Gregory Brock, Georgia Southern University College
College
Bruce Brown, California State Polytechnic Stephen Davis, Southwest Minnesota State
Sam Allgood, University of Nebraska, University, Pomona University
Lincoln
David Brown, Pennsylvania State University John W. Dawson, Appalachian State
Neil Alper, Northeastern University University
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Farhad Ameen, Westchester Community Pierangelo De Pace, California State
Laura Bucila, Texas Christian University
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University Chris Burkart, University of West Florida
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Lian An, University of North Florida Omaha
Samuel Andoh, Southern Connecticut State Colleen Callahan, American University
Timothy Diette, Washington and Lee
University Fred Campano, Fordham University
University
Brad Andrew, Juniata College Douglas Campbell, University of Memphis
Isaac Dilanni, University of Illinois, Urbana-
Len Anyanwu, Union County College Cheryl Carleton, Villanova University Champaign
Robert Archibald, College of William and Scott Carrell, University of California, Davis Oguzhan Dincer, Illinois State University
Mary Kathleen Carroll, University of Maryland, Ethan Doetsch, Ohio State University
Ali Arshad, New Mexico Highlands Baltimore
Murat Doral, Kennesaw State University
University Regina Cassady, Valencia College, East
Kirk Doran, University of Notre Dame
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Santa Cruz Shirley Cassing, University of Pittsburgh
Mitchell Dudley, University of Michigan,
Mohsen Bahmani-Oskooee, University of Suparna Chakraborty, University of San
Ann Arbor
Wisconsin, Milwaukee Francisco
Gary Dymski, University of California,
Scott L. Baier, Clemson University Catherine Chambers, University of Central
Riverside
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Eric Eide, Brigham Young University, Provo
College Susan Christoffersen, Philadelphia
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and State University Benjamin Andrew Chupp, Illinois State
University Michael Ellerbrock, Virginia Tech
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Jim Barbour, Elon University
Cynthia Clement, University of Maryland Noha Emara, Columbia University
Scott Barkowski, Clemson University
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Hamid Bastin, Shippensburg University
Stark
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Columbia Erwin Erhardt, University of Cincinnati
University, San Luis Obispo
Rachel Connelly, Bowdoin College Hadi Esfahani, University of Illinois,
Jodi Beggs, Northeastern University
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College Molly Espey, Clemson University
Susan Bell, Seminole State University
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Valerie Bencivenga, University of Texas,
Patrick Conway, University of North Hugo Eyzaguirre, Northern Michigan
Austin
Carolina University
Pedro Bento, West Virginia University
xxx Reviewers

Jamie Falcon, University of Maryland, David Hewitt, Whittier College Sang Lee, Southeastern Louisiana University
Baltimore Wayne Hickenbottom, University of Texas, Phillip K. Letting, Harrisburg Area
Liliana Fargo, DePaul University Austin Community College
Leila Farivar, Ohio State University Jannett Highfill, Bradley University John Levendis, Loyola University
Sasan Fayazmanesh, California State Michael Hilmer, San Diego State University Steven Levkoff, University of California,
University, Fresno John Hilston, Brevard College San Diego
Bichaka Fayissa, Middle Tennessee State Naphtali Hoffman, Elmira College and Dennis P. Leyden, University of North
University Binghamton University Carolina, Greensboro
Virginia Fierro-Renoy, Keiser University Kim Holder, University of West Georgia Gregory Lindeblom, Brevard College
Donna Fisher, Georgia Southern University Robert Holland, Purdue University Alan Lockard, Binghamton University
Paul Fisher, Henry Ford Community College Don Holley, Boise State University Joshua Long, Ivy Technical College
Todd Fitch, University of California, Berkeley Paul Holmes, Ashland University Linda Loubert, Morgan State University
Mary Flannery, University of Notre Dame James A. Hornsten, Northwestern University Heather Luea, Kansas State University
Hisham Foad, San Diego State University Gail Hoyt, University of Kentucky Rotua Lumbantobing, Western Connecticut
Mathew Forstater, University of Missouri, Jim Hubert, Seattle Central Community State University
Kansas City College Rita Madarassy, Santa Clara University
Irene Foster, George Mason University Scott Hunt, Columbus State Community James Makokha, Collin County Community
Hamilton Fout, Kansas State University College College
Shelby Frost, Georgia State University Kyle Hurst, University of Colorado, Denver Liam C. Malloy, University of Rhode Island
Timothy Fuerst, University of Notre Dame Ruben Jacob-Rubio, University of Georgia Christopher Mann, University of Nebraska,
Ken Gaines, East-West University Joyce Jacobsen, Wesleyan University Lincoln
John Gallup, Portland State University Kenneth Jameson, University of Utah Paula Manns, Atlantic Cape Community
College
William Galose, Lamar University Kevin Jasek-Rysdahl, California State
University, Stanislaus Vlad Manole, Rutgers University
Karen Gebhardt, Colorado State University
Andres Jauregui, Columbus State University Hardik Marfatia, Northeastern Illinois
Gerbremeskel Gebremariam, Virginia
University
Polytechnic Institute and State University Brian Jenkins, University of California, Irvine
Lawrence Martin, Michigan State University
Lisa George, City University of New York Sarah Jenyk, Youngstown State University
Norman Maynard, University of Oklahoma
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Katherine McClain, University of Georgia
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Scott McGann, Grossmont College
Brian Goegan, Arizona State University, Paul Johnson, Columbus State University
Tempe Kim Marie McGoldrick, University of
Ted Joyce, City University of New York
Richmond
Rajeev Goel, Illinois State University David Kalist, Shippensburg University
Shah Mehrabi, Montgomery Community
Bill Goffe, State University of New York, Lilian Kamal, University of Hartford* College
Oswego Leonie Karkoviata, University of Houston, Aaron Meininger, University of California,
Julie Gonzalez, University of California, Downtown Santa Cruz
Santa Cruz Kathy Kelly, University of Texas, Arlington Saul Mekies, Kirkwood Community College
Paul Graf, Indiana University, Bloomington Nathan Kemper, University Arkansas Kimberly Mencken, Baylor University
Philip Graves, University of Colorado, Colin Knapp, University of Florida
Boulder Diego Mendez-Carbajo, Illinois Wesleyan
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Long Beach Thomas Menn, United States Military
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Fatma Gunay Bendas, Washington and Lee
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University
Justin Krieg of Minneapolis Community & Tennessee, Chattanooga
Michael Hammock, Middle Tennessee State
Technical College Nara Mijid, Central Connecticut State
University
Robert Krol, California State University, University
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Northridge Laurie A. Miller, University of Nebraska,
College
Daniel Kuester, Kansas State University Lincoln
Moonsu Han, North Shore Community
College Patricia Kuzyk, Washington State University Edward Millner, Virginia Commonwealth
Sumner La Croix, University of Hawaii University
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David Harris, Benedictine College
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Robert Harris, Indiana University-Purdue
Pomona Springfield
University Indianapolis
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Julia Heath, University of Cincinnati
Susan Laury, Georgia State University Robert Mohr, University of New Hampshire
Jolien Helsel, Youngstown State University
Myoung Lee, University of Missouri, Barbara Moore, University of Central Florida
Matthew Henry, Cleveland State University
Columbia Thaddeaus Mounkurai, Daytona State
Thomas Henry, Mississippi State University
College
xxxi
Reviewers

Usha Nair-Reichert, Emory University Melissa Rueterbusch, Mott Community Mark Tendall, Stanford University
Camille Nelson, Oregon State University College Jennifer Thacher, University of New Mexico
Michael Nelson, Oregon State University Mariano Runco, Auburn University at Charles Thomas, Clemson University
John Neri, University of Maryland Montgomery Rebecca Thornton, University of Houston
Andre Neveu, James Madison University Nicholas G. Rupp, East Carolina University Jill Trask, Tarrant County College,
Jinlan Ni, University of Nebraska, Omaha Steven Russell, Indiana University-Purdue Southeast
University-Indianapolis Steve Trost, Virginia Polytechnic Institute
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Michael Ryan, Western Michigan University and State University
Jaminka Ninkovic, Emory University
Ravi Samitamana, Daytona State College Ty Turley, Brigham Young University
Chali Nondo, Albany State University
David Sanders, University of Missouri, Nora Underwood, University of Central
Richard P. Numrich, College of Southern
St. Louis Florida
Nevada
Michael Sattinger, State University of New Mike Urbancic, University of Oregon
Andrew Nutting, Hamilton College
York, Albany Don Uy-Barreta, De Anza College
Grace O, Georgia State University
Anya Savikhin Samek, University of John Vahaly, University of Louisville
Norman Obst, Michigan State University Wisconsin, Madison
Scott Ogawa, Northwestern University Ross vanWassenhove, University of
Peter Schuhmann, University of North Houston
Lee Ohanian, University of California, Carolina, Wilmington
Los Angeles Don Vandegrift, College of New Jersey
Robert M. Schwab, University of Maryland
Paul Okello, Tarrant County College Nancy Virts, California State University,
Jesse Schwartz, Kennesaw State University Northridge
Ifeakandu Okoye, Florida A&M University James K. Self, Indiana University, Cheryl Wachenheim, North Dakota State
Alan Osman, Ohio State University Bloomington College
Tomi Ovaska, Youngstown State University Katie Shester, Washington and Lee University Jeffrey Waddoups, University of Nevada,
Caroline Padgett, Francis Marion University Mark Showalter, Brigham Young University, Las Vegas
Zuohong Pan, Western Connecticut State Provo Parag Waknis, University of Massachusetts,
University Dorothy Siden, Salem State University Dartmouth
Peter Parcells, Whitman College Mark V. Siegler, California State University, Donald Wargo, Temple University
Cynthia Parker, Chaffey College Sacramento Charles Wassell, Jr., Central Washington
Mohammed Partapurwala, Monroe Carlos Silva, New Mexico State University University
Community College Timothy Simpson, Central New Mexico Matthew Weinberg, Drexel University
Robert Pennington, University of Central Community College Robert Whaples, Wake Forest University
Florida Michael Sinkey, University of West Georgia Elizabeth Wheaton, Southern Methodist
David Perkis, Purdue University, West John Z. Smith, Jr., United States Military University
Lafayette Academy, West Point Mark Wheeler, Western Michigan University
Colin Phillipps, Illinois State University Thomas Snyder, University of Central Anne Williams, Gateway Community College
Kerk Phillips, Brigham Young University Arkansas
Brock Williams, Metropolitan Community
Goncalo Pina, Santa Clara University Joe Sobieralski, Southwestern Illinois College College of Omaha
Michael Podgursky, University of Missouri Sara Solnick, University of Vermont DeEdgra Williams, Florida A&M University
Greg Pratt, Mesa Community College Martha Starr, American University Brooks Wilson, McLennan Community
Guangjun Qu, Birmingham-Southern Rebecca Stein, University of Pennsylvania College
College Liliana Stern, Auburn University Mark Witte, Northwestern University
Fernando Quijano, Dickinson State Adam Stevenson, University of Michigan Katherine Wolfe, University of Pittsburgh
University Cliff Stone, Ball State University William Wood, James Madison University
Joseph Quinn, Boston College Mark C. Strazicich, Appalachian State Jadrian Wooten, Pennsylvania State
Reza Ramazani, Saint Michael’s College University University
Ranajoy Ray-Chaudhuri, Ohio State Chetan Subramanian, State University of Steven Yamarik, California State University,
University New York, Buffalo Long Beach
Mitchell Redlo, Monroe Community AJ Sumell, Youngstown State University Guy Yamashiro, California State University,
College Charles Swanson, Temple University Long Beach
Javier Reyes, University of Arkansas Tom Sweeney, Des Moines Area Bill Yang, Georgia Southern University
Teresa Riley, Youngstown State University Community College Young-Ro Yoon, Wayne State University
Nancy Roberts, Arizona State University James Swofford, University of South Maggie Yellen
Malcolm Robinson, Thomas More College Alabama Madelyn Young, Converse College
Randall Rojas, University of California, Los Kevin Sylwester, Southern Illinois Michael Youngblood, Rock Valley College
Angeles University
Jeffrey Zax, University of Colorado, Boulder
Sudipta Roy, Kankakee Community College Vera Tabakova, East Carolina University
Martin Zelder, Northwestern University
Jared Rubin, Chapman University Saleh S. Tabrizy of University of Oklahoma
Erik Zemljic, Kent State University
Jason C. Rudbeck, University of Georgia Emily Tang, University of California, San
Kevin Zhang, Illinois State University
Diego
xxxii Reviewers

Macroeconomics: Flexibility Chart
Core Approach Emphasis on Long-Run Growth Emphasis on International

Chapter 1: The Principles and Practice Chapter 1: The Principles and Practice Chapter 1: The Principles and Practice
of Economics of Economics of Economics
Chapter 2: Economic Methods and Chapter 2: Economic Methods and Chapter 2: Economic Methods and
Economic Questions (optional) Economic Questions (optional) Economic Questions (optional)
Chapter 2 Appendix: Constructing and Chapter 2 Appendix: Constructing and Chapter 2 Appendix: Constructing and
Interpreting Charts and Graphs Interpreting Charts and Graphs Interpreting Charts and Graphs
Chapter 3: Optimization: Doing the Chapter 3: Optimization: Doing the Chapter 3: Optimization: Doing the
Best You Can (optional) Best You Can (optional) Best You Can (optional)
Chapter 4: Demand, Supply, and Chapter 4: Demand, Supply, and Chapter 4: Demand, Supply, and
Equilibrium Equilibrium Equilibrium
xxxiii


Macroeconomics: Flexibility Chart
Core Approach Emphasis on Long-Run Growth Emphasis on International

Chapter 5: The Wealth of Nations: Chapter 5: The Wealth of Nations: De- Chapter 5: The Wealth of Nations:
Defining and Measuring Macroeco- fining and Measuring Macroeconomic Defining and Measuring Macroeco-
nomic Aggregates Aggregates nomic Aggregates
Chapter 6: Aggregate Incomes Chapter 6: Aggregate Incomes Chapter 6: Aggregate Incomes
Chapter 7: Economic Growth Chapter 7: Economic Growth Chapter 7: Economic Growth
Chapter 8: Why Isn't the Whole World Chapter 8: Why Isn't the Whole World Chapter 8: Why Isn't the Whole World
Developed? (optional) Developed? Developed? (optional)
Chapter 9: Employment and Unem- Chapter 9: Employment and Unem- Chapter 9: Employment and Unem-
ployment ployment ployment
Chapter 10: Credit Markets Chapter 10: Credit Markets Chapter 10: Credit Markets
Chapter 11: The Monetary System Chapter 11: The Monetary System Chapter 11: The Monetary System
Chapter 12: Short-Run Fluctuations Chapter 12: Short-Run Fluctuations Chapter 12: Short-Run Fluctuations
Chapter 13: Countercyclical Macro- Chapter 13: Countercyclical Macro- Chapter 13: Countercyclical Macro-
economic Policy economic Policy economic Policy
Chapter 14: Macroeconomics and Chapter 14: Macroeconomics and Chapter 14: Macroeconomics and
International Trade (optional) International Trade (optional) International Trade
Chapter 15: Open Economy Macro- Chapter 15: Open Economy Macro- Chapter 15: Open Economy Macro-
economics (optional) economics (optional) economics
xxxiv

Another random document with
no related content on Scribd:
DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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(eTextbook PDF) for Macroeconomics

2nd Edition by Daron Acemoglu

Acemoglu Laibson List

With love for Annika, Aras, Arda, Eli,

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About the Authors ix

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PART I Introduction to Economics 2

PART II Introduction to Macroeconomics 86

PART III Long-Run Growth and Development 140

PART IV Equilibrium in the Macroeconomy 202

PART V Short-Run Fluctuations and Macroeconomic

PART VI Macroeconomics in a Global Economy 336

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PART I Introduction to Economics 2 Evidence-Based Economics: How much do

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7.1 The Power of Economic Growth 141

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New to the Second Edition

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Our Vision: Three Unifying Themes

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144 Chapter 7 | Economic Growth

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Dynamic Study Modules

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Instructor’s Resource Center

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Core Approach Emphasis on Long-Run Growth Emphasis on International

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Core Approach Emphasis on Long-Run Growth Emphasis on International

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Newala, too, suffers from the distance of its water-supply—at least

The water-supply of New Newala is in the bottom of the valley,

NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAKONDE LOCK AND KEY AT JUMBE CHAURO

MODE OF INSERTING THE KEY

With no small pride first one householder and then a second

Some consolation was afforded me by a brassfounder, whom I

SMOOTHING WITH MAIZE-COB

CUTTING THE EDGE

LAST SMOOTHING BEFORE

FIRING THE BRUSH-PILE

TURNING THE RED-HOT VESSEL

NYASA WOMAN MAKING POTS AT MASASI

DRAWING THE BARK OFF THE LOG

REMOVING THE OUTER BARK

WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

About the Authors ix

PART I Introduction to Economics 2 Evidence-Based Economics: How much do