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Page ii

The Mcgraw-Hill Series: Economics

Essentials of Economics

• Brue, McConnell, and Flynn

• Essentials of Economics
• Fourth Edition
• Mandel
• M: Economics, The Basics
• Fourth Edition
• McConnell, Brue, and Flynn
• Economics: Brief Edition.
• Macroeconomics: Brief Edition, and
• Microeconomics: Brief Edition
• Third Edition
• Schiller and Gebhardt
• Essentials of Economics
• Eleventh Edition

Principles of Economics

• Asarta and Butters

• Connect Master: Economics
• Second Edition
• Colander
• Economics, Microeconomics, and Macroeconomics
• Eleventh Edition
• Frank, Bernanke, Antonovics, and Heffetz
• Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics
• Seventh Edition
• Frank, Bernanke, Antonovics, and Heffetz
• Streamlined Editions: Principles of Economics, Principles of Microeconomics, Principles of
Macroeconomics
• Fourth Edition
• Karlan and Morduch
• Economics, Microeconomics, and Macroeconomics
• Third Edition
• McConnell, Brue, and Flynn
• Economics, Microeconomics, and Macroeconomics
• Twenty-Second Edition
• Schiller and Gebhardt
• The Economy Today, The Micro Economy Today, and The Macro
• Economy Today
• Fifteenth Edition
 • Slavin
• Economics, Microeconomics, and Macroeconomics
• Twelfth Edition

Economics of Social Issues

• Guell
• Issues in Economics Today
• Ninth Edition
• Register and Grimes
• Economics of Social Issues
• Twenty-First Edition

Econometrics

• Hilmer and Hilmer

• Practical Econometrics
• First Edition
• Prince
• Predictive Analytics for Business Strategy
• First Edition

Managerial Economics

• Baye and Prince

• Managerial Economics and Business Strategy
• Ninth Edition
• Brickley, Smith, and Zimmerman
• Managerial Economics and Organizational Architecture
• Seventh Edition
• Thomas and Maurice
• Managerial Economics
• Thirteenth Edition

Intermediate Economics

• Bernheim and Whinston

• Microeconomics
• Second Edition
• Dornbusch, Fischer, and Startz
• Macroeconomics
• Thirteenth Edition
• Frank
• Microeconomics and Behavior
• Ninth Edition

Advanced Economics
 • Romer
• Advanced Macroeconomics
• Fifth Edition

Money and Banking

• Cecchetti and Schoenholtz

• Money, Banking, and Financial Markets
• Sixth Edition

Urban Economics

• O’Sullivan
• Urban Economics
• Ninth Edition

Labor Economics

• Borjas
• Labor Economics
• Eighth Edition
• McConnell, Brue, and Macpherson
• Contemporary Labor Economics
• Twelfth Edition

Public Finance

• Rosen and Gayer

• Public Finance
• Tenth Edition

Environmental Economics

• Field and Field

• Environmental Economics: An Introduction
• Eighth Edition

International Economics

• Appleyard and Field

• International Economics
• Ninth Edition
• Pugel
• International Economics
• Seventeenth Edition

Page iii

The Seven Versions of Mcconnell, Brue, Flynn

 Economics
Economics 22e Economics Microeconomics Macroeconomics Microeconomics Macroeconomics
Brief
Chapter Title 22e 22e 22e Brief Edition 3e Brief Edition 3e
Edition 3e

Limits, x x x x x
Alternatives, and
Choices

The Market x x x x x
System and the
Circular Flow

Demand, x x x x x
Supply, and
Market
Equilibrium

Market Failures x x x x x
Caused by
Externalities &
Asymmetric
Information

Public Goods, x x x x x
Public Choice,
and Government
Failure

Elasticity x x x x

Utility x x x x
Maximization

Behavioral x x x x
Economics

Businesses and x x x x
the Costs of
Production

Pure x x x x
Competition in
the Short Run

Pure x x x x
Competition in
the Long Run

Pure Monopoly x x x x

Monopolistic x x x x
Competition
 Economics
Economics 22e Economics Microeconomics Macroeconomics Microeconomics Macroeconomics
Brief
Chapter Title 22e 22e 22e Brief Edition 3e Brief Edition 3e
Edition 3e

Oligopoly and x x x x
Strategic
Behavior

Technology, x x
R&D, and
Efficiency

The Demand for x x

Resources

Wage x x x x
Determination

Rent, Interest, x x
and Profit

Natural x x
Resource and
Energy
Economics

Public Finance: x x x x
Expenditures
and Taxes

Antitrust Policy x x
and Regulation

Agriculture: x x x x
Economics and
Policy

Income x x
Inequality,
Poverty, and
Discrimination

Health Care x x

Immigration x x

An Introduction x x x x
to
Macroeconomics

Measuring x x x x
Domestic Output
and National
Income
 Economics
Economics 22e Economics Microeconomics Macroeconomics Microeconomics Macroeconomics
Brief
Chapter Title 22e 22e 22e Brief Edition 3e Brief Edition 3e
Edition 3e

Economic x x x x
Growth

Business x x x x
Cycles,
Unemployment,
and Inflation

Basic x x
Macroeconomic
Relationships

The Aggregate x x
Expenditures
Model

Aggregate x x x x
Demand and
Aggregate
Supply

Fiscal Policy, x x x x
Deficits, and
Debt

Money, Banking, x x x x
and Financial
Institutions

Money Creation x x

Interest Rates x x x x
and Monetary
Policy

Financial x x
Economics

Extending the x x x x
Analysis of
Aggregate
Supply

Current Issues in x x
Macro Theory
and Policy

International x x x x x
Trade
 Economics
Economics 22e Economics Microeconomics Macroeconomics Microeconomics Macroeconomics
Brief
Chapter Title 22e 22e 22e Brief Edition 3e Brief Edition 3e
Edition 3e

The Balance of x x x x x
Payments,
Exchange
Rates, and
Trade Deficits

The Economics x x x
of Developing
Countries

A red “X” indicates chapters that combine or consolidate content from two or more Economics chapters.

Page v

macroeconomics
Twenty-Second Edition
• Campbell R. McConnell
University of Nebraska
• Stanley L. Brue
Pacific Lutheran University
• Sean M. Flynn
Scripps College

Page vi

MACROECONOMICS, TWENTY-SECOND EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright ©2021 by McGraw-Hill Education.
All rights reserved. Printed in the United States of America. Previous editions ©2018, 2015, and 2012. No part of this
publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system,
without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic
storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
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ISBN 978-1-264-11245-6 (bound edition)
MHID 1-264-11245-9 (bound edition)
ISBN 978-1-264-11230-2 (loose-leaf edition)
MHID 1-264-11230-0 (loose-leaf edition)
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• Associate Portfolio Manager: Adam Huenecke
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indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the
accuracy of the information presented at these sites.

mheducation.com/highered

Page viii

About the Authors

CAMPBELL R. MCCONNELL earned his Ph.D. at the University of Iowa after receiving degrees from Cornell College and
the University of Illinois. He taught at the University of Nebraska–Lincoln from 1953 until his retirement in 1990. He was
also coauthor of Contemporary Labor Economics and Essentials of Economics. He was a recipient of both the University
of Nebraska Distinguished Teaching Award and the James A. Lake Academic Freedom Award and served as president of
the Midwest Economics Association. Professor McConnell was awarded an honorary Doctor of Laws degree from Cornell
College in 1973 and received its Distinguished Achievement Award in 1994. He was also a jazz expert and aficionado
until his passing in 2019.
STANLEY L. BRUE did his undergraduate work at Augustana College (South Dakota) and received its Distinguished
Achievement Award in 1991. He received his Ph.D. from the University of Nebraska–Lincoln. He is retired from a long
career at Pacific Lutheran University, where he was honored as a recipient of the Burlington Northern Faculty
Achievement Award. Professor Brue has also received the national Leavey Award for excellence in economic education.
He has served as national president and chair of the Board of Trustees of Omicron Delta Epsilon International Economics
Honorary. He is coauthor of Economic Scenes, fifth edition (Prentice-Hall); Contemporary Labor Economics, eleventh
edition; Essentials of Economics, third edition; and The Evolution of Economic Thought, eighth edition (Cengage
Learning). For relaxation, he enjoys international travel, attending sporting events, and going on fishing trips.

SEAN M. FLYNN did his undergraduate work at the University of Southern California before completing his Ph.D. at U.C.
Berkeley, where he served as the Head Graduate Student Instructor for the Department of Economics after receiving the
Outstanding Graduate Student Instructor Award. He teaches at Scripps College (of the Claremont Colleges) and is the
author of Economics for Dummies, third edition (Wiley); Essentials of Economics, third edition; and The Cure That Works:
How to Have the World’s Best Healthcare—at a Quarter of the Price (Regnery). His research interests include behavioral
finance, behavioral economics, and health care economics. An accomplished martial artist, Sean has coached five of his
students to national championships and is the author of Understanding Shodokan Aikido. Other hobbies include running,
traveling, and cooking.

Page ix

Key Graphs

1.2 The Production Possibilities Curve 10

2.2 The Circular Flow Diagram 36

3.6 Equilibrium Price and Quantity 55

 4.5 Negative and Positive Externalities 81

6.1 The Effect of Demand Shocks under Flexible and Fixed Prices 123

10.2 Consumption and Saving Schedules 199

10.5 The Investment Demand Curve 205

10.7 The Multiplier Process (MPC = 0.75) 210

11.2 Equilibrium GDP in a Private Closed Economy 221

11.7 Recessionary and Inflationary Expenditure Gaps 232

12.7 The Equilibrium Price Level and Equilibrium Real GDP 252

12.9 A Recession Resulting from a Leftward Shift of Aggregate Demand When the Price Level is 254
Downwardly Inflexible

13.1 Expansionary Fiscal Policy with the Multiplier Effect 265

16.1 The Demand for Money, the Supply of Money, and the Equilibrium Interest Rate 323

16.3 Monetary Policy and Equilibrium GDP 338

16.4 The AD-AS Theory of the Price Level, Real Output, and Stabilization Policy 344

20.2 Trading Possibilities Lines and the Gains from Trade 413

20.6 The Economic Effects of Protective Tariffs and Import Quotas 421

21.1 The Market for Foreign Currency (Pounds) 438

Page x

In Memoriam

CAMPBELL R. McCONNELL (1928-2019)

We have lost a gracious friend, superb mentor, and legendary coauthor. In 2019 Professor Campbell R. “Mac” McConnell
passed away at age 90 in Lincoln, Nebraska. Mac was one of the most significant and influential American economic
educators of his generation. Through his best-selling principles textbook, he made introductory economics accessible to
millions of students. By way of numerous adaptations and translations of his textbook, he influenced students throughout
the world.
Mac was born in Harvey, Illinois, graduated from Cornell College (Iowa) and obtained his Ph.D. from the University of
Iowa. He had a long and successful career as a researcher and teacher at the University of Nebraska, publishing peer-
reviewed research articles and serving in leadership positions such as President of the Midwest Economic Association.
His gift of explaining complex economics simply and thoroughly led him to explore opportunities to extend his educational
reach beyond his own classroom. McGraw-Hill understood the great potential in his textbook proposal and the first edition
of Economics: Principles, Problems, and Policies made its debut in 1960. It was an instant hit and by the late 1970s it
became the leading seller in the United States, supplanting Paul Samuelson’s textbook as the market leader. Economics
remains the top seller today.
In 1986, Mac and his former student, Stanley Brue, coauthored Contemporary Labor Economics and two years later
Professor Brue joined Mac as a coauthor of Economics. Stan, Mac, and McGraw-Hill added Sean Flynn as the third
coauthor on the authorship team in 2008. The authorship transitions have been planned in advance, with authors working
side-by-side for several editions. These smooth transitions have greatly contributed to the progress of the book and its
continuing success.
We (Stan and Sean) are humbled and proud to have worked with Mac and McGraw-Hill over these many years. We
pledge to instructors and students that we will continue to stress clarity of presentation—in each new chapter, revised
paragraph, rephrased explanation, and edited sentence. We believe that our dedication to preserving and improving the
quality of the book is absolutely the best way for us to honor and extend Mac’s amazing legacy. Mac liked to say that,
“Brevity at the expense of clarity is false economy.” We will honor him, and his legacy, by always putting clarity first.
We greatly miss our coauthor and long-time friend Campbell R. McConnell.
Stanley L. Brue
Sean M. Flynn

Page xi

Preface
Welcome to the 22nd edition of Economics, America’s most innovative—and popular—economics textbook.
We are pleased to present faculty and students with comprehensive revisions, insightful new content, and
significant improvements to both our online learning system and our industry-leading ancillary materials.

Significant Content Updates

The financial crisis and the subsequent slow recovery increased both student and faculty demand for principles-level
content geared toward explaining directly and intuitively why markets and governments fail—sometimes spectacularly—in
delivering optimal social outcomes. To satisfy that demand, our presentation of market failures, government failure,
and public choice theory has been significantly restructured in Chapters 4 and 5 to allow students to quickly absorb
the key lessons regarding externalities, public goods provision, voting paradoxes, the special interest effect, and other
problems that hinder either markets or governments from achieving optimal social outcomes.
Faculty teaching macroeconomics will also find that we have made major changes to our presentation of monetary
policy. These important updates explain how the post-Crisis Fed conceptualizes its role in the economy—the dual
mandate—and how it currently operationalizes contractionary or expansionary monetary policy in pursuit of full
employment with price stability.
Our innovative presentation revolves around the monetary policy “bullseye chart” pioneered by the Chicago Fed.
We explain in a friendly and intuitive manner why expectations matter so much and how monetary policy rules like the
Taylor rule are helpful in explaining the priorities of Fed policymakers with respect to balancing the goal of moderate
inflation with the goal of full employment. We also explain why and how interest on excess reserves (IOER) and the
“repo rate” have supplanted the federal funds rate as the Fed’s major tool for modulating banking lending and
credit creation.

Improved Efficiency for Instructors

Faculty time is precious. To preserve as much of it as possible for the faculty adopting Economics, we went sentence-
by-sentence and section-by-section, pulling out extraneous examples, eliminating unnecessary graphs, and—in some
cases—removing entire sections that faculty reported they didn’t have time to teach. We have slashed the average
chapter’s word count by about 15 percent, even after accounting for newly added content.
These changes have been reviewed positively by faculty and we are excited that our streamlined presentation frees up
faculty time for more advanced classroom activities, including experiments, debates, simulations, and various
forms of peer instruction and team-based learning.

Improved Readability for Students

Student time is also precious. The current crop of college students are digital natives and social media pioneers. They
are used to Googling for answers, reading things that tend to be no longer than a Tweet, and receiving instant feedback.
We have revised our presentation to accommodate their fast-paced, nonlinear learning style. You will find a greater
economy of language and an increased focus on key examples, including new Key Graphs that have self-contained Quick
Quizzes to help students comprehend and apply crucial models.
We have also worked hard to accommodate the large number of students who study by “hunting” through a
chapter rather than by reading the content in sequence. They will find dozens of additional in-chapter Quick Review
boxes to help them identify key material, scores of additional headers to help them scan for key concepts, and a much
greater use of bullet points to organize related concepts and ideas.
These revisions will also aid traditional students who study the old-fashioned way by providing them with increased
structure and organization. Traditional students will additionally appreciate our switch to a single-column design
that allows for extensive note taking in the margins.

Examples and Illustrations that Resonate with Students

Students absorb economic theory most easily when it resonates with their experiences and is explained with
current examples.
To that end, the 22nd edition covers many topics that are currently in the news.
The new edition also features new “Consider This” and “Last Word” boxed features that drive home key ideas in
an accessible, student-oriented manner. Topics include “Bitcoin and Cheap Electrons,” “Hasta La Vista, Venezuela,” and
“Voluntary Pollution Control.”

Accelerating Student Achievement via Adaptive Learning and Innovative Ancillary Materials

Would you as a faculty member enjoy spending less time on definitions and more time on theory, applications,
and enrichment material?
Most faculty say YES!—which is why we continue to make large annual improvements to what is already the most
effective digital learning platform in higher education: Connect Economics.
Page xii

Before Class
You can use Connect Economics and its built-in adaptive reading technology, SmartBook, to ensure that
students know all the basics before class starts. Simply assign your selected chapter readings in SmartBook and
have students complete related problems and questions before lecture. The Connect Economics platform will
automatically probe for misunderstandings—and then fix them with instant feedback and remediation.
To further enhance the ability of instructors to “get students up to speed” before class, we also offer interactive
graphing exercises, math-preparedness tutorials, and a large bank of custom-made videos covering real-world
examples. All are assignable within Connect Economics, and each includes assignable assessment questions and
instant feedback.

During Class
You can then proceed, during class, to higher-level learning activities that build correct intuitions and the ability to
apply models, theories, and concepts to new situations that have not already been covered in your class.
Creating higher-level classroom activities is no easy task, and we know from personal experience that faculty often find
themselves with too little time left over at the end of a long day of teaching, service, and research to create the high-
quality enrichment materials that they would like to use in class.
To that end, we have gone out of our way to developed two major in-class enrichment tools that you can use to
“flip” your classroom and engage students at a higher level.

Guided Peer Instruction

With the help of Todd Fitch of U.C. Berkeley, we have authored and field-tested hundreds of in-class questions and
answers that can be used to facilitate the peer instruction teaching method pioneered by Eric Mazur of Harvard
University. Our version, which we call Guided Peer Instruction (or GPI), is a student-focused, interactive teaching method
that has been shown to more than double student understanding relative to “chalk and talk” and other lecture-based
presentation formats. We are proud to be the first textbook to fully support Guided Peer Instruction.
Application-Based Activities (ABAs)
These immersive decision-making simulations are delivered digitally within the Connect platform and put
students in the role of everyday economists. Students practice their economic thinking and problem-solving skills as
they apply course concepts, and see the implications of their decisions as they go. Each activity is designed as a 15-
minute experience that can be replayed by eager students to build intuition.

A 22nd Edition for the 21st Century

Economics has maintained its position as the world’s best-selling economics textbook for nearly fifty years by
continually updating its coverage and its pedagogy. We weren’t just the first with adaptive learning and instant
remediation, but also with everything from student study guides to computerized test banks (in the 1970s!).

McConnell Is/Was/And Will Remain The Innovation Champion:

• The first textbook with a student study guide.
• The first textbook to place both a meaningful title and a short accompanying explanation next to every graph,
figure, and table.
• The first textbook with comprehensive test banks.
• The first textbook with multi-colored graphs.
• The first textbook with overhead projector slides.
• The first televised economics lectures.
• The first overhead projector slides.
• The first instructors’ manual.
• The first computerized test bank.
• The first textbook with PowerPoint slides.
• The first fully integrated adaptive-learning system.
It is our sincere hope that our 22nd edition will continue to promote rapid learning and deep understanding as the
21st century passes its 20th birthday. We have worked hard to ensure that Economics and all of its ancillary materials are
comprehensive, analytical, and challenging—yet fully accessible to a wide range of students. Where needed, an extra
sentence of explanation is provided. Brevity at the expense of clarity is false economy.
Sean M. Flynn
 Stanley L. Brue

Chapter-by-Chapter Changes
Each chapter of Economics, 22nd edition, contains data updates, revised Learning Objectives, and new examples.
Chapter-specific updates include new boxed pieces, additional Quick Reviews, and, where appropriate, substantial
revisions to the core content.
Chapter 1: Limits, Alternatives, and Choices features a new Last Word about “The Marginal Starbucks,” a new Global
Perspective comparing investment levels in selected countries, and a new Consider This titled, “Is Facebook Free?”.
Chapter 2: The Market System and the Circular Flow contains three new Consider This pieces—on Bitcoin mining, the
Korean peninsula at night, and flood insurance subsidies—as well as a new Last Word about the economic collapse of
Venezuela.
Page xiii

Chapter 3: Demand, Supply, and Market Equilibrium includes a new Consider This on market equilibrium as well as a
new Global Perspective on the price of a loaf of bread in various countries.
Chapter 4: Market Failures Caused by Externalities and Asymmetric Information is a new chapter that features
substantial new content, including a Consider This on congestion pricing, a Global Perspective on pollution abatement, a
Key Graph on externalities, and a Last Word on how markets for pollution credits overcome information asymmetries
between polluting firms and the government.
Chapter 5: Public Goods, Public Choice, and Government Failure is another new chapter that also features
substantial new content, including innovative material on quadratic voting and a Last Word discussing the ineffectiveness
of corporate relocation subsidies.
Chapter 6: An Introduction to Macroeconomics has a new Last Word on the behavioral economics of sticky prices as
well as a new Key Graph on the effects of demand shocks under fixed and flexible prices.
Chapter 7: Measuring Domestic Output and National Income benefits from extensive data updates, a heavily revised
introductory section on GDP accounting and a new Last Word on the difficulties that the digital economy has created for
national income and product accounting. We also summarize the recent accounting revisions under which the Bureau of
Economic Analysis defines private domestic investment to include expenditures on R&D and money spent on the creation
of new works of art, music, writing, film, and software.
Chapter 8: Economic Growth contains extensive data updates, a more intuitive explanation of network effects, a more
concise discussion of catch-up growth, a new Last Word on the growth-boosting effects of the surges in female labor force
participation and educational attainment that have taken place over the last few decades.
Chapter 9: Business Cycles, Unemployment, and Inflation benefits from a streamlined presentation, several data
updates, a more intuitive presentation of Okun’s Law, and a new Last Word on the shortage of skilled workers ten years
after the Great Recession ended.
Chapter 10: Basic Macroeconomic Relationships features data updates, a new Key Graph on the multiplier process,
and a streamlined presentation.
Chapter 11: The Aggregate Expenditures Model contains a handful of data updates but is otherwise unchanged save
for an additional Quick Review and some minor wording improvements.
Chapter 12: Aggregate Demand and Aggregate Supply contains a new Global Perspective on the size of various
countries’ GDP gaps, a new Key Graph on the effect of a negative demand shock when the price level is inflexible, and a
decrease in page count thanks to the elimination of the section on downward price rigidity (which was made redundant by
the new Ch 26 Last Word on the behavioral economics of sticky prices).
Chapter 13: Fiscal Policy, Deficits, and Debt incorporates several data updates, an additional Quick Review, and a new
Key Graph on expansionary fiscal policy when the price level is downwardly inflexible.
Chapter 14: Money, Banking, and Financial Institutions is significantly more concise thanks to a shortened discussion
of securitization, a streamlined history of the financial crisis, and the elimination of the section on the structure of the post-
crisis financial services industry.
Chapter 15: Money Creation includes a shorter and more intuitive discussion of the monetary multiplier as well as a new
Global Perspective on required reserve ratios.
Chapter 16: Interest Rates and Monetary Policy features a more intuitive explanation of repos and reverse repos plus a
totally new presentation of monetary policy that utilizes the Chicago Fed’s “bullseye chart” to explain the Fed’s dual
mandate, the usefulness and design of monetary policy rules, and why the Fed should be concerned about its
management of inflationary expectations.
Chapter 17: Financial Economics contains several new examples, updated data, and edits throughout for simplicity and
clarity.
Chapter 18: Extending the Analysis of Aggregate Supply delivers a streamlined presentation of supply-side
economics as well as significant edits for clarity and concision, especially with regard to the analytical transition from the
short-run Phillips curve to the long-run Phillips curve.
Chapter 19: Current Issues in Macro Theory and Policy includes a clarified explanation of the monetarist view, a
heavy rewrite of the rational expectations section, and a new Global Perspective that reports on the target rates of
inflation set by various national and regional central banks.
Chapter 20: International Trade contains extensive data updates, a streamlined presentation of the arguments in favor
of protectionism, a new Key Graph on the economic effects of tariffs and import quotas, and an updated and consolidated
discussion of multilateral trade pacts, including the USMCA revisions to NAFTA.
Chapter 21: The Balance of Payments, Exchange Rates, and Trade Deficits offers significantly streamlined coverage
of fixed exchange rates, extensive data updates, and various edits for concision and clarity.
Chapter 22: The Economics of Developing Countries includes new examples, data updates, and a new Consider This
about the fraction of the world’s population living in extreme poverty falling from 36 percent in 1990 to just 10 percent in
2015.

Acknowledgments
We give special thanks to Peggy Dalton, and Peter Staples for their hard work updating the questions and problems in
Connect, as well as the material they created for the additional Connect Problems.
Page xiv

Thank you Jody Lotz for sedulously copy editing the Connect end-of-chapter material and many thanks to Laura
Maghoney for her expert revisions of the SmartBook content and help with data updates.
Thanks to the dedicated instructors who accuracy-checked the end-of-chapter content, test banks, and Instructor’s
Manuals: Per Norander, Ribhi Daoud, Gretchen Mester, Erwin Erhardt, Susan Bell, Stephanie Campbell, and Xavier
Whitacre.
We offer our gratitude to Laureen Cantwell for her research assistance and we thank William Walstad and Tom Barbiero
(the coauthor of our Canadian edition) for their helpful ideas and insights.
We are greatly indebted to an all-star group of professionals at McGraw-Hill—in particular Adam Huenecke, Anke
Weekes, Harvey Yep, Chrissy Kouvelis, Kelly Pekelder, Bobby Pearson, and Terri Schiesl—for their publishing and
marketing expertise.
The 22nd edition has also greatly benefited from a number of perceptive faculty reviews. The reviewers, listed in the next
section, were a rich source of suggestions for this revision. To each of you, and to any others we may have inadvertently
overlooked, thank you for your considerable help in improving Economics.

Page xv

Contributors

Reviewers

1. Alison J. Adderley, Valencia College

2. Richard Agesa, Marshall University
3. Carlos Aguilar, El Paso Community College, Valle Verde
4. Yamin Ahmad, University of Wisconsin–Whitewater
5. Eun Ahn, University of Hawaii, West Oahu
6. Miki Anderson, Pikes Peak Community College
7. Giuliana Andreopoulos, William Paterson University
8. Thomas Andrews, West Chester University of Pennsylvania
9. Fatma Antar, Manchester Community College
10. Len Anyanwu, Union County College
11. Kathleen Arano, Indiana University Southeast
12. Emmanuel Asigbee, Kirkwood Community College
13. John Atkins, Pensacola State College
14. Moses Ayiku, Essex County College
15. Leon Battista, CUNY Bronx Community College
16. Wendy Bailey, Troy University
17. Dean Baim, Pepperdine University
18. Herman Baine, Broward College
19. Tyra Barrett, Pellissippi State Community College
20. David Barrus, Brigham Young University, Idaho
21. Jill Beccaris-Pescatore, Montgomery County Community College
22. Kevin Beckwith, Salem State University
23. Christian Beer, Cape Fear Community College
24. Robert Belsterling, Pennsylvania State University, Altoona
25. Laura Jean Bhadra, Northern Virginia Community College, Manassas
26. David Black, University of Toledo
27. Melissa Blankenship, North Central Texas College
28. Priscilla Block, Broward College
29. Augustine Boakye, Essex County College
30. William Byrd, Troy University
31. Stephanie Campbell, Mineral Area College
32. Bruce Carpenter, Mansfield University
33. Tom Cate, Northern Kentucky University
34. Semih Emre Çekin, Texas Tech University
35. Suparna Chakraborty, University of San Francisco
36. Claude Chang, Johnson & Wales University
37. Amy Chataginer, Mississippi Gulf Coast Community College–Gautier
38. Shuo Chen, State University of New York–Geneseo
39. Jon Chesbro, Montana Tech of the University of Montana
40. Amod Choudhary, Lehman College
41. Constantinos Christofides, East Stroudsburg University
42. Kathy Clark, Edison College, Fort Myers
43. Wes Clark, Midlands Technical College
44. Jane Clary, College of Charleston
45. Jane Cline, Forsyth Technical Community College
46. Ana Carolina Corrales, Miami Dade College - Wolfson Campus
47. Patricia Daigle, Mount Wachusett Community College
48. Anthony Daniele, St. Petersburg College–Gibbs
49. Rosa Lee Danielson, College of DuPage
50. Ribhi Daoud, Sinclair Community College
51. Maria Davis, Indian River State College, Central
52. William L. Davis, University of Tennessee–Martin
53. Richard Dixon, Thomas Nelson Community College
54. Tanya Downing, Cuesta College
55. Scott Dressler, Villanova University
56. Brad Duerson, Des Moines Area Community College
57. Mark J. Eschenfelder, Robert Morris University
58. Maxwell Eseonu, Virginia State University
59. Michael Fenick, Broward College
60. Tyrone Ferdnance, Hampton University
61. Mary Flannery, University of Notre Dame
62. Jeffrey Forrest, St. Louis Community College–Florissant Valley
63. Richard Fowles, University of Utah, Salt Lake City
64. Mark Frascatore, Clarkson University
65. Shelby Frost, Georgia State University
66. Connel Fullenkamp, Duke University
67. Sudip Ghosh, Penn State University–Berks
68. Alex Gialanella, Fordham University
69. Daniel Giedeman, Grand Valley State University
70. Scott Gilbert, Southern Illinois University
71. James Giordano, Villanova University
72. Susan Glanz, St. John’s University
73. Lowell Glenn, Utah Valley University
74. Terri Gonzales, Delgado Community College
75. Michael Goode, Central Piedmont Community College
76. Paul Graf, Indiana University-Bloomington
77. Sheryl Hadley, Johnson County Community College
78. Moonsu Han, North Shore Community College
79. Charlie Harrington, Nova Southeastern University, Main
80. Virden Harrison, Modesto Junior College
81. Darcy Hartman, Ohio State University
82. Richard R. Hawkins, University of West Florida
83. Kim Hawtrey, Hope College
84. Glenn Haynes, Western Illinois University
85. Mark Healy, Harper College
86. Dennis Heiner, College of Southern Idaho
87. Michael Heslop, Northern Virginia Community College, Annandale
88. Christiana Hilmer, San Diego State University
89. Calvin Hoy, County College of Morris
90. Jesse Hoyt Hill, Tarrant County College
91. Jim Hubert, Seattle Central Community College
92. Greg W. Hunter, California State Polytechnic University, Pomona
93. Christos Ioannou, University of Minnesota–Minneapolis
94. Faridul Islam, Utah Valley University
95. Mahshid Jalilvand, University of Wisconsin–Stout
96. Ricot Jean, Valencia Community College–Osceola
97. Jonatan Jelen, City College of New York
98. Stephen Kaifa, County College of Morris
99. Brad Kamp, University of South Florida, Sarasota–Manatee
100. Robert Kao, Park University
101. Gus Karam, Pace University, Pleasantville
102. Kevin Kelley, Northwest Vista College
103. Chris Klein, Middle Tennessee State University
104. Barry Kotlove, Edmonds Community College
105. Richard Kramer, New England College
106. Felix Kwan, Maryville University
107. Ted Labay, Bishop State Community College
108. Alex Lancaster, Tallahassee Community College
109. Tina Lance, Germanna Community College–Fredericksburg
110. Sarah Leahy, Brookdale Community College
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111. Yu-Feng Lee, New Mexico State University–Las Cruces
112. Adam Y. C. Lei, Midwestern State University
113. Phillip Letting, Harrisburg Area Community College
114. Jim Lee, Texas A&M University-Corpus Christi
115. Hank Lewis, Lone Star College
116. Brian Lynch, Lake Land College
117. Zagros Madjd-Sadjadi, Winston-Salem State University
118. Laura Maghoney, Solano Community College
119. Svitlana Maksymenko, University of Pittsburgh
120. Vincent Mangum, Grambling State University
121. Christine Lucy Malakar, Lorain County Community College
122. Benjamin Matta, New Mexico State University–Las Cruces
123. Pete Mavrokordatos, Tarrant County College–Northeast Campus
124. Frederick May, Trident Technical College
125. Katherine McClain, University of Georgia
126. Michael McIntyre, Copiah-Lincoln Community College
127. Robert McKizzie, Tarrant County College–Southeast Campus
128. Kevin McWoodson, Moraine Valley Community College
129. Edwin Mensah, University of North Carolina at Pembroke
130. Randy Methenitis, Richland College
131. Ida Mirzaie, The Ohio State University
132. David Mitch, University of Maryland–Baltimore County
133. Ramesh Mohan, Bryant University
134. Daniel Morvey, Piedmont Technical College
135. Tina Mosleh, Ohlone College
136. Shahriar Mostashari, Campbell University
137. Stefan Mullinax, College of Lake County
138. Ted Muzio, St. John’s University
139. Pattabiraman Neelakantan, East Stroudsburg University of Pennsylvania
140. John A. Neri, University of Maryland
141. Cliff Nowell, Weber State University
142. Alex Obiya, San Diego City College
143. Constantin Ogloblin, Georgia Southern University
144. Albert Okunade, University of Memphis
145. Mary Ellen Overbay, Seton Hall University
146. Tammy Parker, University of Louisiana at Monroe
147. Alberto Alexander Perez, Harford Community College
148. David Petersen, American River College
149. Mary Anne Pettit, Southern Illinois University–Edwardsville
150. Jeff Phillips, Morrisville State College
151. Robert Poulton, Graceland University
152. Dezzie Prewitt, Rio Hondo College
153. Joe Prinzinger, Lynchburg College
154. Jaishankar Raman, Valparaiso University
155. Gregory Randolph, Southern New Hampshire University
156. Natalie Reaves, Rowan University
157. Virginia Reilly, Ocean County College
158. Tim Reynolds, Alvin Community College
159. Jose Rafael Rodriguez-Solis, Nova Community College, Annandale
160. John Romps, Saint Anselm College
161. Melissa Rueterbusch, Mott Community College
162. Mark Scanlan, Stephen F. Austin State University
163. Tom Scheiding, Elizabethtown College
164. Amy Schmidt, Saint Anselm College
165. Ron Schuelke, Santa Rosa Junior College
166. Richard Alan Seals, Jr., Auburn University
167. James K. Self, Indiana University, Bloomington campus
168. Sangheon Shin, Alabama State University
169. Alexandra Shiu, McLennan Community College
170. Dorothy Siden, Salem State University
171. Robert Simonson, Minnesota State University, Mankato
172. Timothy Simpson, Central New Mexico Community College
173. Jonathan Sleeper, Indian River State College
174. Jose Rodriguez Solis, Northern Virginia Community College
175. Camille Soltau-Nelson, Oregon State University
176. Robert Sonora, Fort Lewis College
177. Maritza Sotomayor, Utah Valley University, Orem
178. Nick Spangenberg, Ozarks Technical Community College
179. Dennis Spector, Naugatuck Valley Community College
180. Thomas Stevens, University of Massachusetts, Amherst
181. Tamika Steward, Tarrant County College, Southeast
182. Robin Sturik, Cuyahoga Community College Western–Parma
183. Travis Taylor, Christopher Newport University
184. Regina Tawah, Bowie State University
185. Ross Thomas, Central New Mexico Community College
186. Mark Thompson, Augusta State University
187. Owen Thompson, University of Wisconsin Milwaukee
188. Deborah Thorsen, Palm Beach State College
 189. Michael Toma, Armstrong Atlantic State University
190. Dosse Toulaboe, Fort Hays State University
191. Adriana Vamosiu, University of San Diego
192. Jeff Vance, Sinclair Community College
193. Brandon Walcutt, Mohawk Valley Community College
194. Cheryl Wachenheim, North Dakota State University–Fargo
195. Christine Wathen, Middlesex County College
196. Wendy Wysocki, Monroe County Community College
197. Edward Zajicek, Winston-Salem State University
198. Sourushe Zandvakili, University of Cincinnati

Page xvii

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Page xviii
Page xix
Page xxi

Brief Contents
• Preface xi
• PART ONE
• Introduction to Economics and the Economy
1. 1 Limits, Alternatives, and Choices 1
2. 2 The Market System and the Circular Flow 25
• PART TWO
• Price, Quantity, and Efficiency
1. 3 Demand, Supply, and Market Equilibrium 45
2. 4 Market Failures Caused by Externalities and Asymmetric Information 74
3. 5 Public Goods, Public Choice, and Government Failure 95
• PART THREE
• GDP, Growth, and Instability
1. 6 An Introduction to Macroeconomics 117
2. 7 Measuring Domestic Output and National Income 131
3. 8 Economic Growth 154
4. 9 Business Cycles, Unemployment, and Inflation 175
• PART FOUR
• Macroeconomic Models and Fiscal Policy
1. 10 Basic Macroeconomic Relationships 196
2. 11 The Aggregate Expenditures Model 261
3. 12 Aggregate Demand and Aggregate Supply 239
4. 13 Fiscal Policy, Deficits, and Debt 264
• PART FIVE
• Money, Banking, and Monetary Policy
1. 14 Money, Banking, and Financial Institutions 285
2. 15 Money Creation 303
3. 16 Interest Rates and Monetary Policy 321
4. 17 Financial Economics 350
• PART SIX
• Extensions and Issues
1. 18 Extending the Analysis of Aggregate Supply 371
2. 19 Current Issues in Macro Theory and Policy 390
• PART SEVEN
• International Economics
1. 20 International Trade 406
2. 21 The Balance of Payments, Exchange Rates, and Trade Deficits 433
3. 22 The Economics of Developing Countries 456
• Tables 476
• Glossary G-1
• Index I-1
Page xxiii

Contents
• List of Key Graphs ix
• Preface xi
• Reviewers xv
• PART ONE
• Introduction to Economics and the Economy 1
• Chapter 1
• Limits, Alternatives, and Choices 1
• The Economic Perspective 2
 Scarcity and Choice / Purposeful Behavior / Marginal Analysis: Comparing Benefits and Costs
 Consider This: Is Facebook Free? 2
• Theories, Principles, and Models 3
• Microeconomics and Macroeconomics 4
 Microeconomics / Macroeconomics / Positive and Normative Economics
• Individual’s Economizing Problem 5
 Limited Income / Unlimited Wants / A Budget Line
 Consider This: Did Zuckerberg, Seacrest, and Grande Make Bad Choices? 7
• Society’s Economizing Problem 7
 Scarce Resources / Resource Categories
• Production Possibilities Model 8
 Production Possibilities Table / Production Possibilities Curve / Law of Increasing Opportunity
Costs / Optimal Allocation
• Unemployment, Growth, and the Future 11
 A Growing Economy / Present Choices and Future Possibilities / A Qualification: International
Trade
 Last Word: The Marginal Starbucks 15
• Chapter 1 Appendix: Graphs and Their Meanings 19
• Chapter 2
• The Market System and the Circular Flow 25
• Economic Systems 25
 Laissez-Faire Capitalism / The Command System / The Market System
• Characteristics of the Market System 27
  Private Property / Freedom of Enterprise and Choice / Self-Interest / Competition / Markets and
Prices / Technology and Capital Goods / Specialization / Use of Money / Active, but Limited,
Government
• Five Fundamental Questions 31
 What Will Be Produced? / How Will the Goods and Services Be Produced? / Who Will Get the
Output? / How Will the System Accommodate Change? / How Will the System Promote Progress?
 Consider This: Bitcoin and Cheap Electrons 32
• The “Invisible Hand” 34
 The Demise of the Command Systems
 Consider This: Korea by Night 35
• The Circular Flow Model 36
 Households / Businesses / Product Market / Resource Market
• How the Market System Deals with Risk 38
 The Profit System / Shielding Employees and Suppliers from Business Risk / Benefits of
Restricting Business Risk to Owners
 Consider This: Built on Sand 39
 Last Word: Hasta La Vista, Venezuela 40
• PART TWO
• Price, Quantity, and Efficiency 45
• Chapter 3
• Demand, Supply, and Market Equilibrium 45
• Markets 45
• Demand 46
 Law of Demand / The Demand Curve / Market Demand / Changes in Demand / Changes in
Quantity Demanded
• Supply 51
 Law of Supply / The Supply Curve / Market Supply / Determinants of Supply / Changes in Supply /
Changes in Quantity Supplied
• Market Equilibrium 54
 Equilibrium Price and Quantity / Rationing Function of Prices / Efficient Allocation
 Consider This: Emergent Equilibria 56
• Changes in Supply, Demand, and Equilibrium 57
 Changes in Demand / Changes in Supply / Complex Cases
 Consider This: Salsa and Coffee Beans 60
• Application: Government-Set Prices 60
 Price Ceilings on Gasoline / Rent Controls / Price Floors on Wheat
 Last Word: Student Loans and Tuition Costs 63
• Chapter 3 Appendix: Additional Examples of Supply and Demand 68
 Consider This: Uber and Dynamic Pricing 69
• Chapter 4
• Market Failures Caused by Externalities and Asymmetric Information 74
• Efficiently Functioning Markets 74
 Consumer Surplus / Producer Surplus / Total Surplus and Efficiency / Efficiency Losses
(Deadweight Losses)
• Positive and Negative Externalities 80
 Negative Externalities / Positive Externalities / Government Intervention /
 Consider This: The Fable of the Bees 83
 • Society’s Optimal Amount of Externality Reduction 86
 MC, MB, and Equilibrium Quantity / Shifts of MB and MC Curves / Government’s Role in the
Economy
 Consider This: Congestion Pricing 87
• Asymmetric Information 87
 Inadequate Buyer Information about Sellers / Inadequate Seller Information about Buyers /
Qualification
• Last Word: Visible Pollution, Hidden Costs 91
Page xxiv
• Chapter 5
• Public Goods, Public Choice, and Government Failure 95
• Public Goods 95
 Characteristics of Private Goods / Public Goods Characteristics / Optimal Quantity of a Public
Good / Demand for Public Goods / Comparing MB and MC / Cost-Benefit Analysis / Quasi-Public
Goods / The Reallocation Process
 Consider This: Street Entertainers 97
• Public Choice Theory and Voting Paradoxes 101
 Public Choice Theory / Revealing Preferences through Majority Voting / Paradox of Voting /
Median-Voter Model / Alternative Voting Mechanisms
• Government Failure 107
 Representative Democracy and the Principal-Agent Problem / Limited and Bundled Choice /
Bureaucracy and Inefficiency / Inefficient Regulation and Intervention / Corruption / Imperfect
Institutions
 Consider This: Getting Fleeced 108
 Consider This: Government, Scofflaw 110
 Last Word: Should Governments Subsidize Corporate Relocations? 112
• PART THREE
• GDP, Growth, and Instability 117
• Chapter 6
• An Introduction to Macroeconomics 117
• Performance and Policy 117
 Real GDP / Unemployment / Inflation / Preview
• The Miracle of Modern Economic Growth 119
• Saving, Investment, and Choosing between Present and Future Consumption 120
 Banks and Other Financial Institutions
 Consider This: Economic versus Financial Investment 120
• Uncertainty, Expectations, and Shocks 121
 The Importance of Expectations and Shocks / Demand Shocks and Sticky Prices / Example: A
Single Firm Dealing with Demand Shocks and Sticky Prices / Generalizing from a Single Firm to
the Entire Economy
 Consider This: The Great Recession 125
• How Sticky Are Prices? 125
• Categorizing Macroeconomic Models Using Price Stickiness 126
 Last Word: The Behavioral Economics of Sticky Prices 127
• Chapter 7
• Measuring Domestic Output and National Income 131
• Assessing the Economy’s Performance 131
  Gross Domestic Product / Value Added / Gross Output and Multiple Counting / GDP Excludes
Nonproduction Transactions / Two Ways of Looking at GDP: Spending and Income
• The Expenditures Approach 135
 Personal Consumption Expenditures (C) / Gross Private Domestic Investment (Ig) / Government
Purchases (G) / Net Exports (Xn) / Putting It All Together: GDP = C + Ig + G + Xn
• The Income Approach 138
 Compensation of Employees / Rents / Interest / Proprietors’ Income / Corporate Profits / Taxes on
Production and Imports / From National Income to GDP
• Other National Accounts 140
 Net Domestic Product / National Income / Personal Income / Disposable Income / The Circular
Flow Revisited
• Nominal GDP versus Real GDP 143
 Adjustment Process in a One-Product Economy / An Alternative Method / Real-World
Considerations and Data
• Shortcomings of GDP 147
 Nonmarket Activities / Leisure and Psychic Income / Improved Product Quality / The Underground
Economy / GDP and the Environment / Composition and Distribution of Output / Noneconomic
Sources of Well-Being / The Importance of Intermediate Output
 Last Word: Measuring Quality to Price the Priceless 149
• Chapter 8
• Economic Growth 154
• Economic Growth 154
 Growth as a Goal / Arithmetic of Growth / Growth in the United States
• Modern Economic Growth 156
 The Uneven Distribution of Growth / Catching Up Is Possible / Institutional Structures That
Promote Modern Economic Growth
 Consider This: Patents and Innovation 159
• Determinants of Growth 160
 Supply Factors / Demand Factor / Efficiency Factor / Production Possibilities Analysis
• Accounting for Growth 162
 Labor Inputs versus Labor Productivity / Technological Advance / Quantity of Capital per Worker /
Education and Training / Economies of Scale and Resource Allocation
• Recent Fluctuations in Average Productivity Growth 166
 Reasons for the Rise in Average Productivity Growth between 1995 and 2010 / Implications for
Economic Growth / The Recent Productivity Slowdown
• Is Growth Desirable and Sustainable? 169
 The Antigrowth View / In Defense of Economic Growth
 Last Word: Ladies First 170
• Chapter 9
• Business Cycles, Unemployment, and Inflation 175
• The Business Cycle 175
 Phases of the Business Cycle / Causation: A First Glance / Cyclical Impact: Durables and
Nondurables
Page xxv
• Unemployment 178
 Measurement of Unemployment / Types of Unemployment / Definition of Full Employment /
Economic Cost of Unemployment / Noneconomic Costs
 Consider This: Downwardly Sticky Wages and Unemployment 180
• Inflation 184
 Measurement of Inflation / Facts of Inflation / Types of Inflation / Core Inflation
• Redistribution Effects of Inflation 187
 Nominal and Real Income / Anticipations / Who Is Hurt by Inflation? / Who Is Unaffected or Helped
by Inflation? / Anticipated Inflation / Other Redistribution Issues
• Does Inflation Affect Output? 190
 Cost-Push Inflation and Real Output / Demand-Pull Inflation and Real Output / Hyperinflation
 Last Word: The Great Skills Shortage 192
• PART FOUR
• Macroeconomic Models and Fiscal Policy 196
• Chapter 10
• Basic Macroeconomic Relationships 196
• The Income-Consumption and Income-Saving Relationships 196
 The Consumption Schedule / The Saving Schedule / Average and Marginal Propensities
• Nonincome Determinants of Consumption and Saving 201
 Other Important Considerations
 Consider This: The Great Recession and the Paradox of Thrift 203
• The Interest-Rate–Investment Relationship 204
 Expected Rate of Return / The Real Interest Rate / Investment Demand Curve
• Shifts of the Investment Demand Curve 206
 Instability of Investment
• The Multiplier Effect 208
 Rationale / The Multiplier and the Marginal Propensities / How Large Is the Actual Multiplier?
 Last Word: Toppling Dominoes 212
• Chapter 11
• The Aggregate Expenditures Model 216
• Assumptions and Simplifications 216
 A “Stuck Price” Model / Unplanned Inventory Adjustments / Current Relevance / A Preview
• Consumption and Investment Schedules 218
• Equilibrium GDP: C + Ig = GDP 219
 Tabular Analysis / Graphical Analysis
• Other Features of Equilibrium GDP 222
 Saving Equals Planned Investment / No Unplanned Changes in Inventories
• Changes in Equilibrium GDP and the Multiplier 223
• Adding International Trade 224
 Net Exports and Aggregate Expenditures / The Net Export Schedule / Net Exports and Equilibrium
GDP / International Economic Linkages
• Adding the Public Sector 227
 Government Purchases and Equilibrium GDP / Taxation and Equilibrium GDP
• Equilibrium versus Full-Employment GDP 231
 Recessionary Expenditure Gap / Inflationary Expenditure Gap / Application: The Recession of
2007–2009
 Last Word: Say’s Law, the Great Depression, and Keynes 234
• Chapter 12
• Aggregate Demand and Aggregate Supply 239
• Aggregate Demand 240
  Aggregate Demand Curve
• Changes in Aggregate Demand 241
 Consumer Spending / Investment Spending / Government Spending / Net Export Spending
• Aggregate Supply 245
 Aggregate Supply in the Immediate Short Run / Aggregate Supply in the Short Run / Aggregate
Supply in the Long Run / Focusing on the Short Run
• Changes in Aggregate Supply 248
 Input Prices / Productivity / Legal-Institutional Environment
• Equilibrium in the AD-AS Model 251
• Changes in Equilibrium 252
 Increases in AD: Demand-Pull Inflation / Decreases in AD: Recession and Cyclical Unemployment
/ Decreases in AS: Cost-Push Inflation / Increases in AS: Full Employment with Price-Level
Stability
 Last Word: Stimulus and the Great Recession 257
• Chapter 12 Appendix: The Relationship of the AD Curve to the Aggregate Expenditures Model 261
• Chapter 13
• Fiscal Policy, Deficits, and Debt 264
• Fiscal Policy and the AD-AS Model 264
 Expansionary Fiscal Policy / Contractionary Fiscal Policy
• Built-In Stability 268
 Tax Collections and the Business Cycle / Automatic or Built-In Stabilizers
• Evaluating How Expansionary or Contractionary Fiscal Policy Is Determined 270
 Cyclically Adjusted Budget
• Recent and Projected U.S. Fiscal Policy 272
 Fiscal Policy from 2000 to 2007 / Fiscal Policy During and After the Great Recession
• Problems, Criticisms, and Complications of Implementing Fiscal Policy 274
 Problems of Timing / Political Considerations / Future Policy Reversals / Offsetting State and Local
Finance / Crowding-Out Effect
Page xxvi
• The U.S. Public Debt 276
 Ownership / International Comparisons / Interest Charges / False Concerns / Bankruptcy /
Burdening Future Generations / Substantive Issues / Income Distribution / Incentives / Foreign-
Owned Public Debt / Crowding-Out Effect Revisited
 Last Word: The Social Security and Medicare Time Bombs 280
• PART FIVE
• Money, Banking, and Monetary Policy 285
• Chapter 14
• Money, Banking, and Financial Institutions 285
• The Functions of Money 285
• The Components of the Money Supply 286
 Money Definition M1 / Money Definition M2
 Consider This: Are Credit Cards Money? 289
• What “Backs” the Money Supply? 290
 Money as Debt / Value of Money / Money and Prices / Stabilizing Money’s Purchasing Power
• The Federal Reserve and the Banking System 292
 Historical Background / Board of Governors / The 12 Federal Reserve Banks / FOMC /
Commercial Banks and Thrifts
• Fed Functions, Responsibilities, and Independence 295
 Federal Reserve Independence
• The Financial Crisis of 2007 and 2008 296
 Overview / Prelude / Causes / Crisis / Immediate Response / Post-Crisis Policy Changes
 Last Word: Too Big to Fail. Too Big to Jail? 299
• Chapter 15
• Money Creation 303
• The Fractional Reserve System 303
 Illustrating the Idea: The Goldsmiths / Significant Characteristics of Fractional Reserve Banking
• A Single Commercial Bank 304
 Transaction 1: Creating a Bank / Transaction 2: Acquiring Property and Equipment / Transaction 3:
Accepting Deposits / Transaction 4: Depositing Reserves in a Federal Reserve Bank / Transaction
5: Clearing a Check Drawn against the Bank
• Money-Creating Transactions of a Commercial Bank 309
 Transaction 6: Granting a Loan / Transaction 7: Buying Government Securities / Profits, Liquidity,
and the Federal Funds Market
• The Banking System: Multiple-Deposit Expansion 313
 The Banking System’s Lending Potential
• The Monetary Multiplier 315
 Reversibility: The Multiple Destruction of Money
 Last Word: Banking, Leverage, and Financial Instability 317
• Chapter 16
• Interest Rates and Monetary Policy 321
• Interest Rates 321
 The Demand for Money / The Equilibrium Interest Rate / Interest Rates and Bond Prices
• The Consolidated Balance Sheet of the Federal Reserve Banks 325
 Assets / Liabilities
• Tools of Monetary Policy 326
 Open-Market Operations / The Reserve Ratio / The Discount Rate / Interest on Reserves / Relative
Importance
• Fed Targets and the Taylor Rule 332
 The Fed’s Unemployment Target / The Fed’s Inflation Target / The Bullseye Chart / Using the
Taylor Rule to Aim for the Bullseye / The Taylor Rule
• Monetary Policy, Real GDP, and the Price Level 337
 Cause-Effect Chain / Effects of an Expansionary Monetary Policy / Effects of a Restrictive
Monetary Policy
• Monetary Policy: Evaluation and Issues 341
 Recent U.S. Monetary Policy / Problems and Complications
• The “Big Picture” 343
• Chapter 17
• Financial Economics 350
• Financial Investment 350
• Present Value 351
 Compound Interest / The Present Value Model / Applications
• Some Popular Investments 354
 Stocks / Bonds / Mutual Funds
• Calculating Investment Returns 356
  Percentage Rates of Return / The Inverse Relationship between Asset Prices and Rates of Return
 Consider This: Corporate Ownership 357
• Arbitrage 358
• Risk 358
 Diversification
• Comparing Risky Investments 360
 Average Expected Rate of Return / Beta / Relationship Between Risk and Average Expected Rate
of Return / The Risk-Free Rate of Return
• The Security Market Line 362
 Security Market Line: Applications
 Last Word: Index Funds versus Actively Managed Funds 366
• PART SIX
• Extensions and Issues 371
• Chapter 18
• Extending the Analysis of Aggregate Supply 371
• From Short Run to Long Run 372
 Short-Run Aggregate Supply / Long-Run Aggregate Supply / Long-Run Equilibrium in the AD-AS
Model
• Applying the Extended AD-AS Model 374
 Demand-Pull Inflation in the Extended AD-AS Model / Cost-Push Inflation in the Extended AD-AS
Model / A Controversy: Recessions and Stimulus in the Extended AD-AS Model / Economic
Growth with Ongoing Inflation
• The Inflation-Unemployment Relationship 378
 The Phillips Curve / Aggregate Supply Shocks and the Phillips Curve
Page xxvii
• The Long-Run Phillips Curve 382
 Short-Run Phillips Curve / Long-Run Vertical Phillips Curve / Disinflation
• Taxation and Aggregate Supply 384
 Taxes and Incentives to Work, Save, and Invest / The Laffer Curve / Criticisms of the Laffer Curve /
Evaluation
 Last Word: Do Tax Increases Reduce Real GDP? 386
• Chapter 19
• Current Issues in Macro Theory and Policy 390
• What Causes Macro Instability? 390
 Mainstream View / Monetarist View / Real-Business-Cycle View / Coordination Failures
 Consider This: Too Much Money? 393
• Does the Economy “Self-Correct”? 394
 New Classical View of Self-Correction / Mainstream View of Self-Correction
• Rules or Discretion? 398
 In Support of Policy Rules / In Defense of Discretionary Stabilization Policy / Policy Successes /
Summary of Alternative Views
 Last Word: Market Monetarism 402
• PART SEVEN
• International Economics 406
• Chapter 20
• International Trade 406
• Some Key Trade Facts 406
• The Economic Basis for Trade 408
 Comparative Advantage / Two Isolated Nations / Specializing Based on Comparative Advantage /
Terms of Trade / Gains from Trade / Trade with Increasing Costs / The Case for Free Trade
 Consider This: A CPA and a House Painter 409
• Supply and Demand Analysis of Exports and Imports 416
 Supply and Demand in the United States / Supply and Demand in Canada / Equilibrium World
Price, Exports, and Imports
• Trade Barriers and Export Subsidies 419
 Economic Impact of Tariffs / Economic Impact of Quotas / Net Costs of Tariffs and Quotas
• The Case for Protection: A Critical Review 422
 Military Self-Sufficiency Argument / Diversification-for-Stability Argument / Infant Industry Argument
/ Protection-against-Dumping Argument / Increased Domestic Employment Argument / Cheap
Foreign Labor Argument
• Multilateral Trade Agreements and Free-Trade Zones 425
 General Agreement on Tariffs and Trade / World Trade Organization / The European Union / North
American Free Trade Agreement / Trade Adjustment Assistance / Offshoring of Jobs
 Last Word: Petition of the Candlemakers, 1845 428
• Chapter 21
• The Balance of Payments, Exchange Rates, and Trade Deficits 433
• International Financial Transactions 433
• The Balance of Payments 434
 Current Account / Capital and Financial Account / Why the Balance?
• Flexible Exchange Rates 438
 Depreciation and Appreciation / Determinants of Flexible Exchange Rates / Disadvantages of
Flexible Exchange Rates
• Fixed Exchange Rates 442
 Foreign Exchange Market Replaced by Government Peg / Official Reserves / Defending a Peg by
Altering Demand or Supply

• The Current Exchange Rate System: The Managed Float 444
• Recent U.S. Trade Deficits 446
 Causes of the Trade Deficits / Implications of U.S. Trade Deficits
 Last Word: Are Common Currencies Common Sense? 448
• Chapter 21 Appendix: Previous International Exchange-Rate Systems 453
• Chapter 22
• The Economics of Developing Countries 456
• The Rich and the Poor 456
 Classifications / Comparisons / Growth, Decline, and Income Gaps / The Human Realities of
Poverty
• Obstacles to Economic Development 459
 Natural Resources / Human Resources / Capital Accumulation / Technological Advance /
Sociocultural and Institutional Factors
 Consider This: Faster, Please 463
• The Vicious Circle 466
• The Role of Government 466
 A Positive Role / Public-Sector Problems
• The Role of Advanced Nations 469
  Expanding Trade / Admitting Temporary Workers / Discouraging Arms Sales / Foreign Aid: Public
Loans and Grants / Flows of Private Capital
 Last Word: Microfinance and Cash Transfers 472
• Tables 476
• Glossary G-1
• Index I-1
One
duction to Economics and the Economy
Page 1

CHAPTER 1

Limits, Alternatives, and Choices

Learning Objectives

1. LO1.1 Define economics and the features of the economic perspective.

2. LO1.2 Describe the role of economic theory in economics.
3. LO1.3 Distinguish microeconomics from macroeconomics and positive economics from normative economics.
4. LO1.4 Explain the individual’s economizing problem and illustrate trade-offs, opportunity costs, and attainable
combinations with budget lines.
5. LO1.5 List the categories of scarce resources and explain society’s economizing problem.
6. LO1.6 Apply production possibilities analysis.
7. LO1.7 Explain how economic growth and international trade increase consumption possibilities.
8. LO1.8 (Appendix) Understand graphs, curves, and slopes as they relate to economics.

People’s wants are numerous and varied. Biologically, people need only air, water, food, clothing, and shelter. But in
modern societies people also desire goods and services that provide a more comfortable or affluent standard of living. We
want bottled water, soft drinks, and fruit juices, not just water from the creek. We want salads, burgers, and pizzas, not
just berries and nuts. We also want flat-panel TVs, Internet service, education, national defense, smartphones, health
care, and much more.
Fortunately, society possesses productive resources, such as labor and managerial talent, tools and machinery, and land
and mineral deposits. These resources, employed in the economic system (or simply the economy), help us produce
goods and services that satisfy many of our economic wants. But in reality our economic wants far exceed the productive
capacity of our scarce (limited) resources. We are forced to make choices. This unyielding truth underlies the definition
of economics as the social science concerned with how individuals, institutions, and society make optimal (best) choices
under conditions of scarcity.
Page 2

The Economic Perspective

1. LO1.1 Define economics and the features of the economic perspective.
Economists view things from a unique perspective. This economic perspective has several critical and closely interrelated
features.

Scarcity and Choice

The economic resources needed to make goods and services are in limited supply. This scarcity restricts options and
demands choices. Because we “can’t have it all,” we must decide what we will have and what we must forgo.
At the core of economics is the idea that “there is no free lunch.” You may be treated to lunch, making it “free” from your
perspective, but someone bears a cost (as in the nearby story about Facebook). Scarce inputs involved in creating the
lunch include land, equipment, and farm labor. Because society could have used these resources to produce other things,
it sacrifices those other goods and services in making the lunch available. Economists call such sacrifices opportunity
costs: To obtain more of one thing, society sacrifices the opportunity of getting the next best thing that could have been
created with those resources.

CONSIDER THIS…

Rvlsoft/Shutterstock
Is Facebook Free?
Facebook spends over $20 billion every year updating its platform, running server farms, and paying its employees. It also
gives away its product for free to more than 2 billion users. Has Facebook figured out a way to overcome scarcity?
No, it hasn’t. Scarcity is permanent. But Facebook has figured out a way to more than cover its costs without charging its
users a penny. Facebook’s trick is to charge advertisers instead. They pay Facebook nearly $40 billion per year to boost
content and target ads to specific individuals.
Lesson One: If you are consuming a good or service and not paying for it, the cost is being borne by someone else.
Lesson Two: Companies don’t usually give freebies to be nice; they do it as part of their business model. Facebook grants
users free access to its platform to make sure that it has as many “eyeballs” as possible to sell to advertisers.

Purposeful Behavior
Economics assumes that human behavior reflects “rational self-interest.” Individuals and institutions look for and pursue
opportunities to increase their utility—the pleasure, happiness, or satisfaction obtained from consuming a good or service.
They allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their
economic decisions are “purposeful” or “rational,” not “random” or “chaotic.”
“Purposeful behavior” does not assume that people and institutions are immune from faulty logic and therefore are perfect
decision makers. They sometimes make mistakes. Nor does it mean that people’s decisions are unaffected by emotion or
the decisions of those around them. Indeed, economists acknowledge that people are sometimes impulsive or irrational.
“Purposeful behavior” simply means that people make decisions with some desired outcome in mind.
Rational self-interest is not the same as selfishness. On the contrary, increasing one’s own wage, rent, interest, or profit
normally requires identifying and satisfying somebody else’s wants! Also, people make personal sacrifices for others.
They contribute time and money to charities because they derive pleasure from doing so. Parents help pay for their
children’s education for the same reason. These self-interested, but unselfish, acts help maximize the givers’ satisfaction
as much as any personal purchase of goods or services.

Marginal Analysis: Comparing Benefits and Costs

The economic perspective focuses largely on marginal analysis—comparisons of marginal benefits and marginal costs,
usually for decision making. To economists, “marginal” means “extra,” “additional,” or “a change in.” Most choices or
decisions involve changes in the existing state of affairs.
Page 3
Should you attend school for another year? Should you study an extra hour for an exam? Should a business expand or
reduce its output? Should government increase or decrease its funding for a missile defense system?
Each option involves marginal benefits and marginal costs. In making choices rationally, the decision maker must
compare those two amounts. Example: You and your significant other are shopping for an engagement ring. Should you
buy a 12-carat diamond or a 1-carat diamond? The marginal cost of the larger diamond is the added expense beyond the
cost of the smaller diamond. The marginal benefit is the perceived lifetime pleasure (utility) from the larger stone. If the
marginal benefit of the larger diamond exceeds its marginal cost (and you can afford it), buy the larger stone. But if the
marginal cost is more than the marginal benefit, you should buy the smaller diamond instead—even if you can afford the
larger stone!
In a world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the
marginal cost of giving up something else. The money spent on the larger diamond means forgoing some other product.
An opportunity cost—the value of the next best thing given up—is always present whenever a choice is made.

Theories, Principles, and Models

1. LO1.2 Describe the role of economic theory in economics.
Like the other sciences, economics relies on the scientific method. That procedure consists of several elements:
• Observing real-world behavior and outcomes.
• Based on those observations, formulating a possible explanation of cause and effect (hypothesis).
• Testing this explanation by comparing the outcomes of specific events to the outcome predicted by the
hypothesis.
• Accepting, rejecting, and modifying the hypothesis, based on these comparisons.
• Continuing to test the hypothesis against the facts. If favorable results accumulate, the hypothesis evolves into
a theory. A very well-tested and widely accepted theory is called an economic law or an economic principle—a
statement about economic behavior or the economy that enables prediction of the probable effects of certain
actions. Combinations of such laws or principles are incorporated into models, which are simplified
representations of how something works, such as a market or segment of the economy.
Theories, principles, and models are “purposeful simplifications.” The full scope of economic reality itself is too complex to
be fully understood. In developing theories, principles, and models, economists remove the clutter and simplify. Despite
their simplifications, good theories do a good job of explaining and predicting how individuals and institutions actually
behave in producing, exchanging, and consuming goods and services.
There are some other things you should know about economic principles.
• Generalizations Economic principles are generalizations. Economic principles are expressed as the
tendencies of typical or average consumers, workers, or business firms. For example, economists say that
consumers buy more of a particular product when its price falls. Economists recognize that some consumers
may increase their purchases by a large amount, others by a small amount, and a few not at all. This “price-
quantity” principle, however, holds for the typical consumer and for consumers as a group.
• Other-things-equal assumption In constructing theories, economists use the ceteris paribus or other-things-
equal assumption—the assumption that factors other than those being considered do not change. They
assume that all variables except those under immediate consideration are held constant for a particular
analysis. For example, when considering the relationship between the price of Pepsi and the amount of Pepsi
that is purchased, economists do not take into account all the factors that might influence the amount of Pepsi
purchased (for example, the price of Coca-Cola and consumer incomes and preferences). Holding other
things equal is helpful because the economist can then focus on the relationship between the price of Pepsi
and purchases of Pepsi without being confused by changes in other variables.
• Graphical expression Many economic models are expressed graphically. Be sure to read the appendix at the
end of this chapter as a review of graphs.
Page 4

Microeconomics and Macroeconomics

1. LO1.3 Distinguish microeconomics from macroeconomics and positive economics from normative economics.
Economists develop economic principles and models at two levels.

Microeconomics
Microeconomics is concerned with decision making by individual customers, workers, households, and business firms. At
this level of analysis, we observe the details of their behavior under a figurative microscope. We measure the price of a
specific product, the revenue or income of a particular firm or household, or the expenditures of a specific firm,
government entity, or family.

Macroeconomics
Macroeconomics examines the performance and behavior of the economy as a whole. It focuses on economic growth, the
business cycle, interest rates, inflation, and the behavior of major economic aggregates such as the government,
household, and business sectors. An aggregate is a collection of specific economic units treated as if they were one unit.
Therefore, we might lump together the millions of consumers in the U.S. economy and treat them as one huge unit called
“consumers.”
In using aggregates, macroeconomics seeks to obtain an overview of the economy and the relationships of its major
aggregates. Macroeconomics speaks of such economic measures as total output, total employment, total income,
aggregate expenditures, and the general level of prices. Very little attention is given to the specific units making up the
various aggregates.
The micro–macro distinction does not mean that economics is so highly compartmentalized that every topic can be readily
labeled as either micro or macro; many topics and subdivisions of economics are rooted in both. Example: While
unemployment is usually treated as a macroeconomic topic (because unemployment relates to aggregate production),
economists recognize that the decisions made by individual workers and the way specific labor markets encourage or
impede hiring are also critical in determining the unemployment rate.

Positive and Normative Economics

Positive economics focuses on facts and cause-and-effect relationships. It avoids value judgments and tries to establish
scientific statements about economic behavior. Such scientific-based analysis is critical to good policy analysis.
In contrast, normative economics incorporates value judgments about what the economy should be like or what policy
actions should be recommended. Normative economics underlies expressions of support for particular economic policies.
Positive economics concerns what is, whereas normative economics embodies subjective feelings about what ought to
be. Examples: Positive statement: “The unemployment rate in France is higher than that in the United States.” Normative
statement: “France ought to undertake policies to make its labor market more flexible to reduce unemployment rates.”
Whenever words such as “ought” or “should” appear in a sentence, you are likely encountering a normative statement.
Most of the disagreement among economists involves normative, value-based policy questions.

QUICK REVIEW 1.1

• Economics examines how individuals, institutions, and society make choices under conditions of scarcity.
• The economic perspective stresses (a) resource scarcity and the necessity of making choices, (b) the
assumption of purposeful (or rational) behavior, and (c) comparisons of marginal benefit and marginal cost.
• In choosing the best option, people incur an opportunity cost—the value of the next-best option.
• Economists use the scientific method to establish economic theories—cause-effect generalizations about the
economic behavior of individuals and institutions.
• Microeconomics focuses on specific decision-making units within the economy. Macroeconomics examines
the economy as a whole.
• Positive economics deals with factual statements (“what is”); normative economics involves value judgments
(“what ought to be”).
Page 5

Individual’s Economizing Problem

1. LO1.4 Explain the individual’s economizing problem and illustrate trade-offs, opportunity costs, and attainable
combinations with budget lines.
A close examination of the economizing problem—the need to make choices because economic wants exceed economic
means—will enhance your understanding of economic models and the difference between microeconomics and
macroeconomics. Let’s first build a microeconomic model of the economizing problem faced by an individual.

Limited Income
We all have a finite amount of income, even the wealthiest among us. Even Bill Gates must decide how to spend his
money! Our income comes in the form of wages, interest, rent, and profit, although we may also receive money from
government programs or family members. As Global Perspective 1.1 shows, the average income of Americans in 2017
was $58,270. In the poorest nations, it was less than $500.

Global Perspective 1.1

Average Income, Selected Nations

Average income (total income/population) and therefore typical individual budget constraints vary greatly among nations.

Source: compareyourcountry.org, Organization for Economic Co-operation and Development (OECD).

Unlimited Wants
Most people have virtually unlimited wants. Our wants extend over a wide range of products, from necessities (food,
shelter, clothing) to luxuries (perfumes, yachts, sports cars).
Over time, as new and improved products are introduced, economic wants tend to change and multiply. Only recently
have people wanted WiFi connections, tablet computers, or flying drones because those products did not exist a few
decades ago. Also, the satisfaction of certain wants may trigger others: The acquisition of a Ford Focus or a Honda Civic
has been known to whet the appetite for a Lexus or a Mercedes.
Like goods, services also satisfy our wants. Car repair work, legal and accounting advice, and haircuts all satisfy human
wants. Actually, we buy many goods, such as automobiles and washing machines, for the services they render.
Most people’s desires for goods and services cannot be fully satisfied, though our desires for a particular good or service
can be satisfied; over a short period of time we can surely get enough toothpaste or pasta. But our broader desire for
more goods and services and higher-quality goods and services seems to be another story.
Because we have only limited income (usually through our work) but seemingly insatiable wants, it is in our self-interest to
economize: to pick and choose goods and services that maximize our satisfaction given the limitations we face.
Page 6

A Budget Line
We can clarify the economizing problem facing consumers by visualizing a budget line or budget constraint, which is a
schedule or curve that shows various combinations of two products a consumer can purchase with a specific income.
Although we assume two products, the analysis generalizes to the full range of products available to consumers.
To understand what a budget line shows, suppose that you receive an Amazon gift card as a birthday present. The $120
card will soon expire. You go to Amazon.com and confine your purchase decisions to two alternatives: movies and
paperback books. Movies are $20 each and paperback books are $10 each. The table inFigure 1.1 shows your purchase
options.
FIGURE 1.1 A consumer’s budget line. The budget line (or budget constraint) shows all the combinations of any two
products that can be purchased, given the prices of the products and the consumer’s income.
 The Budget Line: Whole-Unit Combinations of Movies and Paperback Books Attainable with an Income of $120

Units of Movies (Price = $20) Units of Books (Price = $10) Total Expenditure

6 0 $120 (= $120 + $0)

5 2 $120 (= $100 + $20)

4 4 $120 (= $80 + $40)

3 6 $120 (= $60 + $60)

2 8 $120 (= $40 + $80)

1 10 $120 (= $20 + $100)

0 12 $120 (= $0 + $120)

At one extreme, you might spend all of your $120 “income” on 6 movies at $20 each and have nothing left to spend on
books. Or, by giving up 2 movies and thereby gaining $40, you can buy 4 movies at $20 each and 4 books at $10 each. At
the other extreme, you could buy 12 books at $10 each, spending your entire gift card on books with nothing left to spend
on movies.
The graph in Figure 1.1 shows the budget line. Every point on the graph represents a possible combination of movies and
books, including fractional quantities. The slope of the graphed budget line measures the ratio of the price of books (Pb) to
the price of movies (Pm); more precisely, the slope is Pb/Pm = $−10/$+20 = −12. So you must forgo 1 movie (measured on
the vertical axis) to buy 2 books (measured on the horizontal axis). This yields a slope of −12 or −.5.
The budget line illustrates several ideas.

Attainable and Unattainable Combinations

All the combinations of movies and books on or inside the budget line are attainable with $120 of income. You can afford
to buy, for example, 3 movies at $20 each and 6 books at $10 each. You also can afford to buy 2 movies and 5 books,
thereby using up only $90 of the $120 available on your gift card. But to achieve maximum utility you will want to spend
the full $120. The budget line shows all combinations that cost exactly the full $120.
In contrast, all combinations beyond the budget line are unattainable. The $120 limit simply does not allow you to
purchase, for example, 5 movies at $20 each and 5 books at $10 each. That $150 expenditure would clearly exceed the
$120 limit.

Trade-Offs and Opportunity Costs

The budget line in Figure 1.1 illustrates the idea of trade-offs arising from limited income. To obtain more movies, you
have to give up some books. For example, to obtain the first movie, you trade off 2 books. So the opportunity cost of the
first movie is 2 books. To obtain the second movie the opportunity cost is also 2 books. The straight-line budget
constraint, with its constant slope, indicates constant opportunity cost. That is, the opportunity cost of 1 extra movie
remains the same (= 2 books) as you purchase more movies. Likewise, the opportunity cost of 1 extra book does not
change (=12 movie) as you purchase more books.
Page 7

Choice

Limited income forces people to choose what to buy and what to forgo. You will select the combination of movies and
paperback books that you think is “best.” That is, you will evaluate your marginal benefits and marginal costs (here,
product price) to make choices that maximize your satisfaction. Other people, with the same $120 gift card, would
undoubtedly make different choices.
Income Changes

The budget line varies with income. An increase in income shifts the budget line to the right; a decrease in money income
shifts it to the left. To verify this, recalculate the table in Figure 1.1, assuming the card value (income) is (a) $240 and (b)
$60, and plot the new budget lines in the graph. No wonder people like to have more income: It shifts their budget lines
outward and enables them to buy more goods and services. But even with more income, people still face spending trade-
offs, choices, and opportunity costs.

CONSIDER THIS…

Did Zuckerberg, Seacrest, and Grande Make Bad Choices?

Opportunity costs come into play in decisions well beyond simple buying decisions. Consider the different choices people
make with respect to college. The average salaries earned by college graduates are nearly twice as high as those earned
by persons with just high school diplomas. For most capable students, “Go to college, stay in college, and earn a degree”
is very sound advice.

S Bukley/Shutterstock
Yet Facebook founder Mark Zuckerberg and media personality Ryan Seacrest both dropped out of college, while pop
singer Ariana Grande never even bothered to start classes. What were they thinking? Unlike most students, Zuckerberg
faced enormous opportunity costs for staying in college. He had a vision for his company, and dropping out helped to
ensure Facebook’s success. Similarly, Seacrest landed a professional DJ job at his local radio station when he was in
high school before moving to Hollywood and eventually becoming America’s top radio and TV personality. Finishing his
college degree might have interrupted the string of successes that made his career possible. And Grande knew that
staying on top in the world of pop takes unceasing work. So after her first album became a massive hit, it made sense for
her to skip college in order to relentlessly pursue continuing success.
So Zuckerberg, Seacrest, and Grande understood opportunity costs and made their choices accordingly. The size of
opportunity costs matters greatly in making individual decisions.

QUICK REVIEW 1.2

• Because wants exceed incomes, individuals face an economizing problem; they must decide what to buy and
what to forgo.
• A budget line (budget constraint) shows the various combinations of two goods that a consumer can purchase
with a specific income.
• Straight-line budget constraints imply constant opportunity costs for both goods.

Society’s Economizing Problem

1. LO1.5 List the categories of scarce resources and explain society’s economizing problem.
Society also faces an economizing problem. Should it devote more of its limited resources to the criminal justice system
(police, courts, and prisons) or to education (teachers, books, and schools)? If it decides to devote more resources to
both, what other goods and services does it forgo?
Page 8

Scarce Resources
Society has limited or scarce economic resources, meaning all natural, human, and manufactured resources that go into
the production of goods and services.

Resource Categories
Economists classify economic resources into four general categories.

Land

Land includes all natural resources used in the production process. These include forests, mineral and oil deposits, water
resources, wind power, sunlight, and arable land.

Labor

The labor resource consists of the physical actions and mental activities that people contribute to the production of goods
and services. The work-related activities of a retail clerk, teacher, professional football player, and nuclear physicist all fall
under the general heading “labor.”

Capital

For economists, capital (or capital goods) includes all manufactured aids used in producing consumer goods and
services. Capital includes all factory, storage, transportation, and distribution facilities, as well as tools and machinery.
Economists use the term investment to describe spending that pays for the production and accumulation of capital goods.
While consumer goods satisfy wants directly, capital goods do so indirectly by aiding the production of consumer goods.
For example, large commercial baking ovens (capital goods) help make loaves of bread (consumer goods). Note that the
term “capital” as used by economists does not refer to money. Because money produces nothing, economists do not
consider it an economic resource.

Entrepreneurial Ability

Finally, there is the special human resource, distinct from labor, called entrepreneurial ability. It is supplied by
entrepreneurs, who perform several important economic functions:
• Entrepreneurs take the initiative in combining resources to produce a good or a service. They are the driving
force behind production.
• Entrepreneurs make the strategic business decisions that set the course of an enterprise.
• Entrepreneurs innovate. They commercialize new products, new production techniques, or even new forms of
business organization.
• Entrepreneurs bear risk. Because innovation is risky, progress would cease without entrepreneurs who are
willing to take on risk by devoting their time, effort, and ability—as well as their own money and the money of
others—to commercializing new products and ideas.
Because land, labor, capital, and entrepreneurial ability are combined to produce goods and services, they are called the
factors of production, or simply “inputs.”

Production Possibilities Model

1. LO1.6 Apply production possibilities analysis.
Society uses its scarce resources to produce goods and services. The alternatives it faces can best be understood
through a macroeconomic model of production possibilities. To keep things simple, let’s initially assume:
Another random document with
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 — Sanoin myös, koska Legissä näin paljon aatelisia pakolaisia.
Mitä taas minuun tulee, niin luulenpa, että jos kaikki palvelisivat heitä
niinkuin minä haluan heitä palvella, niin eivät he kauan täällä olisi,
sillä varsin pian ryhdyttäisiin puhumisen asemesta toimimaan.

— Mutta jos kerran noin vihaatte ruotsalaisia, niin miksi poistutte

etemmäksi niiden joukkojen luota, jotka ovat ryhtyneet kapinaan
hetmania vastaan? Siellä on paljon kelpo miehiä, jotka pitävät omaa
hallitsijaa parempana kuin vierasta, ja heidän lukumääränsä kasvaa
yhä. Te tulette seuduilta, missä ruotsalaisia ei vielä ollenkaan
tunneta, mutta ne, jotka heidät ovat tulleet tuntemaan, itkevät
katkeria kyyneliä. Kenraali Stenbock esimerkiksi antoi julistuksen,
että kukin pysyköön rauhallisena kotonaan, sillä asukkaat ja heidän
omaisuutensa ovat turvattuja. Mutta miten ollakaan! Kenraalilla on
omat tuumansa, mutta alemmilla päälliköillä taas toisenlaiset, niin
että turvallisena ei saata olla kukaan. Jokainen tahtoisi rauhassa
nauttia omaisuudestaan, mutta kuka kulkuri tahansa tulee vaatimaan
sitä itselleen. Jos et tähän suostu, niin hän löytää jonkin syyn, jonka
nojalla saat luopua tavarastasi tahi menetät henkesi. Monet nyt
kyynelsilmin muistelevat entistä hallitsijaa ja odottavat
ahdistuksessaan liittoutuneilta jotakin pelastusta isänmaalle ja
asujamille.

— Ette tekään näy rakastavan ruotsalaisia enempää kuin

minäkään, — sanoi Kmicic.

Vieras katseli peloissaan ympärilleen, mutta rauhoittui sitten ja

jatkoi:

— Toivon, että piru heidät perisi, enkä salaa teiltä tätä

mielipidettäni, koska näytätte minusta luotettavalta mieheltä. Ja
vaikka olisitte epäluotettavakin, niin ette te voi minua sitoa ja viedä
ruotsalaisten käsiin, sillä minulla on sapeli vyölläni ja asestetut
palvelijat.

— Olkaa huoletta, en minä sitä tee. Minusta on päinvastoin

mieluisaa, että empimättä jätitte omaisuutenne, jonka vihollinen
viipymättä ottaa haltuunsa. Tuollainen isänmaallisuus on perin
kiitettävää.

Kmicic oli alkanut puhua suojelevalla äänellä niinkuin valtaherra

alamaiselleen, ollenkaan ajattelematta, että sellainen puhetapa
saattoi kuulua omituiselta vähäpätöisen hevoskauppiaan puolelta.
Mutta nuori herra ei näyttänyt siihen kiinnittävän huomiota, vaan
alkoi viekkaasti vilkuttaa silmiään ja sanoi:

— Olenko minä hölmö? Minulla on ensimmäisenä sääntönä, etten

menetä omaani. Mitä Jumala on antanut, sitä pitää varjella. Istuin
hiljaa riiheni ja aittani kupeessa. Vasta sitten, kun olin kaiken
irtaimistoni myynyt, ajattelin itsekseni: nyt on aika pötkiä tiehensä!
Kostakoot nyt minulle ja ryöstäkööt niin paljon kuin haluttaa.

— Joka tapauksessa olette jättänyt sinne maa-alan ja

rakennuksia.

— Niin, minä olen ottanut Masowian vojevodalta vuokralle

Wasoszyn piirin staarostan viran, ja nyt alkaa sopimusaika olla
lopussa. Viimeistä maksuerää en vielä ole maksanut enkä maksa,
sillä vojevoda kuuluu olevan yhtä maata ruotsalaisten kanssa. Kyllä
minulle raha kelpaa.

Kmicic purskahti nauramaan.

 — Tepä vasta olette! Huomaan, ettette ole ainoastaan urhoollinen,
vaan myöskin ovela.

— Kuinkas muuten? — sanoi vieras. — Oveluus on pääasia.

Mutta en puhu oveluudesta teille. Miksi te, kun olette isänmaallinen
mies ja myötätuntoinen kuninkaalle, ette mene noitten kelpo soturien
luo Podlasieen ja yhdy liittoon? Se olisi Jumalalle mieliksi, ja voisipa
onni kohdata itseännekin, sillä onhan semmoista sattunut, että köyhä
mies on sodassa kohonnut suureksi herraksi. Näen, että olette
rohkea ja päättäväinen mies ja saatatte tilaisuuden tullen päästä
hyville päiville. Pitää vain osata säilyttää se, mitä käsiin sattuu, siitä
säkki vähitellen täyttyy. En tiedä, onko teillä jokin tila vai eikö, mutta
voihan sellaisen vuokrata, ja siitä sitten Jumalan avulla yhä
vaurastuu, kunhan ei työtä pelkää.

Kmicic puri huultaan pidättääkseen nauruaan. Hänen kasvonsa

vääntyivät niin, että haavaa kivisti.

Vieras jatkoi:

— Ne ottavat varmasti vastaan teidät, sillä miehiä tarvitaan.

Muuten te miellytätte minua, ja minä otan teidät suojelukseeni.
Menestys on silloin varma.

Näin sanoen nuori mies nosti ylpeästi ylös lihavat kasvonsa ja

alkoi sivellä viiksiään. Sitten hän lausui:

— Tahdotteko ruveta luottamusmiehekseni? Saatte kantaa

aseitani ja pitää silmällä palvelijoitani.

Kmicic ei voinut enää pidättäytyä, vaan purskahti iloiseen nauruun,

niin että kaikki hampaat hohtivat.
 — Mitä te nauratte? — kysyi vieras rypistäen kulmakarvojaan.

— Tulin niin iloiseksi, kun tarjositte tointa. Mutta nuori herra

loukkautui ja sanoi:

— Hölmö se, joka on teille opettanut moisen käytöstavan. Ottakaa

huomioon, kenen kanssa puhutte, älkääkä menkö yli sopivaisuuden
rajojen.

— Pyydän anteeksi, — sanoi Kmicic iloisesti, — sillä en

todellakaan tiedä, kenen kanssa olen tekemisissä.

— Minä olen herra Rzedzian Wasoszysta, — sanoi hän ylpeästi.

Kmicic avasi suunsa sanoakseen valenimensä, kun samassa

Bilous tuli kiireesti huoneeseen.

— Herra pääll…

Kmicicin ankara silmäys sai sanan takertumaan sotamiehen

kurkkuun. Mies hämmentyi ja sai vaivoin sanotuksi:

— Joitakin miehiä on tulossa.

— Mistä?

— Szczuczynista.

Kmicic joutui hieman ymmälle, mutta salasi sen nopeasti ja sanoi:

— On oltava varuillaan! Onko joukko suurikin?

— Kymmenkunta ratsumiestä.
 — Pitäkää pyssyt ladattuina. Mene! Sotamiehen mentyä hän
kääntyi nuoren herran puoleen sanoen:

— Ovatkohan ne ruotsalaisia?

— Jos on totta, että Szczuczynissa on Wolodyjowski, — vastasi

herra Rzedzian, — niin ne luultavasti ovat hänen joukkoaan.
Tahtovat ennen paikoilleen asettumista tutkia, onko seutu turvallinen.

Kuultuaan tämän Andrzej alkoi kävellä huoneessa ja istuutui sen

pimeimpään nurkkaan. Eteisestä kuului askelia,-ja muutamia miehiä
astui huoneeseen.

Etunenässä kulkevan kookkaan miehen puujalka kolahteli

lattiapalkkeihin. Kmicic katsoi mieheen, ja hänen sydämensä alkoi
pamppailla.

Se oli Józwa Butrym, jota mainittiin nimellä Jalaton.

— Isäntä, anna hevosille kauroja! — huusi hän.

— Ei ole minulla kauroja,-vastasi isäntä. Ehkäpä herrat antavat.

Ravintolan isäntä osoitti näin sanoen Rzedziania ja Kmiciciä.

— Mitä väkeä olette? — kysyi Rzedzian.

— Entäs kuka te itse olette?

— Wasoszyn staarosta.

Rzedziania, joka oli vuokrannut staarostan toimen, nimitti hänen

oma väkensä staarostaksi, ja samaa arvonimeä hän käytti itsekin
tärkeimmissä tilaisuuksissa.
 Józwa Butrym hämmästyi nähdessään miten korkean herran
kanssa oli joutunut tekemisiin, otti lakin päästään ja sanoi lempeällä
äänellä:

— Nöyrin palvelijanne, armollinen herra!

— Kenen väkeä olette? — kysyi Rzedzian uudelleen kädet

puuskassa.

— Entisestä Billewiczin, nykyisestä Wolodyjowskin joukosta.

— Onko siis herra Wolodyjowski Szczuczynissa?

— Omassa persoonassaan yhdessä muitten päälliköiden kanssa,

jotka ovat tulleet Samogitiasta.

— Jumalan kiitos, Jumalan kiitos! — hoki staarosta iloissaan. —

Mitä päälliköitä siellä on herra Wolodyjowskin kanssa?

— Oli herra Mirski, — sanoi Butrym, — mutta hän sai halvauksen

matkalla. On herra Oskierka, herra Kowalski, kaksi herra
Skrzetuskia…

— Mitä Skrzetuskeja?-huudahti Rzedzian. Eikö toinen niistä ole

Burtista?

— En tiedä mistä ovat, — vastasi Butrym. — Tiedän vain, että se

on herra Skrzetuski.

— Ehkäpä se on kummini! — huudahti Rzedzian.

Kmicicin päässä, hänen istuessaan pimeässä nurkassa, risteilivät

monet ajatukset. Hänen mieltään kuohutti, kun hän näki julman
Butrymin, ja käsi puristi vaistomaisesti miekkaa. Entinen herra
Kmicic olisi heti käskenyt hakkaamaan maahan ja antamaan
hevosten tallattavaksi tuon vihamiehensä, mutta nykyinen herra
Babinicz hillitsi itsensä. Hänet sai levottomaksi ajatus, että jos hänet
tunnetaan, niin hänen suunnitelmansa eivät toteudu… Hän päätti
pysyä tuntemattomana ja vetäytyi yhä peremmälle varjoon, nojasi
kyynärpäillään pöytään, pani päänsä käsien väliin ja oli torkkuvinaan.
Samalla hän kuitenkin kuiskasi vieressään istuvalle Sorokalle:

— Mene talliin ja laittakaa hevoset valmiiksi. Lähdemme tänä

yönä.

Soroka nousi ja poistui.

Kmicic oli edelleen nukkuvinaan. Monenlaiset muistot nousivat

hänelle mieleen. Nuo miehet toivat hänen mieleensä Laudan,
Wodoktyn ja äskeisen ajan, joka oli mennyt kuin uni. Kun Józwa
sanoi kuuluvansa entiseen Billewiczin joukkoon, niin Andrzejn
sydäntä kouristi. Hän muisti, että oli samanlainen ilta kuin nyt,
kamiinassa paloi samoin kuin nytkin tuli, kun hän ilmestyi äkkiä
Wodoktyyn ja ensikerran näki Oleńkan kehräämässä.

Hän näki nyt suljetuin silmin aivan ilmi elävänä edessään kauniin,
rauhallisen neidon, muisti kaiken, mitä oli tapahtunut, kuinka tyttö oli
tahtonut olla hänen suojelusenkelinään, vahvistaa häntä hyvässä,
varjella pahasta, näyttää suoran ja oikean tien… Oi, jospa hän olisi
totellut!… Neito tiesi, mitä oli tehtävä, kenen puolelle asetuttava. Hän
tiesi, missä on totuus ja velvollisuus — olisi ottanut häntä
yksinkertaisesti kädestä ja ohjannut, jos hän vain olisi tahtonut
kuulla.

Rakkaus leimahti Andrzejn sydämessä niin voimakkaana, että hän

olisi ollut valmis vuodattamaan verensä viimeiseen pisaraan asti
saadakseen langeta tuon neidon jalkoihin. Tällä hetkellä hän olisi
ollut valmis tempaamaan syliinsä tuon laudalaisen karhun, joka oli
surmannut hänen toverinsa, ja tähän hän olisi ollut valmis vain sen
takia, että mies oli sieltäpäin, muisti Billewiczit ja oli nähnyt Oleńkan.

Muisteloista herätti hänet vihdoin hänen oma nimensä, jonka

Józwa Butrym useita kertoja lausui. Józwa kertoi Rzedzianille mitä
Kiejdanyssa oli tapahtunut, kun hetmani teki kuuluisan liittonsa
ruotsalaisten kanssa, hän puhui sotajoukon suhtautumisesta,
päälliköitten vangitsemisesta ja heidän onnellisesta
pelastumisestaan. Kmicicin nimi mainittiin moneen kertaan tässä
selonteossa ja siihen liittyi petturin ja julmurin nimitykset. Sanottiin
hänen saaneen aikaan niin paljon pahaa, ettei itse paholainen
semmoiseen pystyisi. Ken hänet surmaa, tekee hyvän työn, joka
luetaan ansioksi taivaassa ja maan päällä.

Sitten puhe siirtyi uudelleen Wolodyjowskiin, Skrzetuskeihin ja

Podlasiessa olevaan sotajoukkoon.

— Muonan saanti on vaikeata, — puhui Butrym. — Siksipä

päälliköt ovatkin päättäneet jakaa joukon sadan miehen osastoihin ja
sijoittaa ne penikulman tahi parin päähän toisistaan. En tiedä miten
sitten selvitään, kun tulee talvi.

Kmicic ei jaksanut enää hillitä itseään, vaan avasi jo suunsa

sanoakseen pimeästä nurkastaan:

— Niinpä hetmani teidät tuhoaakin yksitellen.

Mutta samassa avautui ovi ja sisään astui Soroka. Tulen valo

uunista sattui suoraan vääpelin kasvoihin. Józwa Butrym katsoi
häneen pitkän aikaa ja kääntyi sitten Rzedzianin puoleen:
 — Onko tuo teidän miehiänne?… Olen tavannut hänet jossakin.

— Ei — vastasi Rzedzian, — se on aatelismies, joka kulkee

markkinoilla myymässä hevosia.

— Minne menette? — kysyi Józwa.

— Sobotaan, — vastasi ukko Kiemlicz.

— Missä se on?

— Lähellä Pjontekia.

Józwa, aivan samoin kuin aikaisemmin Kmicic, piti tuota omituista

vastausta pilana ja sanoi rypistäen kulmakarvojaan:

— Vastaa, kun kysytään.

— Millä oikeudella kyselette?

— Voin senkin sinulle selittää. Minut on lähetetty tarkastamaan,

eikö tällä seudulla ole epäilyttäviä henkilöitä. Näkyypä olevankin
semmoisia, jotka eivät tahdo sanoa, minne menevät.

Kmicic peläten keskustelun johtavan johonkin selkkaukseen sanoi

poistumatta pimeästä nurkastaan:

— Älkää suuttuko, herra sotilas. Pjontek ja Sobota ovat todellakin

paikkoja, missä syksyisin pidetään hevosmarkkinoita. Jos ette usko,
niin kysykää herra staarostalta, joka tuntee ne.

— Niin on, — sanoi Rzedzian.

 — Jos niin on, niin se on eri asia, — sanoi Butrym. — Mutta miksi
te menette täältä sinne? Voitte Szczuczynissakin myydä hevoset,
sillä niitä tarvitaan siellä paljon.

— Jokainen menee sinne mihin parhaaksi näkee, ja me tiedämme

oman tiemme, — vastasi Kmicic.

— En tiedä, missä teidän on paras olla, mutta meille ei ole

parasta, että viette hevosia ruotsalaisille ja kerrotte heille
näkemiänne.

— Omituista, — sanoi Rzedzian. — Nämä ihmiset haukkuvat

ruotsalaisia, mutta pyrkivät niiden luo.

Sitten hän kääntyi Kmicicin puoleen:

— Te, hyvä herra, ette ole juuri hevoskauppiaan näköinen.

Sormuksennekin sormessa on semmoinen, että monen herran ei
tarvitsisi sitä hävetä. Näyttäkäähän!

— Tulkaa hakemaan!

— Ettekö itse voi kävellä?… Minunko pitäisi sinne kulkea?

— Olen kovin väsynyt.

— Hei, veliseni, joku voisi arvella, että et halua näyttää kasvojasi.

Tämän kuultuaan Józwa ei puhunut sanaakaan, vaan meni uunin

luo, otti siitä palavan puun ja astui Kmicicin luo pitäen kekälettä
korkealla, niin että se valaisi Kmicicin kasvot.

Kmicic nousi seisomaan koko pituudessaan, ja hetken he

katsoivat toisiaan silmästä silmään. Äkkiä kekäle putosi Józwan
kädestä, niin että kipinät sinkoilivat ympäri.

— Jeesus Maria! — huusi Butrym. — Se on Kmicic!

— Minä itse! — vastasi Andrzej huomattuaan, että oli mahdotonta

enää pysyä tuntemattomana.

Mutta Józwa alkoi huutaa sotamiehille, jotka olivat eteisessä:

— Hei, hei, ottakaa kiinni!

Sitten hän sanoi Andrzejlle:

— Tuhannen perkelettä, petturi! Kerran olet päässyt käsistäni, ja

nyt pyrit valepuvussa ruotsalaisten luo! Nyt olet kynsissäni, senkin
Juudas!

Hän tarttui Andrzejn niskaan, ja Andrzej takertui kiinni häneen.

Mutta samassa molemmat nuoret Kiemliczit, Kosma ja Damian,
nousivat penkiltä, ja Kosma kysyi:

— Isä, pehmitämmekö?

— Pehmittäkää! — huusi ukko Kiemlicz siepaten sapelinsa.

Ovi lensi auki, ja Józwan sotamiehet tulivat huoneeseen, mutta

heidän kintereillään tulivat Kiemliczien miehet.

Józwa piti vasemmalla kädellä Andrzejta niskasta ja otti oikeaan

paljastetun miekan. Mutta Andrzej, vaikka olikin heikompi, tarttui kuin
pihdeillä hänen kurkkuunsa. Józwan silmät mulkoilivat, ja hän koetti
lyödä Kmiciciä käteen, mutta ei ennättänyt, sillä sitä ennen iski
Kmicic häntä miekkansa kahvalla päälakeen. Józwan sormet
hellittivät otteensa ja hän horjahti taaksepäin. Kmicic töytäisi häntä
vielä saadakseen tilaa lyödä ja iski sapelillaan kasvoihin. Józwa
kaatui selälleen kuin poikki hakattu tammi.

— Iskekää! — huusi Kmicic, jossa heräsi vanha tappelunhalu.

Kehoitus oli tarpeeton, sillä huone oli kuin kiehuva kattila. Nuoret
Kiemliczit hakkasivat sapeleillaan ja puskivat väliin päällään kuin
härät kaataen joka töytäisyllä miehen nurin. Heidän takanaan
puikkelehti ukko pistellen yhtä mittaa miekallaan poikien käsivarsien
alitse.

Rzedzian pysytteli syrjässä taistelun tuoksinasta ja koetti saada

ammutuksi Kmicicin, mutta huonossa valaistuksessa Kmicic väliin oli
valoisammassa kohdassa punaisen paholaisen kaltaisena, väliin
taas katosi hänen näkyvistään pimeyteen.

Laudalaisten vastarinta heikkeni heikkenemistään. Józwan

kaatuminen ja Kmicicin peloittava nimi sai heidät kauhistumaan.
Kuitenkin he taistelivat raivoisasti. Mellakan aikana ravintoloitsija
hiipi taistelevien välitse kädessään vesisanko uunin luo ja paiskasi
veden uuniin. Huoneessa oli nyt pilkkopimeätä ja taistelijat
painautuivat yhteen ryhmään mahdollisimman lähelle toisiaan. Pian
he väsyivät, kuului vain puhkumista ja kenkien kopinaa. Sitten
ovesta, joka oli avoinna, riensivät ulos ensin Rzedzianin miehet,
näiden jäljessä laudalaiset ja sen jälkeen Kmicicin väki.

Alkoi kahakka eteisessä, ulkokuistilla ja pihalla, varsinkin

Rzedzianin kuormien luona, joitten alle hänen miehensä
kätkeytyivät.

— Antautukaa! — huusi ukko Kiemlicz työntäen sapelinsa terän

kuormarattaitten pyörien väliin ja sohien sinne umpimähkään.
 — Seis, antaudumme! — vastasivat muutamat äänet.

Kuormien alla olevat miehet heittivät sieltä sapelinsa ja muut

aseensa, nuoret Kiemliczit tarttuivat heidän niskaansa, ja ukko huusi:

— Kuormien kimppuun! Ottakaa, mitä käsiin sattuu! Pian!

Nuoret hyökkäsivät heti käsiksi kuormiin ja alkoivat niitä ryöstää,

mutta samalla kuului Kmicicin huuto:

— Seis!

Tehdäkseen määräyksensä vielä selvemmäksi Kmicic alkoi lyödä

heitä verisen sapelinsa lappeella.

Kosma ja Damian hyppäsivät kiireesti syrjään.

— Teidän armonne… eikö saa? — kysyi ukko nöyrästi

— Pois siitä! — huusi Kmicic. — Etsi käsiin staarosta!

Kosma ja Damian lähtivät heti liikkeelle ja isä heidän jäljessään.

Nejännestunnin kuluttua he palasivat tuoden Rzedzianin, joka
nähtyään
Kmicicin kumarsi syvään ja sanoi:

— Teidän armonne, minulle tehdään vääryyttä, sillä minä en ole

haastanut riitaa kenenkään kanssa, ja minulla on lupa niinkuin
kaikilla muillakin matkustaa tervehtimään tuttuja.

Kmicic nojasi läähättäen sapeliinsa ja oli vaiti. Rzedzian jatkoi:

— En ole tehnyt ruotsalaisille enkä ruhtinas hetmanille mitään

vahinkoa. Olen vain menossa herra Wolodyjowskin luo, joka on
vanha tuttuni ja jonka sotatoverina olen ollut Venäjällä… Kiejdanyssa
en ole koskaan ollut, eikä minuun ollenkaan kuulu, mitä siellä on
tapahtunut… Pidän vain huolta siitä, että säilytän nahkani eheänä
enkä menetä, mitä Jumala on minulle antanut. En ole omaisuuttani
varastanut, vaan, ansainnut sen otsa hiessä… Koko juttu ei kuulu
minuun! Sallikaa, teidän armonne, minun rauhassa lähteä tieheni…

Kmicic hengitti raskaasti ja katsoi Rzedzianiin hajamielisen

näköisenä.

— Pyydän nöyrimmästi, — alkoi staarosta taas puhua. — Teidän

armonne näki, että minä en tuntenut noita miehiä enkä ollut heidän
ystävänsä. He kävivät teidän kimppuunne, mutta enhän minä ole
syypää. Jos ei muu auta, niin minä maksan korvauksen teidän
armonne sotamiehille, vaikka minulla, köyhällä miehellä, ei liikoja
ole… Annan heille taalerin mieheen, jotta heidän vaivansa tulisi
palkituksi… Annan kaksikin… ja pyydän teidän armoannekin
ottamaan sen minulta…

— Pankaa nuo kuormat kuntoon, — huudahti äkkiä Kmicic. — Ja

te ottakaa haavoittuneet ja menkää hiiteen!

— Kiitän nöyrimmästi teidän armoanne! — sanoi Rzedzian.

Mutta silloin lähestyi ukko Kiemlicz huulet pitkällä ja vaikerrellen:

— Teidän armonne… ne ovat meidän… totisesti ne ovat meidän!

Kmicic loi häneen katseen, joka sai ukon melkein lyyhistymään

maahan ja vaikenemaan.

Rzedzianin palvelijat ryhtyivät kiireen kaupalla valjastamaan

hevosia.
Kmicic kääntyi uudelleen staarostan puoleen:

— Ottakaa kaikki haavoittuneet ja kuolleet täältä, viekää ne herra

Wolodyjowskille ja sanokaa hänelle minun puolestani, että minä en
ole hänen vihamiehensä, vaan kenties parempi ystävä kuin hän
luuleekaan. Olen tahtonut häntä välttää, sillä vielä ei ole aika meidän
tavata. Kenties se tapahtuu myöhemmin, mutta nyt hän ei uskoisi
minua enkä minä voisi millään osoittaa hänelle luotettavaisuuttani…
Ehkäpä voin sen tehdä myöhemmin. Huomatkaa! Sanokaa hänelle,
että nämä miehet hyökkäsivät kimppuuni ja että minun oli pakko
puolustautua.

— Niin todella olikin, — sanoi Rzedzian.

— Odottakaa!… Sanokaa vielä herra Wolodyjowskille, että hän

pitäisi joukkonsa yhdessä ja että Radziwill vain odottaa ratsujoukkoa
Pontukselta avukseen hyökätäkseen heidän kimppuunsa. Kenties he
ovat jo matkalla. Jotakin hän hommailee tallimestariruhtinaan ja
vaaliruhtinaan kanssa, ja lähellä rajaa ei ole turvallista oleskella.
Mutta pääasia on, että he pysyttelevät yhdessä, muuten joutuvat
suotta tuhon omaksi. Vitebskin vojevoda pyrkii Podlasieen…
Menkööt häntä vastaan ollakseen tarpeen vaatiessa apuna.

— Kerron kaikki aivan täsmällisesti.

— Vaikka Kmicic puhuu, vaikka Kmicic on varoittaja, niin

uskottakoon häntä, neuvotelkoon muitten päälliköitten kanssa.
Toistan, että hetmani on jo tulossa ja että minä en ole herra
Wolodyjowskin vihollinen.

— Jos minulla olisi jokin merkki teidän armoltanne, niin se olisi

vielä parempi, — sanoi Rzedian.
 — Miksi niin?

— Silloin herra Wolodyjowskikin helpommin uskoisi teidän

armonne hyviin tarkoituksiin.

— Ottakaa sitten merkiksi tämä sormus, — sanoi Kmicic,-vaikka

minun merkkejäni onkin riittävästi niitten miesten otsissa, jotka viette
herra Wolodyjowskille.

Rzedzian otti halukkaasti sormuksen ja kiitti.

Tunnin kuluttua Rzedzian kuormineen ja palvelijoineen oli

kaikessa rauhassa matkalla Szczuczyniin kuljettaen kolmea kuollutta
ja muutamia haavoittuneita, niiden joukossa Józwa Butrymia, jonka
kasvot olivat halki ja pää puhki. Ajaessaan hän katseli sormusta,
jonka kivi ihanasti välkkyi kuutamossa, ja ajatteli tuota omituista ja
peloittavaa miestä, joka oli tehnyt liittoutuneille niin paljon pahaa,
mutta nyt näytti tahtovan pelastaa heidät lopullisesta tuhosta.

— Antelias herra se on, — päätti hän mietteensä. — On vain

vaarallista olla hänen tiellään.

Yhtä vaikeata kuin Rzedzianin oli ymmärtää Kmicicin tuumia, yhtä

suurta ja turhaa vaivaa näki myös ukko Kiemlicz hakiessaan
vastausta kysymykseen: kenen puolella on herra Kmicic?

— On menossa kuninkaan luo ja taistelee liittoutuneita vastaan,

jotka kannattavat kuningasta. Mitä se on? Eikä luota ruotsalaisiin,
koska piileksii… Miten meille käynee?

Kun hän ei päässyt mihinkään tulokseen, purki hän kiukkunsa

poikiinsa:
 — Lurjukset! Kuolette ilman isän siunausta! Ettekö voineet edes
kaatuneitten taskuja tyhjentää!

Vain Soroka oli tyytyväinen ja ratsasti iloisena everstinsä jäljessä.

— Paha taika ei meihin enää tepsi, — ajatteli hän, — koskapa

annoimme noille selkään. Olisipa hauska tietää, ketä nyt
pieksämme.

Hänestä se oli samantekevää niinkuin sekin, minne oltiin

menossa.

Kmiciciä ei kukaan uskaltanut lähestyä eikä kysyä häneltä mitään,

sillä nuori eversti oli synkkä kuin yö. Häntä suututti suuresti se, että
hänen oli täytynyt piestä niitä miehiä, joiden riveissä hän mieluimmin
olisi tahtonut olla. Mutta jos hän olisi antautunut ja antanut viedä
itsensä herra Wolodyjowskin luo, niin mitä olisikaan tämä ajatellut
kuultuaan, että hänet oli tavattu valepuvussa pyrkimässä
ruotsalaisten, luo taskussaan ruotsalaisten päälliköitten puheille
vievät turvakirjat?

— Vanhat synnit seuraavat minua, — ajatteli itsekseen Kmicic. —

Pakenen niin kauas kuin mahdollista… Jumala minua ohjatkoon…
Herra, ole minulle armollinen!… Menen kuninkaani luo — siellä alkaa
palvelukseni.
VIIDES LUKU.

Kauan epäröityään herra Wolodyjowski päätti seurata Kmicicin

neuvoa, varoittaa kaikkia tovereitaan uhkaavasta vaarasta ja
määrätä, että kaikkien joukkojen oli kokoonnuttava Bialystokiin.
Hänen kirjeensä, joissa päälliköille ilmoitettiin Radziwillin aikeista,
saivat osakseen huomiota kaikkien Podlasien vojevodakuntaan
hajaantuneitten päälliköiden puolelta. Jotkut heistä olivat jo jakaneet
joukkonsa pieniin osastoihin voidakseen helpommin talvehtia, toiset
olivat antaneet upseerien asettua yksityisiin taloihin, niin että lippujen
luona oli vain muutamia upseereita ja pieni määrä sotamiehiä.
Päälliköt olivat näin menetelleet osaksi peläten nälänhätää, osaksi
sen vuoksi, että oli vaikeata ylläpitää tarpeellista kuria joukoissa,
jotka kerran jo kieltäydyttyään tottelemasta päällystöään nyt olivat
taipuvaisia kapinoimaan jokaisessa sopivassa tilaisuudessa. Jos olisi
ilmestynyt kyllin arvovaltainen johtaja ja heti vienyt ne taistelemaan
jompaakumpaa vihollista vastaan, vaikkapa Radziwilliakin vastaan,
niin kuri olisi pysynyt moitteettomana, mutta nyt se heikkeni, kun
oleskeltiin toimettomina Podlasiessa, jossa aika kului vain,
Radziwillin linnojen pommittamiseen, vojevodaruhtinaan tilusten
ryöstöön ja neuvotteluihin ruhtinas Boguslawin kanssa. Näissä
oloissa sotamies tottui vain omavaltaisuuteen ja rauhallisten
asukkaitten ahdisteluun. Joukko sotamiehiä karkasi, muodosti
vapaajoukkoja ja ryösteli maanteillä. Näin tuo sotajoukko, joka oli
kuninkaan ja isänmaan ystävien ainoa turva, kulki päivä päivältä
perikatoansa kohti. Sen jakaminen pikku osastoihin yhä joudutti sen
tuhoa. Tosin yhdessä ollen oli vaikeata hankkia riittävästi muonaa,
mutta nälänhädän uhkaa oli ehkä liioiteltukin. Syksy oli käsissä, sato
oli saatu hyvin korjatuksi, eikä yksikään vihollinen ollut käynyt seutua
hävittämässä.

Niin omituiseksi oli asiain tila muodostunut, että tuo sotajoukko oli
saanut olla rauhassa vihollisilta. Ruotsalaiset eivät edetessään olleet
vielä saapuneet tähän maankulmaan. Toisaalta Chowańskin,
Trubetskoin ja Serebrjanyn joukot seisoivat toimettomina entisissä
asemissaan tietämättä mihin ryhtyisivät. Venäjällä Buturlin ja
Chmielnicki hajoittivat joukkojaan eri tahoille. Liettua taas oli
ruotsalaisten suojeluksessa. Sen ryöstäminen ja anastaminen oli
samaa kuin julistaa sota ruotsalaisia vastaan, jotka kaikkialla
maailmassa herättivät pelkoa.

Chowański ei hyökännyt Podlasieen eikä liittoutuneitten kimppuun,

ja nämä puolestaan, ollen ilman johtajaa, eivät kyenneet
ahdistamaan ketään eivätkä ryhtymään mihinkään sen
vakavampaan kuin Radziwillin tilusten ryöstöön. Mutta herra
Wolodyjowskin kirjeet, joissa ilmoitettiin Radziwillin aikovan hyökätä,
herättivät päälliköt toimettomuudesta. He alkoivat taas järjestää
joukkoja, kirjoittaa käskyjä, kutsua hajautuneita sotamiehiä
palvelukseen ja uhata rangaistuksella tottelemattomia. Zyromski,
huomattavin päälliköistä, jonka joukko oli parhaassa kunnossa, riensi
ensimmäisenä viivyttelemättä Bialystokiin. Hänen jälkeensä tuli
viikon sisään Jakob Kmicic, sitten alkoivat saapua Kotowskin ja
Lipnickin sotamiehet yksitellen tahi joukoissa, tulipa myös
vapaaehtoisesti pikku aatelia läheisistä aateliskylistä. Väliin, aina
saapui joku varakkaampi aatelismies hyvin asestettuine
palvelijoineen. Ympäri kulki asiamiehiä kokoamassa rahaa ja
elintarpeita kuitteja vastaan — sanalla sanoen toiminta oli käynnissä
kaikkialla. Kun herra Wolodyjowski saapui laudalaisine joukkoineen,
oli aseissa jo muutamia tuhansia miehiä. Vain johtajaa puuttui.

Paljon oli vielä epäkunnossa eikä järjestys ollut mallikelpoinen,

mutta joukko ei kuitenkaan ollut niin huonosti järjestetty kuin se
suurpuolalainen aatelisjoukko, jonka tehtävänä muutamia kuukausia
aikaisemmin oli ollut vastustaa ruotsalaisten ylimenoa Ujscien luona.
Podlasien ja Liettuan miehet olivat sotatoimiin tottuneita. Jokainen
heistä oli elämänsä aikana ollut taisteluissa joko kasakoita tahi
turkkilaisia tahi tataarilaisia vastaan, olipa niitäkin, jotka vielä
muistivat sodan ruotsalaisia vastaan. Mutta muita etevämpi
sotataidossa ja kaunopuheisuudessa oli herra Zagloba. Hän viihtyi
hyvin tässä sotilasjoukossa, jossa ei kukaan ryhtynyt puhumaan
kaulaa kastelematta.

Hän himmensi mahtavimmatkin johtajat. Laudalaiset kertoivat, että

hän pelasti Wolodyjowskin, Skrzetuskit, Mirskin ja Oskierkan
Radziwillin käsistä. Itsekään hän ei salannut ansioitaan ja teki
itselleen oikeutta, jotta kaikki tietäisivät, millaisen miehen kanssa
olivat tekemisissä.

— Ei ole tapani kehuskella, — sanoi hän, — eikä puhella

olemattomia, sillä totuus on minusta pääasia, sen voi
sisarenpoikanikin todistaa.

Näin puhuen hän kääntyi Roch Kowalskin puoleen, joka heti astui
esille hänen selkänsä takaa ja sanoi juhlallisella äänellä:

— Eno ei valehtele!