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 PA RK IN
PA R K I N BA D E

MACROECONOMICS

BA D E
MACROECONOMICS
C ANADA IN THE G LOBAL ENVIRONM ENT TENTH EDITION

CANADA IN THE GLOBAL ENVIRONMENT

TENTH EDITION

www.pearson.com 90000
ISBN 978-0-13-468683-7

9 780134 686837
 TO OUR STUDENTS

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This page intentionally left blank
 Michael Parkin is Professor Emeritus in the Department of
ABOUT THE AUTHORS
◆
Economics at the University of Western Ontario, Canada. Professor Parkin has
held faculty ­appointments at Brown University, the University of Manchester,
the University of Essex, and Bond University. He is a past president of the
Canadian Economics Association and has served on the editorial boards of
the American Economic R
­ eview and the Journal of Monetary Economics and
as managing editor of the Canadian Journal of Economics. Professor Parkin’s
research on macroeconomics, monetary ­economics, and international
economics has resulted in over 160 publications in j­ournals and edited
volumes, including the American Economic Review, the Journal of Political
Economy, the Review of Economic Studies, the Journal of Monetary Economics,
and the Journal of Money, Credit and Banking. He became most visible to the
public with his work on inflation that discredited the use of wage and price controls.
Michael Parkin also spearheaded the movement toward European monetary union.
Professor Parkin is an experienced and dedicated teacher of introductory economics.

Robin Bade earned degrees in mathematics and economics

at the University of Queensland and her Ph.D. at the Australian National
University. She has held faculty appointments at the University of
Edinburgh in Scotland, at Bond University in Australia, and at the
Universities of Manitoba, Toronto, and Western Ontario in Canada.
Her research on international capital flows appears in the International
Economic Review and the Economic Record.
Professor Parkin and Dr. Bade are the joint authors of Foundations of
Economics (Addison Wesley), Modern Macroeconomics (Pearson Education
Canada), an intermediate text, and have collaborated on many research
and textbook writing projects. They are both experienced and dedicated
teachers of introductory economics.

ix

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 PART ONE PART FOUR
BRIEF CONTENTS
◆
INTRODUCTION 1 MACROECONOMIC FLUCTUATIONS 243
CHAPTER 1 What Is Economics? 1 CHAPTER 10 Aggregate Supply and Aggregate
CHAPTER 2 The Economic Problem 33 Demand 243
CHAPTER 3 Demand and Supply 57 CHAPTER 11 Expenditure Multipliers 267
CHAPTER 12 The Business Cycle, Inflation, and
PART TWO Deflation 297
MONITORING MACROECONOMIC
PERFORMANCE 87 PART FIVE
CHAPTER 4 Monitoring the Value of Production: MACROECONOMIC POLICY 323

GDP 87 CHAPTER 13 Fiscal Policy 323

CHAPTER 5 Monitoring Jobs and Inflation 111 CHAPTER 14 Monetary Policy 347
CHAPTER 15 International Trade Policy 371
PART THREE
MACROECONOMIC TRENDS 135
CHAPTER 6 Economic Growth 135
CHAPTER 7 Finance, Saving, and Investment 163
CHAPTER 8 Money, the Price Level, and
Inflation 183
CHAPTER 9 The Exchange Rate and the Balance of
Payments 213

xi

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 Flexibility
ALTERNATIVE PATHWAYS THROUGH THE CHAPTERS
◆
Chapter 1 Chapter 6

What Is Economics? Economic Growth

Chapter 2 Chapter 7 Chapter 13

The Economic Problem Finance, Saving, Fiscal Policy

and Investment

Chapter 3 Chapter 4
Chapter 10 Chapter 12
Demand and Supply Monitoring the Value Aggregate Supply and
of Production: GDP Aggregate Demand The Business Cycle,
Inflation, and Deflation

Chapter 15 Chapter 5
Chapter 7
International Monitoring Jobs Chapter 14
Trade Policy and Inflation Finance, Saving,
Monetary Policy
and Investment

Chapter 8

Money, the Price Level,

and Inflation

Chapter 9

The Exchange Rate and

the Balance of Payments

Chapter 11

Expenditure Multipliers

Start here ... … then jump to … and jump to any of these after
any of these … doing the prerequisites indicated

xiii

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 PART ONE
DETAILED CONTENTS

APPENDIX Graphs in Economics  17

◆
INTRODUCTION 1 Graphing Data 17
Graphing Economic Data 18
CHAPTER 1 ◆ WHAT IS ECONOMICS? 1 Scatter Diagrams 18

Definition of Economics 2 Graphs Used in Economic Models 20

Two Big Economic Questions 3
What, How, and For Whom? 3
Do Choices Made in the Pursuit of Self-Interest
also Promote the Social Interest? 5
The Economic Way of Thinking 9
A Choice Is a Tradeoff 9
Making a Rational Choice 9
Benefit: What You Gain 9
Cost: What You Must Give Up 9
How Much? Choosing at the Margin 10
Choices Respond to Incentives 10
Economics as Social Science and Policy Tool 11
Economist as Social Scientist 11
Economist as Policy Adviser 11
Variables That Move in the Same Direction 20
Variables That Move in Opposite Directions 21
Variables That Have a Maximum or a
Minimum 22
Variables That Are Unrelated 23
The Slope of a Relationship 24
The Slope of a Straight Line 24
The Slope of a Curved Line 25
Graphing Relationships Among More Than
Two Variables 26
Ceteris Paribus 26
When Other Things Change 27
MATHEMATICAL NOTE
Equations of Straight Lines   28

Economists in the Economy 12 ■■ AT ISSUE, 8

Jobs for an Economics Major 12 ■■ ECONOMICS IN THE NEWS, 6, 14
Will Jobs for Economics Majors Grow? 12
Earnings of Economics Majors 13
Skills Needed for Economics Jobs 13

Worked Problem, Summary (Key Points and Key Terms),

Study Plan Problems and Applications, and Additional Prob-
lems and Applications appear at the end of each chapter.

xv

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 xvi DETAILED CONTENTS

CHAPTER 2 ◆ THE ECONOMIC PROBLEM 33 CHAPTER 3 ◆ DEMAND AND SUPPLY 57

Production Possibilities and Opportunity Cost 34 Markets and Prices 58
Production Possibilities Frontier 34
Demand 59
Production Efficiency 35
The Law of Demand 59
Tradeoff Along the PPF 35
Demand Curve and Demand Schedule 59
Opportunity Cost 35
A Change in Demand 60
Using Resources Efficiently 37 A Change in the Quantity Demanded Versus a
The PPF and Marginal Cost 37 Change in Demand 62
Preferences and Marginal Benefit 38
Supply 64
Allocative Efficiency 39
The Law of Supply 64
Gains from Trade 40 Supply Curve and Supply Schedule 64
Comparative Advantage and Absolute A Change in Supply 65
Advantage 40 A Change in the Quantity Supplied Versus a
Achieving the Gains from Trade 42 Change in Supply 66
The Liz–Joe Economy and Its PPF 44
Market Equilibrium 68
Economic Growth 45 Price as a Regulator 68
The Cost of Economic Growth 45 Price Adjustments 69
A Nation’s Economic Growth 46
Predicting Changes in Price and Quantity 70
Changes in What We Produce 46
An Increase in Demand 70
Economic Coordination 48 A Decrease in Demand 70
Firms 48 An Increase in Supply 72
Markets 48 A Decrease in Supply 72
Property Rights 48 Changes in Both Demand and Supply 74
Money 48
MATHEMATICAL NOTE
Circular Flows Through Markets 48
Demand, Supply, and Equilibrium   78
Coordinating Decisions 49
■■ ECONOMICS IN THE NEWS, 71, 73, 76
■■ ECONOMICS IN ACTION, 46

■■ ECONOMICS IN THE NEWS, 36, 50 PART ONE WRAP-UP ◆

Understanding the Scope of Economics

Your Economic Revolution 85
Talking with
Esther Duflo 86

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PART TWO
MONITORING MACROECONOMIC
PERFORMANCE 87
CHAPTER 4 ◆ MONITORING THE VALUE
OF PRODUCTION: GDP 87
Gross Domestic Product 88
GDP Defined 88
GDP and the Circular Flow of Expenditure
and Income 89
Why Is Domestic Product “Gross”? 90
Measuring Canada’s GDP 91
The Expenditure Approach 91
The Income Approach 92
Nominal GDP and Real GDP 93
Calculating Real GDP 93
The Uses and Limitations of Real GDP 94
The Standard of Living over Time 94
The Standard of Living Across Countries 96
Limitations of Real GDP 97
APPENDIX Graphs in Macroeconomics   102
The Time-Series Graph 102
Making a Time-Series Graph 102
Reading a Time-Series Graph 102
Ratio Scale Reveals Trend 103
A Time-Series with a Trend 103
Using a Ratio Scale 103
MATHEMATICAL NOTE
Chained-Dollar Real GDP   104
■■ ECONOMICS IN ACTION, 99
■■ AT ISSUE, 98
■■ ECONOMICS IN THE NEWS, 100
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DETAILED CONTENTS    xvii
CHAPTER 5 ◆ MONITORING JOBS
AND INFLATION 111
Employment and Unemployment 112
Why Unemployment Is a Problem 112
Labour Force Survey 113
Four Labour Market Indicators 113
Other Definitions of Unemployment 115
Most Costly Unemployment 116
Alternative Measures of Unemployment 116
Unemployment and Full Employment 117
Frictional Unemployment 117
Structural Unemployment 117
Cyclical Unemployment 117
“Natural” Unemployment 117
Real GDP and Unemployment over
the Cycle 118
The Changing Natural Unemployment Rate 119
The Price Level, Inflation, and Deflation 120
Why Inflation and Deflation Are Problems 120
The Consumer Price Index 121
Reading the CPI Numbers 121
Constructing the CPI 121
Measuring the Inflation Rate 122
Distinguishing High Inflation from a High
Price Level 123
The Biased CPI 123
The Magnitude of the Bias 124
Some Consequences of the Bias 124
Alternative Price Indexes 124
Core Inflation 124
The Real Variables in Macroeconomics 125
■■ ECONOMICS IN ACTION, 112, 118
■■ ECONOMICS IN THE NEWS, 126
PART TWO WRAP-UP ◆
Monitoring Macroeconomic Performance
The Big Picture 133
Talking with
David Card 134
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 xviii DETAILED CONTENTS

CHAPTER 7 ◆ FINANCE, SAVING, AND

PART THREE
MACROECONOMIC TRENDS 135
CHAPTER 6 ◆ ECONOMIC GROWTH 135
The Basics of Economic Growth 136
Calculating Growth Rates 136
Economic Growth Versus Business Cycle
Expansion 136
The Magic of Sustained Growth 137
Applying the Rule of 70 138
Long-Term Growth Trends 139
Long-Term Growth in Canada 139
Real GDP Growth in the World Economy 140
INVESTMENT 163
Financial Markets and Financial
Institutions 164
Finance and Money 164
Physical Capital and Financial Capital 164
Capital and Investment 164
Wealth and Saving 164
Financial Capital Markets 165
Financial Institutions 166
Insolvency and Illiquidity 167
Interest Rates and Asset Prices 167
Funds that Finance Investment 168
The Real Interest Rate 169

How Potential GDP Grows 142 The Loanable Funds Market 170
What Determines Potential GDP? 142 The Demand for Loanable Funds 170
What Makes Potential GDP Grow? 144 The Supply of Loanable Funds 170
Equilibrium in the Loanable Funds Market 171
Why Labour Productivity Grows 147 Changes in Demand and Supply 172
Preconditions for Labour Productivity
Government in the Loanable Funds Market 174
Growth 147
Physical Capital Growth 147 A Government Budget Surplus 174
Human Capital Growth 148 A Government Budget Deficit 174
Technological Advances 148 ■■ ECONOMICS IN ACTION, 169, 172
Is Economic Growth Sustainable? Theories, ■■ ECONOMICS IN THE NEWS, 176
Evidence, and Policies 151
Classical Growth Theory 151
Neoclassical Growth Theory 151
New Growth Theory 152
New Growth Theory Versus Malthusian
Theory 154
Sorting Out the Theories 154
The Empirical Evidence on the Causes of
Economic Growth 154
Policies for Achieving Faster Growth 154
■■ ECONOMICS IN ACTION, 141, 148, 149

■■ ECONOMICS IN THE NEWS, 150, 156

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CHAPTER 8 ◆ MONEY, THE PRICE LEVEL,
AND INFLATION 183
What Is Money? 184
Medium of Exchange 184
Unit of Account 184
Store of Value 185
Money in Canada Today 185
Depository Institutions 187
Types of Depository Institutions 187
What Depository Institutions Do 187
Economic Benefits Provided by Depository
Institutions 188
How Depository Institutions Are Regulated 188
Financial Innovation 190
The Bank of Canada 191
Banker to Banks and Government 191
Lender of Last Resort 191
Sole Issuer of Bank Notes 191
The Bank of Canada’s Balance Sheet 191
The Bank of Canada’s Policy Tools 192
How Banks Create Money 194
Creating Deposits by Making Loans 194
The Money Creation Process 195
The Money Multiplier 196
The Money Market 198
The Influences on Money Holding 198
The Demand for Money 199
Shifts in the Demand for Money Curve 199
Money Market Equilibrium 200
The Quantity Theory of Money 202
MATHEMATICAL NOTE
The Money Multiplier   206
■■ ECONOMICS IN ACTION, 185, 190, 192, 196, 202
■■ AT ISSUE, 189
■■ ECONOMICS IN THE NEWS, 197, 204
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DETAILED CONTENTS    xix
CHAPTER 9 ◆ THE EXCHANGE RATE AND THE
BALANCE OF PAYMENTS 213
The Foreign Exchange Market 214
Trading Currencies 214
Exchange Rates 214
Questions About the Canadian Dollar
Exchange Rate 214
An Exchange Rate Is a Price 214
The Demand for One Money Is the Supply
of Another Money 215
Demand in the Foreign Exchange Market 215
Demand Curve for Canadian Dollars 216
Supply in the Foreign Exchange Market 217
Supply Curve for Canadian Dollars 217
Market Equilibrium 218
Changes in the Demand for Canadian
Dollars 218
Changes in the Supply of Canadian Dollars 219
Changes in the Exchange Rate 220
Arbitrage, Speculation, and Market
Fundamentals 222
Arbitrage 222
Speculation 223
Market Fundamentals 224
Exchange Rate Policy 225
Flexible Exchange Rate 225
Fixed Exchange Rate 225
Crawling Peg 226
Financing International Trade 228
Balance of Payments Accounts 228
Borrowers and Lenders 230
The Global Loanable Funds Market 230
Debtors and Creditors 231
Is Canadian Borrowing for Consumption? 231
Current Account Balance 232
Net Exports 232
Where Is the Exchange Rate? 233
■■ ECONOMICS IN ACTION, 215, 221, 223, 226,
229, 233
■■ ECONOMICS IN THE NEWS, 234
PART THREE WRAP-UP ◆
Understanding Macroeconomic Trends
Expanding the Frontier 241
Talking with
Xavier Sala-i-Martin 242
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 xx DETAILED CONTENTS
PART FOUR
MACROECONOMIC FLUCTUATIONS 243
CHAPTER 10 ◆ AGGREGATE SUPPLY AND
AGGREGATE DEMAND 243
Aggregate Supply 244
Quantity Supplied and Supply 244
Long-Run Aggregate Supply 244
Short-Run Aggregate Supply 245
Changes in Aggregate Supply 246
Aggregate Demand 248
The Aggregate Demand Curve 248
Changes in Aggregate Demand 249
Explaining Macroeconomic Trends and
Fluctuations 252
Short-Run Macroeconomic Equilibrium 252
Long-Run Macroeconomic Equilibrium 252
Economic Growth and Inflation in
the AS-AD Model 253
The Business Cycle in the AS-AD Model 254
Fluctuations in Aggregate Demand 256
Fluctuations in Aggregate Supply 257
Macroeconomic Schools of Thought 258
The Classical View 258
The Keynesian View 258
The Monetarist View 259
The Way Ahead 259
■■ ECONOMICS IN ACTION, 250, 253, 254
■■ ECONOMICS IN THE NEWS, 260
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CHAPTER 11 ◆ EXPENDITURE
MULTIPLIERS 267
Fixed Prices and Expenditure Plans 268
Expenditure Plans 268
Consumption and Saving Plans 268
Marginal Propensities to Consume and Save 270
Slopes and Marginal Propensities 270
Consumption as a Function of Real GDP 271
Import Function 271
Real GDP with a Fixed Price Level 272
Aggregate Planned Expenditure 272
Actual Expenditure, Planned Expenditure, and
Real GDP 273
Equilibrium Expenditure 274
Convergence to Equilibrium 275
The Multiplier 276
The Basic Idea of the Multiplier 276
The Multiplier Effect 276
Why Is the Multiplier Greater Than 1? 277
The Size of the Multiplier 277
The Multiplier and the Slope of
the AE Curve 278
Imports and Income Taxes 279
The Multiplier Process 279
Business Cycle Turning Points 280
The Multiplier and the Price Level 281
Adjusting Quantities and Prices 281
Aggregate Expenditure and Aggregate
Demand 281
Deriving the Aggregate Demand Curve 281
Changes in Aggregate Expenditure and
Aggregate Demand 282
Equilibrium Real GDP and the Price Level 283
MATHEMATICAL NOTE
The Algebra of the Keynesian Model   288
■■ ECONOMICS IN ACTION, 271, 280
■■ ECONOMICS IN THE NEWS, 286
07/12/17 1:01 PM

CHAPTER 12 ◆ THE BUSINESS CYCLE,
INFLATION, AND
DEFLATION 297
The Business Cycle 298
Mainstream Business Cycle Theory 298
Real Business Cycle Theory 299
Inflation Cycles 303
Demand-Pull Inflation 303
Cost-Push Inflation 305
Expected Inflation 307
Forecasting Inflation 308
Inflation and the Business Cycle 308
Deflation 309
What Causes Deflation? 309
What Are the Consequences of Deflation? 311
How Can Deflation Be Ended? 311
The Phillips Curve 312
The Short-Run Phillips Curve 312
The Long-Run Phillips Curve 312
■■ ECONOMICS IN ACTION, 300, 310, 313
■■ ECONOMICS IN THE NEWS, 314
PART FOUR WRAP-UP ◆
Understanding Macroeconomic Fluctuations
Boom and Bust 321
Talking with
Peter Howitt 322
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DETAILED CONTENTS    xxi
PART FIVE
MACROECONOMIC POLICY 323
CHAPTER 13 ◆ FISCAL POLICY 323
The Federal Budget 324
Budget Making 324
The Federal Budget in 2016 324
The Budget in Historical Perspective 325
Supply-Side Effects of Fiscal Policy 330
Full Employment and Potential GDP 330
The Effects of the Income Tax 330
Taxes on Expenditure and the Tax Wedge 331
Taxes and the Incentive to Save and Invest 332
Tax Revenues and the Laffer Curve 333
The Supply-Side Debate 333
Fiscal Stimulus 334
Automatic Fiscal Policy and Cyclical and
Structural Budget Balances 334
Discretionary Fiscal Stimulus 335
■■ ECONOMICS IN ACTION, 328, 329, 331, 336,
337, 338
■■ ECONOMICS IN THE NEWS, 340
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 xxii DETAILED CONTENTS
CHAPTER 14 ◆ MONETARY POLICY 347
Monetary Policy Objectives and Framework 348
Monetary Policy Objective 348
Responsibility for Monetary Policy 349
The Conduct of Monetary Policy 350
The Monetary Policy Instrument 350
The Bank’s Interest Rate Decision 351
Hitting the Overnight Loans Rate Target 351
Monetary Policy Transmission 353
Quick Overview 353
Interest Rate Changes 353
Exchange Rate Fluctuations 354
Money and Bank Loans 355
The Long-Term Real Interest Rate 355
Expenditure Plans 355
Change in Aggregate Demand, Real GDP,
and the Price Level 356
The Bank of Canada Fights Recession 356
The Bank of Canada Fights Inflation 358
Loose Links and Long and Variable Lags 359
Financial Crisis: Cure and Prevention 361
The Anatomy of the Financial Crisis 361
The U.S. Fed’s Policy Actions 361
Congress Crisis Policy Action 361
Macroprudential Regulation 362
Canadian Macroprudential Policy 362
Policy Strategies and Clarity 362
■■ ECONOMICS IN ACTION, 360, 363
■■ ECONOMICS IN THE NEWS, 364
A01_PARK6837_10_SE_FM.indd 22
CHAPTER 15 ◆ INTERNATIONAL TRADE
POLICY 371
How Global Markets Work 372
International Trade Today 372
What Drives International Trade? 372
Why Canada Imports T-Shirts 373
Why Canada Exports Regional Jets 374
Winners, Losers, and the Net Gain from Trade 375
Gains and Losses from Imports 375
Gains and Losses from Exports 375
Gains for All 375
International Trade Restrictions 376
Tariffs 376
Import Quotas 378
Other Import Barriers 381
Export Subsidies 381
The Case Against Protection 382
Helps an Infant Industry Grow 382
Counteracts Dumping 382
Saves Domestic Jobs 382
Allows Us to Compete with Cheap Foreign
Labour 382
Penalizes Lax Environmental Standards 383
Prevents Rich Countries from Exploiting
Developing Countries 383
Reduces Offshore Outsourcing That Sends Good
Canadian Jobs to Other Countries 383
Avoiding Trade Wars 384
Why Is International Trade Restricted? 384
Compensating Losers 385
■■ ECONOMICS IN ACTION, 372, 377, 378
■■ AT ISSUE, 384
■■ ECONOMICS IN THE NEWS, 380, 386
PART FIVE WRAP-UP ◆
Understanding Macroeconomic Policy
Tradeoffs and Free Lunches 393
Talking with
Pierre Siklos 394
Glossary G-1
Index I-1
Credits C-1
07/12/17 1:01 PM
 ◆ New To This Edition
the price Level, Inflation, and Deflation
Chapter 5 now includes the three new measures of
PREFACE
◆ 125

core inflation: CPI-trim, CPI-median, and CPI-common.

All data figures, tables, and explanations thoroughly
inflation
­updated to therate. Theavailable;
latest Bank’s first
fivecore
maininflation
contentmeasure
chan­
was the percentage change in the CPI excluding food FIGURE 5.8 Core Inflation
ges; 21 new Economics in the News items based
and fuel, two items with the most volatile prices. But
on
recentthis
events and issues; almost 80 new news-based
measure gave a misleading view of the trend
8

problems andrate
inflation applications;
when foodandandallfuel
seamlessly integrated
got cheaper rela-
with MyLab Economics
tive to other items. So,and
thePearson
Bank now eText: Thesethree
monitors are 6
the hallmarks
measures of of this
coretenth edition
inflation that of Macroeconomics.
avoid this prob-
lem. The measures are CPI-trim, CPI-median, and
CPI-common. 4
Main Content Changes
The items in the CPI basket change at a wide dis-
Chapter 1 nowofcontains
tribution an the
rates and entirely new section,
CPI measures the “Econo-
average
mistsorin mean
the Economy, ” which describes the types of or 2
rate of price change. CPI-trim excludes
jobs available
trims thetotop
economics
and bottommajors, their earnings
20 percent com-
most extreme
paredprice
with changes.
majors inCPI-median
other relatedmeasures inflation
areas, and
Economists in the Economy
as the
the critical
13 0
percentage change of the middle items in the
thinking, analytical, math, writing, and oral communica- basket.
CPI-common
tion skills needed foruses a statistical
a successful method
career to reveal the
in economics.
most common price changes. –2
Figure 5.8 shows the CPI and CPI-trim core infla- 1990 1995 2000 2005 2010 2015 2020
ors tion rates from 1984 to 2017. Year
ry a lot depend- FIGURE 1.3 Earnings of Economics Majors
the core inflation rate is the CpI-trim measure, which excludes
alifications. The Chapter 7, Finance, Saving, and Investment, has
s a pay range for The Real Variables in Macroeconomics
Economics
the top and bottom 20 percent of the most extreme price
been reorganized and streamlined with less emphasis
changes. the core inflation rate removes most of the wide
4,441 to $127,500, You saw in Chapter 3 the distinction between
Political science onswings
the in2007–2008 financial crisis and more on the
the CpI inflation rate because it removes the most
a money price and a relative price (see p. 58). current extremely low real interest rate.
volatle price changes.
omics and goes Another Finance
name for a money price is a nominal price. Chapter 14, Monetary FG_05_008 Policy, has a new final sec-
a job as an econo- InEngineering
macroeconomics, we often want to distinguish Source of data: Statistics Canada, CANSIM table 326-0020 and 0023.
tion on macroprudential regulation and the roles of
$100,000 a year by between a real variable and its corresponding nomi- MyLab
the Bank of Canada andEconomics
other federal Real-time data in
institutions
in finance, insur- nal Sociology
variable. We want to distinguish a real price
more than the from science
Computer its corresponding nominal price because a ensuring broader financial security.
real price is an opportunity cost that influences
Applied mathematics
REVIEW QUIZ
and range from an choices. And we want to distinguish a real quantity Economics in the News
ket research analysts (like Business
real GDP) from a nominal quantity (like nomi- 1 What is the price level?
The new Economics in the News features are listed at the
ysts. nal GDP) because we want to see what is “really” 2 What is the CPI and how is it calculated?
back of the book. They are all chosen to address cur-
ics graduates at happening 0to variables 20 40 that
60 influence
80 100 the 120 standard
140
3 How
rent issuesdolikely
we calculate the inflation
to interest rate and
and motivate thewhat
student.
can see in Fig. 1.3. of living. Salary (thousands of dollars per year) is its relationship with the CPI?
cience, finance, An example is the one in Chapter 2 on expanding
The bars You’ve
show theseenrangeinofthis chapter
earnings howmajors
for eight we view
in a real 4 What arepossibilities
the four main
siness earn less GDP asmonitored
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a B.C. the CPI
First Nation.
sample of jobs the jobs surveybyfirmthe GDP defla-
PayScale. is an upward-biased measure of the price level?
jobs. tor. Viewing
Economics graduatesreal GDP
are the in this
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5 What ECONOMICS
problemsINarise from the CPI bias?
tHE NEWS
majorsofshown
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variables. By using the GDP deflator, we can deflate 6 WhatExpanding Production
are the alternative measures of the price
cs Jobs Source of data: payscale.com
any nominal variable and find its corresponding real levelPossibilities
and how do they address the problem of
er looks for in a values.CAN10E
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example is the wage rate, which
Animation
biasB.C.
in First
theNation
CPI?Gives Nod to Proposed
LNG Export Facility
The Canadian Press

d job? Five skill is the price of labour. We measure the economy’s real Work these questions in Study Plan 5.3 and
March 27, 2017

wage rate as the nominal wage rate divided by the get instant
facility onfeedback. MyLab Economics
A First Nation on Vancouver Island has approved a proposed liquefied natural gas export
its traditional territories.
Chapter
GDP 2 has a new section prompted by the ongo-
can deflator.
Leaders of the Huu-ay-aht First Nation and the CEO of Vancouver-based Steelhead LNG
You see these skills at work (except the held a joint news conference in Vancouver on Monday to announce what Chief Robert Dennis

ing concernThere about

last one) in theisforecasts
onethevariable
rust-belt
of that
economy,
is a bit
the BLS
its causes
different—an
economists
said was the First Nation’s “official entry into the international business world.”
Members of the small First Nation voted Saturday to approve development of the LNG facil-

and cures,
patterns
which
rate. describes
A real and
described earlier. These economists used atheir
interest interest illustrates
rate is not the changing
nominal ◆ You’ve now completed your study of the mea-
ity at Sarita Bay, on the west coast of Vancouver Island …
The company’s plans could even include building a new pipeline linking Vancouver Island and

critical-thinking skills to focus on a manageableand

of
interest production
rate divided as an
by economy
the price expands,
level. You’ll learn surement of macroeconomic performance. Your next
the B.C. mainland …
The company planned to make a final investment decision

how
explains howto adjust
technicalinterest
changerates
number of key features of jobs. They went on andfor inflation
economic to find
growth a real task is to learn what determines that performance
on Sarita Bay by 2019 or 2020, with first production tar-
geted for 2024, he said. …
ESSENCE OF THE STORY
first interest
shrinks
to gather rateshare
the
relevant indata
Chapter
ofon 8. But allas
agriculture
earnings the
and other real vari-
manufacturing
employ- and how policy actions might improve it. But first,
John Jack, executive councillor with the Huu-ay-aht, said
it’s time the First Nation took its place within Canada and ■ the Huu-ay-aht First Nation on Vancouver Island
has approved a liquefied natural gas export facil-

mentables aof macroeconomics arecategories,

calculated by dividingas a compare the Canadian and U.S. labour markets in
British Columbia.

expands forand later

large shrinks the
number share
of jobs of manufacturing “This is an example of a First Nation working with busi- ■
ity on its traditional territories.
Steelhead LNG will build and operate the facility.

nominal
services
analyzedexpand. variable by the price level.
the data using their math and economics Economics in the News on pp. 126–127.
ness and working with the people of B.C. and Canada in
order to create value that fits both of our interests.”
■ A new pipeline linking Vancouver Island and the
B.C. mainland is a possible part of the plan.

ty to clarify and tools,Chapter

and predicted future jobs growth. They
© The Canadian Press ■ production is targeted to start in 2024.

evant evidence 2 also has an expanded explanation and

then presented
graphical their findings
derivation online at https://
of the outward-bowed PPF. MyLab Economics Economics in the News

www.bls.gov/ooh. Round off this topic by taking

nomic ideas and a look at their work. xxiii
rns, and reach a

50

thematical and M05_PARK6837_10_SE_C05.indd 125 13/09/17 1:50 PM

reach valid REVIEW QUIZ M02_PARK6837_10_SE_C02.indd 50 09/09/17 11:09 AM

A01_PARK6837_10_SE_FM.indd 23 07/12/17 1:01 PM

1 What types of jobs do economists do?
 xxiv PREFACE

News-Based Problems and Applications
Just a sample of the topics covered in the 80 new
news-based problems and applications include:
Shrinking brick-and-mortar retail and expanding
­online shopping; Canada’s economic growth triples
U.S.’s; jobs data highlights divergence between
Canada, U.S.; thousands of robots improve human
efficiency; after a summer bond binge, signs of
angst are growing in the market; Poloz’s best option:
increase the money supply; Bank of Canada raises
benchmark rate to 1%; and U.S. tariffs on Canadian
softwood lumber.
◆ Solving Teaching and Learning
Challenges
To change the way students see the world: this is our
goal in teaching economics, in writing this book, and
in playing a major role in creating content for MyLab
Economics.
Three facts about students are our guiding
and not as a series of logical exercises with no real
purpose. Economics in the News and At Issue are
designed to achieve this goal.
Each chapter opens with a student-friendly
vignette that raises a question to motivate and focus
the chapter. The chapter explains the principles, or
model, that address the question and ends with an
Economics in the News application that helps students
to think like economists by connecting chapter tools
and concepts to the world around them. All these
news exercises are in MyLab with instant targeted
feedback and auto-grading and constant uploading
of new, current exercises.
In many chapters, an additional briefer Economics
in the News (shown here) presents a short news clip,
supplemented by data where needed, poses some
questions, and walks through the answers.
predicting Changes in price and Quantity 73
ECONOMICS IN ThE NEWS
The Market for Vanilla Bean
Price of Ice Cream Set to Spike
A poor harvest in Madagascar has exploded the price of
vanilla bean, the flavouring in Canada’s top ice cream.

principles. First, they want to learn, but they are Source: The Toronto Star, April 7, 2016

overwhelmed by the volume of claims on their time THE DATA

Quantity of Vanilla Bean Price of Vanilla Bean

and energy. So, they must see the relevance to their Year
(billions of tonnes
per year )
(dollars
per kilogram)

lives and future careers of what they are being asked 2015
2016
7.6
5.6
70
425

to learn. Second, students want to get it, and get it THE QUESTIONS

quickly. So, they must be presented with clear and ■

succinct explanations. And third, students want to
make sense of today’s world and be better prepared
for life after school. So, they must be shown how to
apply the timeless principles of economics and its
models to illuminate and provide a guide to under-
■
What does the data table tell us?
Why did the price of vanilla bean rise? Is it because ■ In 2016, the decreased production in Madagasscar
demand changed or supply changed, and in which
direction? ■
decreased the supply of vanilla bean to S16.
The price increased to $425 per kilogram and the
THE ANSWERS ■
quantity traded decreased to 5.6 billion tonnes.
The higher price brought a decrease in the quantity of
■ The data table tells us that during 2016, the quantity
of vanilla bean produced increased and the price of
vanilla bean demanded, which is shown by the move-
ment along the demand curve.
■
vanilla bean increased sharply.
An increase in demand brings an increase in the quan-
Price (dollars per kilogram)

tity and a rise in the price. S16

Poor harvest decreases the
■ A decrease in supply brings a decrease in the quantity 700 supply of vanilla bean ...

standing today’s events and issues, and the future ■

and a rise in the price.
Because the quantity of vanilla bean decreased and the 600
S15

challenges they are likely to encounter. price increased, there must have been a decrease in the
supply of vanilla bean
500

The organization of this text and MyLab arise ■ The supply of vanilla bean decreases if a poor harvest
decreases production.
425
... and the

directly from these guiding principles. Each chapter ■ The news clip says there was a poor harvest in
Madagascar. This decrease in production brought
300
quantity
demanded
decreases

begins with a clear statement of learning objectives ■

a decrease in the supply of vanilla bean.
The figure illustrates the market for vanilla bean in
200 ... the
price
rises ...

that correspond to each chapter section. 2015 and 2016. The demand curve D shows the
demand for vanilla bean.
70
D

The learning resources also arise directly from ■ In 2015, the supply curve was S15, the price was $70
per kilogram, and the quantity of vanilla bean traded
0 5.6 7.6
Quantity (billions of tonnes per year)

the three guiding principles, and we will describe was 7.6 billion tonnes. The Market for Vanilla Bean in 2015–2016

them by placing them in five groups: MyLab Economics Economics in the News

■■ Making economics real CAN10E - EIN_03_002

■■ Learning the vocabulary Four At Issue boxes engage the student in

■■ Seeing the action and telling the story debate and controversy. An At Issue box introduces
■■ Learning interactively—learning by doing an issue and then presents two opposing views.
M03_PARK6837_10_SE_C03.indd 73 09/09/17 12:04 PM

It leaves the matter unsettled so that students and

■■ MyLab Economics the instructor can continue the argument in class
and reach their own conclusions.
Making Economics Real Economics in Action boxes make economics real
The student needs to see economics as a lens that by providing data and information that links models
sharpens the focus on real-world issues and events, to real-world economic activity. Some of the issues

A01_PARK6837_10_SE_FM.indd 24 07/12/17 1:01 PM

Another random document with
no related content on Scribd:
"Joyce!" he exclaimed. "Can it be you? This is indeed an
unexpected pleasure. Did Tyson know?"

Joyce's face was radiant, as she looked with frank gladness at

her old friend, who still retained her hand in his.

"Yes, it is I, Alec," she said; "and Captain Tyson planned this

surprise for you. When he was here lately, he talked of you
and of his intended visit to Fernsclough. Then, naturally, it
came out that his friend Major Caruth, and the friend of my
whole life, were one and the same person. He had a great
deal to say about you, and I—you may imagine how glad I
was to tell him that for years you had been my dear father's
pupil and my own true friend always."

Joyce looked bravely up as she spoke. Her manner was frank

and unrestrained, like that of a sister meeting a dear brother
after years of absence.

Perhaps Major Caruth would have liked to see more of self-

consciousness about the girl, and signs of still deeper feeling.

Outwardly, the strong man and brave soldier showed more

emotion than Joyce did, for he kept her hand in his, and his
voice trembled as he said—

"I little guessed what was before me when I left home to-day,
or how much I should owe to my friend Tyson before the close
of it."

"I dragged him off here at a moment's notice, Miss Mirlees,"

said Captain Tyson, pausing from a frantic race round the hall,
in which he was already indulging with his small nieces. "You
and my sister must explain to him one special object I had in
bringing him here."

Major Caruth heard the explanation in due time, but not at

that moment, for Mrs. Ross, on hospitable thoughts intent,
was offering tea; and afterwards the gentlemen went to their
rooms to dress for dinner.

Major Caruth remembered Mrs. Ross's allusion to Joyce as her

"friend and guest."

"The holidays have begun," he thought, "and the governess is

gone for awhile. The friend remains. How few women would
have drawn such a distinction as Mrs. Ross did by the use of
those words!"

Before bedtime, Major Caruth understood his friend's object in

bringing him to Springfield Park in such haste. Mrs. Ross
explained it on his behalf.

"My brother has told me of your kind wish that he should

spend Christmas at Fernsclough. Mrs. Caruth had previously
invited Joyce, who was pledged to remain here. Yet I hope
and believe we should all be happier if under one roof than we
could be if divided. My brother thinks that he and you might
persuade Mrs. Caruth to come to us; but if you think it
necessary, I will go to Fernsclough and unite my solicitations
to yours—that is always supposing you are willing to join our
Christmas gathering here."

Major Caruth looked for one instant inquiringly at Joyce. Her

answering glance was eloquent enough to satisfy him, and he
at once said to Mrs. Ross, "It will give me the greatest
possible pleasure, and I do not think you will need to travel to
Fernsclough to persuade my mother also to accept your kind
invitation."

So Major Caruth returned home on the following day, carrying

a pleasant surprise to his mother. He also conveyed a
considerable addition to his luggage in the shape of Joyce's
Christmas gifts for Welton friends.

One packet she retained.

"This is for Mrs. Caruth; I shall put it on the Christmas-tree
for her, instead of sending it now."

"And mine, Joyce. Where is it? I see nothing for me."

"People are not supposed to ask beforehand, or to be told

what they may expect when the tree is lighted," she
answered, with a laugh and a blush.

"I know what I expect, and I shall certainly ask for it," he
said; "but I will not be more selfish than others. I will wait till
Christmas Day for my present, Joyce. Good-bye for so long,
dear Joyce."

"We shall lose Miss Mirlees," said Mr. Ross, oracularly. "Katie,
Katie, who would have dreamed that you would develop a
taste for match-making."

This to his wife.

"Nor have I, dear. If a match should come about, such as you

suggest, it was virtually made before you and I ever heard the
names of Alec Caruth and Joyce Mirlees."

Of course, Mrs. Caruth accepted the invitation to Springfield

Park, and equally of course the gathering there was a most
delightful one.

If Alec Caruth did not find a present from his former child-
friend beneath the spreading boughs of the lighted Christmas-
tree, he was not wholly discontented. Whilst others were
admiring their gifts, he managed to whisper a demand for one
which was more precious in his eyes than all beside.

"You know what I want, dear Joyce," he pleaded. "Not a gift,

only a fair exchange. One true heart in return for another. You
have mine. You have had it for years, and you—" He looked
inquiringly.
"I am afraid I have none to give you in return," she
whispered.

A great fear filled his heart for a moment, but once more Alec
Caruth looked at Joyce's blushing face and read the true
answer to his petition.

"I believe you say this because, dear Joyce, it was mine
already. Tell me, darling, am I right?"

But Joyce did not speak. Nevertheless, Alec was content, and
a little later, he told his mother that Joyce had given him the
best of Christmas presents—her own sweet self.

So the little Rosses lost their former maid and present

governess, but kept always their friend in her who soon
became Joyce Caruth.

On the Christmas-tree at Springfield that year, Joyce found

the ring that Adelaide had offered her on her twenty-first
birthday. The girl sent it to be placed there, and Joyce gladly
accepted what she felt to be a token of true cousinly love, and
told her so.

In after days, when the once penniless niece was a happy

wife, Mrs. Walter Evans was heard to declare that Joyce had
improved wonderfully. But then, in her eyes, wealth and
position were the greatest of all claims to respect. Without
these all other excellences were as nothing. No need to tell
the names of the many who rejoiced to see the happiness of
her who, as Joyce Mirlees, had tried to make others happy, or
to say that none of these were forgotten by Joyce Caruth.

Beneath her roof, Captain Tyson met his fate, in the person of
Adelaide Evans, and there, too, Mr. Evans is a frequent guest.

"To think that you should choose one who for awhile was 'only
a servant,'" said Joyce to her husband, some time after their
marriage.

"Dearest," he answered, "that word servant always brings

pleasant thoughts to my mind. As a soldier, I was ever proud
to call myself the servant of Queen and country; but I rejoice
more when I think of Him who took upon Himself the form of
a servant, and came on earth, not to be ministered unto, but
to minister. Faithful service to an earthly master is right
honourable, but to be the faithful, humble servant of God is
far better than to be a king amongst men. May it be your lot
and mine, dear Joyce, thus to serve!"

And with Christmas bells bringing to mind thoughts of the first

Christmas morning, Joyce whispered "Amen."

THE END.
*** END OF THE PROJECT GUTENBERG EBOOK ARTHUR GLYN
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