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macro
hubbard
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macroeconomics
serletis
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hubbard
second canadian edition
economics
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second canadian edition
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ISBN 978-0-13-456524-8
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Contents
Preface xv Taking into Account More Than Two Variables

A Word of Thanks xxviii on a Graph 21
Positive and Negative Relationships 22
Determining Cause and Effect 23
PART 1 Introduction Are Graphs of Economic Relationships Always
Straight Lines? 24
Chapter 1 Economics: Foundations Slopes of Nonlinear Curves 25
Formulas 26
and Models 1
Formula for a Percentage Change 26
You versus Caffeine 1 Formulas for the Areas of a Rectangle and a Triangle 26
1.1 Three Key Economic Ideas 2 Summary of Using Formulas 27
People Are Rational 3 Problems and Applications 28
People Respond to Incentives 3
Making the Connection Get Fit or Get Fined 3 Chapter 2 Trade-offs, Comparative
Optimal Decisions Are Made at the Margin 4 Advantage, and the
Solved Problem 1.1 Binge Watching and Decisions
Market System 29
at the Margin 4
1.2 The Economic Problems All Societies Must Solve 5 Managers Make Choices at Toyota 29
What Goods and Services Will Be Produced? 6 2.1 Production Possibilities Frontiers
How Will the Goods and Services Be Produced? 6 and Opportunity Costs 30
Who Will Receive the Goods and Graphing the Production Possibilities Frontier 31
Services Produced? 6 Solved Problem 2.1 Drawing a Production
Centrally Planned Economies versus Possibilities Frontier for Pat’s Pizza Pit 32
Market Economies 6 Making the Connection Facing the
Making the Connection Central Planning Trade-offs of Health Care Spending 34
Leads to Some Odd Products 7 Increasing Marginal Opportunity Costs 34
The Modern Mixed Economy 7 Economic Growth 35
Efficiency and Equity 8 2.2 Comparative Advantage and Trade 36
Making the Connection The Equity–Efficiency Specialization and Gains from Trade 37
Trade-off in the Classroom 8 Absolute Advantage versus Comparative Advantage 38
1.3 Economic Models 9 Comparative Advantage and the Gains from Trade 38
The Role of Assumptions in Economic Models 9 Don’t Let This Happen to You Don’t Confuse Absolute
Forming and Testing Hypotheses in Advantage and Comparative Advantage 40
Economic Models 9 Solved Problem 2.2 Comparative Advantage
Normative and Positive Analysis 10 and the Gains from Trade 40
Don’t Let This Happen to You Don’t Confuse 2.3 The Market System 42
Positive Analysis with Normative Analysis 11 The Circular Flow of Income 42
Economics as a Social Science 11 The Gains from Free Markets 44
Making the Connection Should The Legal Basis of a Successful Market System 44
the Government of British Columbia Making the Connection Too Little of a Good Thing 45
Increase Its Minimum Wage? 11 Conclusion 46
1.4 Microeconomics and Macroeconomics 12
1.5 The Language of Economics 12 Chapter 3 Where Prices Come From:
Conclusion 14 The Interaction of Supply
*Chapter Summary and Problems 14
and Demand 50
Key Terms, Summary, Review Questions, Problems
and Applications Red Bull and the Market for Energy Drinks 50
Appendix A: Using Graphs and Formulas 18 3.1 The Demand Side of the Market 51
Graphs of One Variable 19 Demand Schedules and Demand Curves 52
Graphs of Two Variables 19 The Law of Demand 52
Slopes of Lines 20 What Explains the Law of Demand? 53
*These end-of-chapter resource materials repeat in all chapters.

VII
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viii C ontent s
That Magic Latin Phrase Ceteris Paribus 53 Expenditure Approach 89

Variables That Shift Market Demand 54 Statistical Discrepancy 90
Making the Connection The Transformation of Gross Domestic Product—Income or Expenditure 90
Lobster from Inferior to Normal Good 55 The Expenditure Approach in
Making the Connection The Aging Baby Boomers 56 Macroeconomic Models 90
A Change in Demand versus a Change Making the Connection Do Canadians
in Quantity Demanded 58 Spend Too Much? 91
3.2 The Supply Side of the Market 58 Measuring GDP Using the Value-Added Method 92
Supply Schedules and Supply Curves 59 4.2 Does GDP Measure What We Want
The Law of Supply 59 It to Measure? 93
Variables That Shift Market Supply 60 Shortcomings of GDP as a Measure of
A Change in Supply versus a Change in Quantity Total Production 93
Supplied 61 Shortcomings of GDP as a Measure of
3.3 Market Equilibrium: Putting Buyers and Well-Being 94
Sellers Together 62 Making the Connection GDP and Happiness 95
How Markets Eliminate Surpluses and 4.3 Real GDP versus Nominal GDP 96
Shortages: Getting to Equilibrium 63 Calculating Real GDP 96
Demand and Supply Both Count 63 Solved Problem 4.2 Calculating Real GDP 97
Solved Problem 3.1 Demand and Supply Comparing Real GDP and Nominal GDP 97
Both Count: A Tale of Two Cards 64 The GDP Deflator 98
3.4 The Effect of Demand and Supply Shifts on 4.4 Other Measures of Total Production and
Equilibrium 66 Total Income 99
The Effect of Shifts in Supply on Equilibrium 66 Gross National Income (GNI) 99
Making the Connection Invisible Solar Cells 66 Net National Income (NNI) 99
The Effect of Shifts in Demand on Equilibrium 67 Household Income 100
The Effect of Shifts in Demand and Supply over Time 68 Household Disposable Income 100
Solved Problem 3.2 High Demand and The Division of Income 100
Low Prices in the Lobster Market 69 Conclusion 101
Don’t Let This Happen to You Remember:
A Change in a Good’s Price Does Not Chapter 5 Unemployment
Cause the Demand or Supply Curve to Shift 70
and Inflation 105
Shifts in a Curve versus Movements along a Curve 71
Conclusion 71 Canadian Manufacturers Grow While Others Shrink 105
Appendix B: Quantitative Demand and Supply Analysis 76 5.1 Measuring the Unemployment Rate and
Demand and Supply Equations 76 the Labour Force Participation Rate 106
Review Questions 78 The Labour Force Survey 107
Problems and Applications 78 Problems with Measuring the Unemployment Rate 108
An Inside Look As Canadians buy record Trends in Labour Force Participation 109
number of pickups and SUVs, new fuel-economy How Long Are People Typically Unemployed? 109
rules may prove hard to meet 79 Job Creation and Job Destruction over Time 110
5.2 Types of Unemployment 110
Frictional Unemployment and Job Search 111
PART 2 Macroeconomic Foundations Structural Unemployment 111
and Long-Run Growth Cyclical Unemployment 112
Seasonal Unemployment 112
Chapter 4 GDP: Measuring Total Full Employment 112
Making the Connection How Should We
Production and Income 81
Categorize the Unemployment of
The Health of the Canadian Economy 81 Laid-off TV News Employees 113
4.1 Gross Domestic Product Measures Total Production 83 5.3 Explaining Unemployment 113
Measuring Total Production: Gross Domestic Product 83 Government Policies and the Unemployment Rate 114
Solved Problem 4.1 Calculating GDP 84 Labour Unions 115
Production, Income, and the Circular-Flow Diagram 85 Efficiency Wages 115
Don’t Let This Happen to You Remember What Making the Connection Why Does Costco
Economists Mean by Investment 87 Pay Its Workers More than Walmart? 115
Measuring GDP 87 5.4 Measuring Inflation 116
Income Approach 87 The Consumer Price Index 116

C ontent s ix
Making the Connection Prices Will Rise 118 Small Differences in Growth Rates Are Important 154
Is the CPI Accurate? 119 Why Do Growth Rates Matter? 155
Don’t Let This Happen to You Don’t Don’t Let This Happen to You Don’t Confuse
Miscalculate the Inflation Rate 119 the Average Annual Percentage Change
The Producer Price Index 120 with the Total Percentage Change 155
5.5 Using Price Indexes to Adjust for “The Rich Get Richer and…” 156
the Effects of Inflation 120 Making the Connection Is Income All That Matters? 156
Solved Problem 5.1 Calculating 7.2 What Determines How Fast Economies Grow? 157
Real Hourly Wages 120 The Per-Worker Production Function 158
5.6 Real versus Nominal Interest Rates 121 Which Is More Important for Economic
5.7 Does Inflation Impose Costs on the Economy? 122 Growth: More Capital or Technological Change? 159
Inflation Affects the Distribution of Income 123 Technological Change: The Key to
The Problem with Anticipated Inflation 123 Sustaining Economic Growth 160
The Problem with Unanticipated Inflation 124 Making the Connection What Explains the
Conclusion 125 Economic Failure of the Soviet Union? 161
Solved Problem 7.1 Using the Economic
Chapter 6 Economic Growth, Growth Model to Analyze the Failure
the Financial System, of the Soviet Economy 162
New Growth Theory 162
and Business Cycles 129
Joseph Schumpeter and Creative Destruction 164
Economic Growth and the Business Cycle 7.3 Economic Growth in Canada 164
at Bombardier 129 Economic Growth in Canada since 1950 165
6.1 Long-Run Economic Growth 131 Is Canada Headed for a Long Period of
Making the Connection Economic Slow Growth? 165
Prosperity and Health 132 7.4 Why Isn’t the Whole World Rich? 168
Calculating Growth Rates and the Rule of 70 133 Catch-up: Sometimes but Not Always 168
What Determines the Rate of Solved Problem 7.2 The Economic
Long-Run Growth? 133 Growth Model’s Prediction of Catch-up 169
Making the Connection Can India Sustain Why Haven’t Most Western European
Its Rapid Growth? 135 Countries, Canada, and Japan Caught
Potential GDP 136 Up to the United States? 171
6.2 Saving, Investment, and the Financial System 137 Why Don’t More Low-Income Countries
An Overview of the Financial System 137 Experience Rapid Growth? 173
The Macroeconomics of Saving and Investment 138 Making the Connection Why Hasn’t Mexico
The Market for Loanable Funds 139 Grown as Fast as China? 174
Solved Problem 6.2 How Does a Consumption The Benefits of Globalization 176
Tax Affect Saving, Investment, the 7.5 Growth Policies 177
Interest Rate, and Economic Growth? 143 Enhancing Property Rights and the Rule of Law 177
6.3 The Business Cycle 144 Making the Connection Will China’s Standard
Some Basic Business Cycle Definitions 144 of Living Ever Exceed That of Canada? 177
How Do We Know When the Economy Improving Health and Education 179
Is in a Recession? 144 Policies That Promote Technological Change 179
What Happens during the Business Cycle 144 Policies That Promote Saving and Investment 179
Don’t Let This Happen to You Don’t Confuse Is Economic Growth Good or Bad? 180
the Price Level with the Inflation Rate 146 Conclusion 181
Conclusion 148 An Inside Look The Worries about
China’s Slowing Growth 187
Chapter 7 Long-Run Economic Growth:
Sources and Policies 151
PART 3 Short-Run Fluctuations
Will Economic Reforms in Mexico Boost Growth? 151
7.1 Economic Growth over Time and Chapter 8 Aggregate Expenditure and
around the World 153
Economic Growth from 1 000 000 bce to
Output in the Short Run 189
the Present 153 Fluctuating Demand at Tim Hortons 189
Making the Connection Why Did the Industrial 8.1 The Aggregate Expenditure Model 190
Revolution Begin in England? 153 Aggregate Expenditure 190

x C ontent s
The Difference between Planned Investment 9.2 Aggregate Supply 235

and Actual Investment 191 The Long-Run Aggregate Supply Curve 235
Macroeconomic Equilibrium 192 The Short-Run Aggregate Supply Curve 236
Getting to Macroeconomic Equilibrium 192 Shifts of the Short-Run Aggregate Supply
8.2 Determining the Level of Aggregate Curve versus Movements along It 237
Expenditure in the Economy 193 Variables That Shift the Short-Run
Consumption 194 Aggregate Supply Curve 237
Making the Connection Do Changes in Consumer 9.3 Macroeconomic Equilibrium in the
Confidence Affect Consumption Spending? 195 Long Run and the Short Run 240
The Relationship between Consumption Recessions, Expansions, and Supply Shocks 240
and National Income 198 Making the Connection Does Government
Income, Consumption, and Saving 200 Intervention Help Fight a Recession? 243
Solved Problem 8.1 Calculating the Marginal 9.4 A Dynamic Aggregate Demand and
Propensity to Consume and the Marginal Aggregate Supply Model 244
Propensity to Save 201 What Is the Usual Cause of Inflation? 246
Planned Investment 202 Solved Problem 9.2 Showing the Millennium
Making the Connection The Hills and Valleys of Economic Boom on a Dynamic Aggregate
Snowmobile Purchases 203 Demand and Aggregate Supply Graph 247
Government Purchases 204 Conclusion 248
Net Exports 205 Appendix D: Macroeconomic Schools of Thought 253
8.3 Graphing Macroeconomic Equilibrium 206 The Monetarist Model 253
Showing a Recession on the 45°-Line Diagram 210 The New Classical Model 254
The Important Role of Inventories 211 The Real Business Cycle Model 254
A Numerical Example of Macroeconomic Making the Connection Karl Marx:
Equilibrium 211 Capitalism’s Severest Critic 255
8.4 The Multiplier Effect 212 An Inside Look CIBC downgrades its 2016
A Formula for the Multiplier 213 Canadian economic outlook for the
Summarizing the Multiplier Effect 215 second time in a month 256
Solved Problem 8.2 Using the Multiplier Formula 215
Don’t Let This Happen to You Understand Why
PART 4 Monetary and Fiscal Policy
Protectionism Doesn’t Raise the Multiplier 216
The Paradox of Thrift 217
8.5 The Aggregate Demand Curve 217 Chapter 10 Money, Banks, and
Conclusion 219 the Bank of Canada 258
Appendix C: The Algebra of Macroeconomic Equilibrium 224
Can Greece Function without Banks? 258
Review Questions 225
10.1 What Is Money, and Why Do We Need It? 259
Barter and the Invention of Money 260
Chapter 9 Aggregate Demand and The Functions of Money 260
What Can Serve as Money? 261
Aggregate Supply Analysis 226
Making the Connection Apple Didn’t Want My Cash! 262
Canadian National Railway and the Business Cycle 226 10.2 How Is Money Measured in Canada Today? 263
9.1 Aggregate Demand 227 The M1+ and M1++ Definitions of
Why Is the Aggregate Demand Curve the Money Supply 263
Downward Sloping? 228 The M2, M2+, and M2++ Definitions of
Shifts of the Aggregate Demand Curve the Money Supply 263
versus Movements along It 229 The M3 Definition of the Money Supply 263
Variables That Shift the Aggregate Demand Curve 229 Making the Connection Are Bitcoins Money? 265
Don’t Let This Happen to You Understand Don’t Let This Happen to You Don’t Confuse
Why the Aggregate Demand Curve Money with Income or Wealth 266
Is Downward Sloping 230 Solved Problem 10.1 The Definitions of
Making the Connection Canada’s Mini Recession 231 M1+ and M2++ 266
Solved Problem 9.1 Movements along the What about Credit Cards and Debit Cards? 267
Aggregate Demand Curve versus Shifts 10.3 How Do Banks Create Money? 267
of the Aggregate Demand Curve 232 Bank Balance Sheets 267
Making the Connection Predicting Shifts of Making the Connection Would You Borrow from
the Aggregate Demand Curve 234 an Online Peer-to-Peer Lender? 268

C ontent s xi
Using T-Accounts to Show How a Bank 11.4 Monetary Policy in the Dynamic Aggregate
Can Create Money 269 Demand and Aggregate Supply Model 304
The Simple Deposit Multiplier 271 The Effects of Monetary Policy on Real GDP
Don’t Let This Happen to You Don’t Confuse and the Price Level: A More Complete Account 305
Assets and Liabilities 272 Using Monetary Policy to Fight Inflation 306
Solved Problem 10.2 Showing How Banks Solved Problem 11.1 The Effects of
Create Money 273 Monetary Policy 307
The Simple Deposit Multiplier versus 11.5 A Closer Look at the Bank of Canada’s
the Real-World Deposit Multiplier 275 Setting of Monetary Policy Targets 309
10.4 The Bank of Canada 275 Should the Bank of Canada Target
The Establishment of the Bank of Canada 276 the Money Supply? 309
The Bank of Canada’s Operating Band for Why Doesn’t the Bank of Canada Target Both
the Overnight Interest Rate 276 the Money Supply and the Interest Rate? 310
How the Bank of Canada Implements The Taylor Rule 310
Monetary Policy 277 Making the Connection How Does the Bank
The Bank of Canada’s Approach to of Canada Measure Inflation? 311
Monetary Policy 279 11.6 Central Bank Policies during the
The “Shadow Banking System” and the 2007–2009 Global Financial Crisis 312
Global Financial Crisis of 2007–2009 279 The Inflation and Deflation of the
10.5 The Quantity Theory of Money 282 Housing Market Bubble in the United States 312
Connecting Money and Prices: The Changing Mortgage Market in
The Quantity Equation 282 the United States 314
The Quantity Theory Explanation of Inflation 283 The Role of Investment Banks in
How Accurate Are Estimates of the United States 314
Inflation Based on the Quantity Theory? 283 Why Didn’t Canada Have a Housing
High Rates of Inflation 284 Bubble and Banking Crisis in 2008? 315
Making the Connection The German Making the Connection The Wonderful
Hyperinflation of the Early 1920s 285 World of Leverage 315
Conclusion 286 The US Federal Reserve and the
US Treasury Department Respond 316
Chapter 11 Monetary Policy 291 The US Federal Reserve Adopts
Flexible Inflation Targeting 318
Why Would a Bank Pay a Negative Interest Rate? 291
Conclusion 319
11.1 What Is Monetary Policy? 292
The Goals of Monetary Policy 293
Chapter 12 Fiscal Policy 325
11.2 The Money Market and the Bank of
Canada’s Choice of Monetary Policy Targets 294 Fiscal Policy as a 2015 Canadian Election Issue 325
Monetary Policy Targets 294 12.1 What Is Fiscal Policy? 326
The Demand for Money 295 What Fiscal Policy Is and What It Isn’t 326
Shifts in the Money Demand Curve 296 Automatic Stabilizers versus Discretionary
How the Bank of Canada Manages Fiscal Policy 326
the Money Supply: A Quick Review 296 An Overview of Government
Equilibrium in the Money Market 297 Spending and Taxes 327
A Tale of Two Interest Rates 298 Where Does the Money Go? 328
Choosing a Monetary Policy Target 298 Where Does the Money Come From? 329
The Importance of the Overnight Interest Rate 299 Where Does Provincial revenue Come From? 329
11.3 Monetary Policy and Economic Activity 299 Where does Provincial revenue go? 329
How Interest Rates Affect Aggregate Demand 300 Making the Connection The Exploding
The Effects of Monetary Policy on Costs of Health Care 330
Real GDP and the Price Level 300 12.2 The Effects of Fiscal Policy on
Making the Connection Too Low for Zero: Real GDP and the Price Level 332
Central Banks Try “Quantitative Easing” 302 Expansionary and Contractionary
Can the Bank of Canada Eliminate Recessions? 303 Fiscal Policy 332
A Summary of How Monetary Policy Works 304 A Summary of How Fiscal Policy
Don’t Let This Happen to You Remember that Affects Aggregate Demand 333
with Monetary Policy, It’s the Interest 12.3 Fiscal Policy in the Dynamic Aggregate
Rates—Not the Money—That Counts 304 Demand and Aggregate Supply Model 333

xii C ontent s
12.4 Government Purchases and Tax Multipliers 335 Making the Connection Do Workers
The Effect of Changes in Tax Rates 337 Understand Inflation? 368
Taking into Account the Effects of 13.2 The Short-Run and Long-Run Phillips Curves 369
Aggregate Supply 338 Shifts in the Short-Run Phillips Curve 369
The Multipliers Work in Both Directions 338 How Does a Vertical Long-Run Phillips
Don’t Let This Happen to You Don’t Curve Affect Monetary Policy? 370
Overestimate the Size of the Multiplier 339 Making the Connection Does the Natural Rate of
Solved Problem 12.1 Fiscal Policy Multipliers 339 Unemployment Ever Change? 371
12.5 The Limits of Fiscal Policy as a Stimulus 340 Solved Problem 13.1 Changing Views of
Does Government Spending Reduce the Phillips Curve 372
Private Spending? 340 13.3 Expectations of the Inflation Rate and
Crowding Out in the Short Run 340 Monetary Policy 373
Crowding Out in the Long Run 341 The Implications of Rational Expectations
Making the Connection Is Losing Your for Monetary Policy 374
Job Good for Your Health? 342 Is the Short-Run Phillips Curve Really Vertical? 375
12.6 Deficits, Surpluses, and Federal Real Business Cycle Models 375
Government Debt 343 13.4 Bank of Canada Policy from the 1970s
How the Federal Budget Can Serve to the Present 376
as an Automatic Stabilizer 344 The Effect of a Supply Shock on
Making the Connection The Greek the Phillips Curve 376
Debt Crisis and Austerity 345 The Canadian Disinflation, 1989–1993 377
Solved Problem 12.2 The Effect of Economic Don’t Let This Happen to You Don’t Confuse
Fluctuations on the Budget Deficit 346 Disinflation with Deflation 378
Should the Federal Budget Always Inflation Targeting, 1989–Present 379
Be Balanced? 346 Solved Problem 13.2 Using Monetary Policy
The Federal Government Debt 347 to Lower the Inflation Rate 379
Is Government Debt a Problem? 347 The 2007–2009 Global Recession and
12.7 The Effects of Fiscal Policy in the Long Run 348 the Crisis in Monetary Policy 381
The Long-Run Effects of Tax Policy 348 Conclusion 382
Tax Simplification 349 An Inside Look U.S. short sellers betting on
The Economic Effect of Tax Reform 349 Canadian housing crash: ‘An accident
How Big Are Supply-Side Effects? 350 waiting to happen’ 387
Conclusion 351
Appendix E: A Closer Look at the Multiplier Formula 357
A Closer Look at the Multiplier Formula 357 PART 5 The International Economy
An Expression for Equilibrium Real GDP 357
A Formula for the Government Purchases Multiplier 358 Chapter 14 Macroeconomics in
A Formula for the Tax Multiplier 359 an Open Economy 389
The “Balanced Budget” Multiplier 359
The Effects of Changes in Tax Rates on IBM Sings the Dollar Blues 389
the Multiplier 360 14.1 The Balance of Payments: Linking
The Multiplier in an Open Economy 360 Canada to the International Economy 390
Problems and Applications 361 The Current Account 391
The Financial Account 392
Chapter 13 Inflation, Unemployment, The Capital Account 393
Why Is the Balance of Payments Always Zero? 393
and Bank of Canada Policy 362
Don’t Let This Happen to You Don’t Confuse
Can the Bank of Canada Balance the Risks the Balance of Trade, the Current Account
in the Canadian Economy? 362 Balance, and the Balance of Payments 394
13.1 The Discovery of the Short-Run Solved Problem 14.1 Understanding the
Trade-off between Unemployment and Inflation 364 Arithmetic of the Balance of Payments 394
Explaining the Phillips Curve with Aggregate 14.2 The Foreign Exchange Market and
Demand and Aggregate Supply Curves 364 Exchange Rates 395
Is the Phillips Curve a Policy Menu? 365 Making the Connection Exchange Rate Listings 396
Is the Short-Run Phillips Curve Stable? 366 Equilibrium in the Market for Foreign Exchange 396
The Long-Run Phillips Curve 366 How Do Shifts in Demand and Supply Affect
The Role of Expectations of Future Inflation 366 the Exchange Rate? 397

C ontent s xiii
Making the Connection Is a Strong Currency Chapter 15 The International

Good for a Country? 399 Financial System 414
Some Exchange Rates Are Not Determined
by the Market 400 Bayer Uses a Weak Euro to Increase Sales 414
How Movements in the Exchange Rate 15.1 Exchange Rate Systems 415
Affect Exports and Imports 400 Don’t Let This Happen to You Remember
Don’t Let This Happen to You Don’t Confuse That Modern Currencies Are Fiat Money 416
What Happens When a Currency Appreciates 15.2 The Current Exchange Rate System 416
with What Happens When It Depreciates 401 The Floating Canadian Dollar 417
Solved Problem 14.2 Subaru Benefits What Determines Exchange Rates in the Long Run? 417
from a Weak Yen 401 Making the Connection The Big Mac Theory
The Real Exchange Rate 402 of Exchange Rates 419
14.3 The International Sector and Solved Problem 15.1 Calculating Purchasing
National Saving and Investment 403 Power Parity Exchange Rates Using Big Macs 419
Net Exports Equal Net Foreign Investment 403 The Euro 421
Domestic Saving, Domestic Investment, Making the Connection Greece and Germany:
and Net Foreign Investment 404 Diverse Economies, Common Currency 422
Solved Problem 14.3 Arriving at the Pegging against Another Currency 424
Saving and Investment Equation 405 Making the Connection The Chinese Yuan:
14.4 The Effect of a Government Budget The World’s Most Controversial Currency 427
Deficit on Investment 406 15.3 International Capital Markets 428
Making the Connection Why Is the United States Conclusion 430
Called the “World’s Largest Debtor”? 407 An Inside Look Four ways the Fed’s rate
14.5 Monetary Policy and Fiscal Policy in hike will affect our lives up north 434
an Open Economy 408
Monetary Policy in an Open Economy 408 Glossary G-1
Fiscal Policy in an Open Economy 409 Company Index I-1
Conclusion 410
Subject Index I-2

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Preface
There have been dramatic advances in macroeconomics over the past 40 years, and the field
is changing rapidly. Today, macroeconomics assumes that economic agents (i.e., people)
have rational expectations and are forward-looking, relies on market-clearing conditions for
households and firms, and relies on financial shocks and mechanisms that amplify and propa-
gate those shocks over time. Yet, in the aftermath of the global financial crisis, a number of
economists, the media, and policymakers have argued that modern macroeconomics can’t
capture the complexity of the world that is to be explained.
We believe that with the increasing complexity and interdependence of real economies,
macroeconomics must be relevant and applicable. Our approach in this book is to provide
students and instructors with an economics text that delivers complete economics coverage
in a “widget-free” way by using with real-world business and policy examples. We are grati-
fied by the enthusiastic response from students and instructors who have used the first edi-
tion of this book and who have made it one of the best-selling economics textbooks on the
market.
Much has happened in Canada and world economies since we prepared the previous
edition. We have incorporated many of these developments in the new real-world examples
in this edition and also in the digital resources.
Digital Features Located in MyEconLab

MyEconLab is a unique online course management, testing, and tutorial resource. Students
and instructors will find the following new online resources to accompany the second Cana-
dian edition:
• Videos: The Making the Connection features in the book provide real-world rein-
forcement of key concepts. Select features are now accompanied by a short video of the
author explaining the key point of that Making the Connection. Each video is approxi-
mately two or three minutes long and includes visuals, such as new photos, tables, or
graphs, that are not in the main book. Related assessment is included with each video,
so students can test their understanding. The goal of these videos is to summarize key
content and bring the applications to life. Our experience is that many students benefit
from this type of online learning and assessment.
• Animations: Graphs are the backbone of introductory economics, but many students
struggle to understand and work with them. Select figures in the text have a supporting
animated version online. The goal of this digital resource is to help students understand
shifts in curves, movements along curves, and changes in equilibrium values. Having an
animated version of a graph helps students who have difficulty interpreting the static
version in the printed text.
• Interactive Solved Problems: Many students have difficulty applying economic con-
cepts to solving problems. The goal of these interactive animations is to help students
overcome this hurdle by giving them a model of how to solve an economic problem by
breaking it down step by step. These interactive tutorials help students learn to think like
economists and apply basic problem-solving skills to homework, quizzes, and exams.
The goal is for students to build skills they can use to analyze real-world economic issues
they hear and read about in the news. Select Solved Problems in the printed text are
accompanied by a similar problem online, so students can have more practice and build
their problem-solving skills.
• Graphs and Exercises Updated with Real-Time Data from FRED: Select
graphs are continuously updated online with the latest available data from FRED
(Federal Reserve Economic Data), which is a comprehensive, up-to-date data set
maintained by the Federal Reserve Bank of St. Louis. Students can display a pop-up
xv

xvi P R E FA C E
graph that shows new data plotted in the graph. Available in Assignment Manager are
real-time data exercises that use the latest data from FRED. The goal of these digital
features is to help students develop skills in interpreting data and understand how new
data affects graphs.
Highlights of This Edition

The severe global financial crisis that began in 2007 when the housing bubble burst in the
United States and the “Great Recession” and European debt crisis that followed still affect
the world economy today. In many countries, unemployment has risen to levels not seen in
decades. The crisis in the financial system was the worst since the Great Depression of the
1930s. Policy debates intensified as governments around the world introduced the largest
packages of spending increases and tax cuts in history. Central banks, including the Bank of
Canada, sailed into uncharted waters as they developed new policy tools to deal with the
unprecedented financial turmoil while long-running policy debates continued. Huge long-
run budget deficits, environmental problems, income inequality, and changes to the tax sys-
tem all received attention from economists, policymakers, and the public.
The second Canadian edition helps students understand recent economic events and the
policy responses to them. It places applications at the forefront of the discussion. We believe
that students find the study of economics more interesting and easier to master when they see
economic analysis applied to real-world issues that concern them.
The Foundation: Contextual Learning

and Modern Organization
We believe a course is a success if students can apply what they have learned to both their
personal lives and their careers, and if they have developed the analytical skills to understand
what they read in the media. That’s why we explain economic concepts by using many real-
world business examples and application openers, graphs, Making the Connection features,
An Inside Look features, and end-of-chapter problems. This approach helps both business
majors and liberal arts majors become educated consumers, voters, and citizens. In addition
to our widget-free approach, we have a modern organization and place interesting policy
topics early in the book to pique student interest.
Students come to study macroeconomics with a strong interest in understanding events
and developments in the economy. We try to capture that interest and develop students’ eco-
nomic intuition and understanding in this text. We present macroeconomics in a way that
is modern and based in the real world of business and economic policy. And we believe we
achieve this presentation without making the analysis more difficult. We avoid the recent
trend of using simplified versions of intermediate models, which are often more detailed
and more complex than what students need to understand the basic macroeconomic issues.
Instead, we use a more realistic version of the familiar aggregate demand and aggregate sup-
ply model to analyze short-run fluctuations and monetary and fiscal policy. We also avoid the
“duelling schools of thought” approach often used to teach macroeconomics at the principles
level. We emphasize the many areas of macroeconomics where most economists agree. And
we present throughout real business and policy situations to develop students’ intuition. Here
are a few highlights of our approach to macroeconomics.
• A broad discussion of macro statistics. Many students pay at least some attention
to the financial news and know that the release of statistics by government agencies can
cause movements in stock and bond prices. A background in macroeconomic statis-
tics helps clarify some of the policy issues encountered in later chapters. In Chapter 4,
“GDP: Measuring Total Production and Income,” and Chapter 5, “Unemployment and

P R E FA C E xvii
Inflation,” we provide students with an understanding of the uses and potential shortcom-
ings of the key macroeconomic statistics, without getting bogged down in the minutiae
of how the statistics are constructed.
• Early coverage of long-run topics. We place key macroeconomic issues in their
long-run context in Chapter 6, “Economic Growth, the Financial System, and Business
Cycles,” and Chapter 7, “Long-Run Economic Growth: Sources and Policies.” Chapter 6
puts the business cycle in the context of underlying long-run growth and discusses what
actually happens during the phases of the business cycle. We believe that this material is
important if students are to have the understanding of business cycles they will need to
interpret economic events; this material is often discussed only briefly or omitted entirely
in other books. We know that many instructors prefer to have a short-run orientation to
their macro courses, with a strong emphasis on policy. Accordingly, we have structured
Chapter 6 so that its discussion of long-run growth would be sufficient for instructors
who want to move quickly to short-run analysis. Chapter 7 uses a simple neoclassical
growth model to explain important economic growth issues. We apply the model to
topics such as the decline of the Soviet economy, the long-run prospects for growth in
China, and the failure of many developing countries to sustain high growth rates. And we
challenge students with the discussion “Why Isn’t the Whole World Rich?”
• A dynamic model of aggregate demand and aggregate supply. We take a fresh
approach to the standard aggregate demand and aggregate supply (AD–AS) model. We
realize there is no good, simple alternative to using the AD–AS model when explaining
movements in the price level and in real GDP. But we know that more instructors are
dissatisfied with the AD–AS model than with any other aspect of the macro principles
course. The key problem, of course, is that AD–AS is a static model that attempts to
account for dynamic changes in real GDP and the price level. Our approach retains
the basics of the AD–AS model but makes it more accurate and useful by making it
more dynamic. We emphasize two points: (1) Changes in the position of the short-run
(upward-sloping) aggregate supply curve depend mainly on the state of expectations of
the inflation and (2) the existence of growth in the economy means that the long-run
(vertical) aggregate supply curve shifts to the right every year. This “dynamic” AD–AS
model provides students with a more accurate understanding of the causes and conse-
quences of fluctuations in real GDP and the price level. We introduce this model in
Chapter 9, “Aggregate Demand and Aggregate Supply Analysis,” and use it to discuss
monetary policy in Chapter 11, “Monetary Policy,” and fiscal policy in Chapter 12,
“Fiscal Policy.” Instructors may safely omit the sections on the dynamic AD–AS model
without any loss in continuity to the discussion of macroeconomic theory and policy.
• Extensive coverage of monetary policy. Because of the central role monetary policy
plays in the economy and in students’ curiosity about business and financial news, we
devote two chapters—Chapters 11, “Monetary Policy,” and 13, “Inflation, Unemploy-
ment, and Bank of Canada Policy”—to the topic. We emphasize the issues involved in
the Bank of Canada’s choice of monetary policy targets, and we include coverage of the
Taylor rule. We also cover the Bank of Canada’s new policies aimed at dealing with the
bubble in the Canadian housing market and its effects on financial markets.
• Coverage of both the demand-side and supply-side effects of fiscal policy. Our
discussion of fiscal policy in Chapter 12, “Fiscal Policy,” carefully distinguishes between
automatic stabilizers and discretionary fiscal policy. We also provide significant coverage
of the supply-side effects of fiscal policy.
• A self-contained but thorough discussion of the Keynesian income-expendi-
ture approach. The Keynesian income-expenditure approach (the “45°-line diagram,”
or “Keynesian cross”) is useful for introducing students to the short-run relationship
between spending and production. Many instructors, however, prefer to omit this mate-
rial. Therefore, we use the 45°-line diagram only in Chapter 8, “Aggregate Expenditure
and Output in the Short Run.” The discussion of monetary and fiscal policy in later
chapters uses only the AD–AS model, which makes it possible to omit Chapter 8.

xviii P R E FA C E
• Extensive international coverage. We include two chapters devoted to international

topics: Chapter 14, “Macroeconomics in an Open Economy,” and Chapter 15, “The
International Financial System.” Having a good understanding of the international trad-
ing and financial systems is essential to understanding the macroeconomy and to sat-
isfying students’ curiosity about the economic world around them. In addition to the
material in our two international chapters, we weave international comparisons into the
narratives of several other chapters, including our discussion of labour market policies in
Chapter 13, “Inflation, Unemployment, and Bank of Canada Policy,” and central bank-
ing in Chapter 10, “Money, Banks, and the Bank of Canada.”
• Flexible chapter organization. Because we realize that there are a variety of
approaches to teaching principles of macroeconomics, we have structured our chapters
for maximum flexibility. For example, our discussion of long-run economic growth in
Chapter 6, “Economic Growth, the Financial System, and Business Cycles,” makes it
possible for instructors to omit the more thorough discussion of these issues in Chapter 7,
“Long-Run Economic Growth: Sources and Policies.” Our discussion of the Keynes-
ian 45°-line diagram is confined to Chapter 8, “Aggregate Expenditure and Output in
the Short Run,” so that instructors who do not use this approach can proceed directly
to aggregate demand and aggregate supply analysis in Chapter 9, “Aggregate Demand
and Aggregate Supply Analysis.” While we devote two chapters to monetary policy,
the first of these—Chapter 11, “Monetary Policy”—is a self-contained discussion, so
instructors may safely omit the material in Chapter 13, “Inflation, Unemployment, and
Bank of Canada Policy,” if they choose to. Finally, instructors may choose to omit both
of the international chapters (Chapter 14, “Macroeconomics in an Open Economy,”
and Chapter 15, “The International Financial System”), cover just Chapter 14; or cover
Chapter 14 and Chapter 15.
New to this Edition

We have covered a number of new topics in this edition, some of which include:
Chapter 1
• NEW Solved Problem 1.1
• NEW Making the Connection box on central planning
• NEW Making the Connection box on the efficiency equity trade-off
Chapter 2
• Update to discussion of the circular flow model
• NEW Making the Connection box on making a smartphone
• NEW Making the Connection box on the role of government
Chapter 3
• NEW Making the Connection box on lobster as an inferior good
• Reworked subsection on population and demographics
• NEW Making the Connection box on transparent solar panels
Chapter 4
• NEW chapter opener
• Added more explanation to the circular flow model
• Rewrote and updated portions of nominal and real GDP
• Updated GDP deflator example
• Rewrote much of the section on national income accounting to reflect changed report-
ing standards of StatsCan
• Updated section on division of income and included a comparator from 10 years ago

P R E FA C E xix
Chapter 5
• Updated chapter opener
• Replaced Economics in Your Life
• New explanation of Structural unemployment
• Re-wrote Making the Connection box on categorizing unemployment
• New Making the Connection box: Comparing Prices from 100 Years Ago to Now
Chapter 6
• Chapter opener example updated to reflect Bombardier’s recent troubles
• Updated Making the Connection box with one on India’s growth
Chapter 7
• NEW Making the Connection box: Why Hasn’t Mexico Grown as Fast as China?
Chapter 8
• Updated chapter opener
• Added autonomous consumption
Chapter 9
• NEW Making the Connection box on Canada’s mini recession in 2015
• Updated Making the Connection box on predicting shifts
• Updated Making the Connection box on government intervention and recession
Chapter 10
• NEW Making the Connection box: Apple Didn’t Want my Cash
• NEW Making the Connection box: Are Bitcoins Money?
• NEW Making the Connection box: Would You Borrow from an Online Peer-to-Peer
Lender?
Chapter 11
Chapter 12
• Updated Making the Connection box on recession and health
• Updated Making the Connection box on Greece
Chapter 13
• Improved the chapter opener
Chapter 14
• Updated Making the Connection box: Exchange Rate Listings
• NEW Making the Connection box: Is a Strong Currency Good for a Country?
• NEW Solved Problem 14.2: Subaru Benefits from a Weak Yen
Chapter 15
• Changed the Economics in Your Life box

xx P R E FA C E
• Deleted the Making the Connection box: The Canadian Province of … Arizona?
• Updated the Making the Connection box: The Big Mac Theory of Exchange Rates
• Updated Solved Problem 15.1
• NEW Making the Connection box: Greece and Germany: Diverse Economies,
Common Currency
• NEW Making the Connection box: The Chinese Yuan: The World’s Most Controversial
Currency
Special Features: A Real-World, Hands-on Approach

to Learning Macroeconomics
Chapter-Opening Cases and An Inside Look News Articles
Each chapter-opening case provides a real-world context for learning, sparks students’ inter-
est in economics, and helps to unify the chapter. Each chapter-opening case describes a real
situation that students can relate to. Here are a few examples of the topics we explore in the
chapter openers in this new edition:
• Red Bull and the market for energy drinks (Chapter 3)
• Economic growth and the business cycle at Bombardier (Chapter 6)
• Will Economic Reforms in Mexico Boost Growth? (Chapter 7)
• Canadian National Railway and the Business Cycle (Chapter 9)
• Can Greece Function without Banks? (Chapter 10)
• Why Would a Bank Pay a Negative Interest Rate? (Chapter 11)
• Bayer Uses a Weak Euro to Increase Sales (Chapter 15)
152 CHAPTER 7 Long-Run Economic Growth: Sources and Policies
These problems indicate that the Mexican government has failed to fully establish
the rule of law, which is critical for the long-term prospects of the Mexican economy.
Without the rule of law, entrepreneurs cannot fulfill their role in the market system of
bringing together the factors of production—labour, capital, and natural resources—to
Sollina Images/Blend Images/Getty Images
produce goods and services. Mexican entrepreneurs also suffer from problems in the
banking system that make it difficult to obtain the funding needed to finance expansion.
Although Mexico has experienced some increases in real GDP per capita during the
past 30 years, its record of economic growth has been disappointing, particularly in com-
parison with China and other rapidly growing countries in the developing world. Being
able to attain faster rates of growth would benefit people in Mexico—particularly those
with low incomes—and the wider world economy.
Based on Damien Cave, “As Ties with China Unravel, U.S. Companies Head to Mexico,”
New York Times, May 31, 2014; Dolia Estevez, “U.S. Warns against Rising Costs of Doing
Business in Mexico Due to Criminal Activity,” Forbes, June 5, 2014; and Laura Dawson,
Long-Run
“Canada’s Trade with Mexico: Where We’ve Been, Where We’re Going and Why It Matters,”
7
CHAPTER Canadian Council of Chief Executives, February, 2014.
Economic Growth: Economics in Your Life
Sources and Would You Be Better Off without China?

For decades, China was a very poor country whose economy was growing very slowly. In 1978, the government
Policies
introduced economic reforms, which spurred rapid economic growth. Suppose that you could choose to live and
work in a world with the Chinese economy growing very rapidly or in a world with the Chinese economy growing
as slowly as it did before 1978. Which world would you choose to live in? How does the current high-growth,
high-export Chinese economy affect you as a consumer? How does it affect you as someone about to start a
career? As you read the chapter, try to answer these questions. You can check your answers against the one we
Chapter Outline and provide on page 180 at the end of this chapter.
Will Economic Reforms Learning Objectives
in Mexico Boost Growth?
E
Founded in 1944, Palliser Furniture Upholstery Ltd. is a Canadian 7.1 Economic Growth over Time and around the World, conomic growth is not inevitable. For most of human history, no sustained
firm based in Winnipeg, Manitoba, that makes customized furni- page 155 increases in output per capita occurred, and, in the words of the philosopher
ture using high-end materials and specialized designs. In recent Define economic growth, calculate economic Thomas Hobbes, the lives of most people were “poor, nasty, brutish, and short.”
years, the company has faced strong competition and has sought growth rates, and describe global trends in Sustained economic growth first began with the Industrial Revolution in England
ways to reduce costs. The firm considered building a factory in economic growth. in the late eighteenth century. From there, economic growth spread to the United States,
China but chose instead to go to Mexico, because it was closer 7.2 What Determines How Fast Economies Grow? page 159 Canada, and the countries of Western Europe. Following the end of World War II in 1945,
and managers from the company could more easily oversee pro- Use the economic growth model to explain why rapid economic growth also began in Japan and, eventually, in several other Asian countries,
duction. Today, Palliser’s manufacturing for the Canadian market growth rates differ across countries. but the economies of many other countries stagnated, leaving their people trapped in poverty.
takes place in Winnipeg, while its three Mexican plants in the 7.3 Economic Growth in Canada, page 166 Real GDP per capita is the best measure of a country’s standard of living because it rep-
state of Coahuila service the Mexico, Latin America, and United Discuss fluctuations in productivity growth in
States markets. resents the ability of the average person to buy goods and services. Economic growth occurs
Canada.
Palliser is not alone in choosing to locate plants in Mexico when real GDP per capita increases. In this chapter we will develop a model of economic growth
7.4 Why Isn’t the Whole World Rich? page 170 that will help us answer important questions like these:
rather than China. More than 2500 Canadian companies, including
Explain economic catch-up and discuss why
Bombardier, Linamar, and Scotiabank, and more than 18 000 U.S.
many poor countries have not experienced rapid • Why have countries such as Canada, the United States, and the United Kingdom, which had
companies, including many Fortune 500 firms, have operations in
economic growth. high standards of living at the beginning of the twentieth century, continued to grow rapidly?
Mexico. As Christopher Wilson, an economist at the Woodrow
Wilson International Center for Scholars in Washington, observed: 7.5 Growth Policies, page 179 • Why have countries such as Argentina, which at one time had relatively high standards of
“Mexico has become the most competitive place to manufacture Discuss government policies that foster economic living, failed to keep pace?
goods for the North American market.” While proximity to the growth. • Why was the Soviet Union unable to sustain the rapid growth rates of its early years?
United States and Central and South America is an advantage • Why are some countries that were very poor at the beginning of the twentieth century
of doing business in Mexico, rather than China or India, invest- still very poor?
ing in Mexico can be risky. Organized crime and corruption are
major concerns. Coca-Cola, for example, suspended its operations
in Chilpancingo because of attacks on its employees. Some local
Mexican firms have been reluctant to expand because they fear
coming to the attention of criminal gangs who might demand pay-
ments or government inspectors who might demand bribes. M07A_HUBB1260_02_SE_C07.indd 152 18/11/16 4:56 pm
M07_HUBB1260_02_SE_C07.indd 153 19/09/16 5:11 PM
An Inside Look is a two-page feature that shows students how to apply the concepts
from the part to the analysis of a news article. The articles selected deal with policy issues and
are titled An Inside Look. Articles are from sources such as the Economist, National Post, and
Toronto Star. An Inside Look presents an excerpt from an article, an analysis of the article, and
critical thinking questions.

P R E FA C E xxi
AN The Worries About China’s Slowing Growth

INSIDE Key Points in the Article richer leads, through the convergence
c Analysts are concerned about the
process, to reduced growth prospects. increase in the debt to GDP ratio in
The Chinese economy has been growing
LOOK at a rapid pace over the past two decades, b As you read in Chapter 7, the quantity China from about 150% in 2008 to close to
of capital available to workers is a 250% today. Such increases in indebted-
due in large part to high levels of invest-
source of long-run economic growth. ness have been a forerunner of financial
ment. From 1996 to 2014, China experi-
Much of the growth in China over the past problems in other countries, as they reflect
enced an annual growth rate of real GDP
two decades came from investment in excessive risk taking and the development
per capita of close to 9 percent. According
capital goods. In 2014, gross domestic of asset price bubbles. For example, in
to the article, this remarkably high growth
investment (also known as gross capital China’s megacities, Shenzhen, Beijing,
performance of the Chinese economy will
On the face of it, this should be a tri- Such a tight clustering is improbable. demand. Official data are admirably formation) accounted for 46 percent of Shanghai, and Xiamen, house prices are
be unsustainable. Many people believe
umphant day for China. It reported Private surveys suggest that growth clear on this bifurcation of the econ- Chinese GDP, a far higher percentage than well above levels that can be justified by the
that China will grow in the future at a much
that the economy grew by 6.9% last was much lumpier last year, with the omy: services output grew by 11.6% in other major economies, and household fundamentals. If the housing bubble bursts,
slower rate than it has in the recent past.
year, just a shade lower than 2014’s economy initially soft, then picking up year-on-year in nominal terms in the final consumption expenditure was only it will affect not only house prices, but all
7.3% pace. That is some achievement, in the final months thanks to stimulus first nine months of 2015, whereas 36.5 percent. In contrast, household final prices within China’s economy and globally.
given the turmoil in emerging markets policies. Using a composite of alterna- manufacturing grew by just 1.2%. Analyzing the News consumption expenditure was 55.8 per-
and the sheer size ($10 trillion) of the tive data from electricity usage to car c The biggest fear about Chinese cent of GDP in Canada and 68.6% in the Thinking Critically About
a In a recent article, Robert J. Barro of
economy (6.9% growth now yields sales, many analysts reckon last year’s growth is that much worse is still to Harvard University argues that China United States. Relying on investment as a
more additional output than 14.2% growth rate was really 5-6%—not bad, come. Total debt has gone from about will grow in the future at a much slower rate means of economic growth is not a long- Policy
growth did back in 2007). But the though certainly not as buoyant as the 150% of GDP before the global finan- than it has in the recent past.* As he puts it, run solution though, as eventually an 1. What policies can the Chinese govern-
plunging Chinese stock market, the government says. cial crisis in 2008 to nearly 250% today. the evidence from long-term data on inter- economy encounters diminishing returns ment pursue to raise the country’s long-
global commodity collapse and down- b Headline growth is, however, Increases in indebtedness of that magni- national experience within a convergence- to capital. Because of diminishing returns run economic growth without further
ward pressure on the yuan have given only the first of the concerns. Look tude have been a forerunner of finan- type framework (as we discussed in to capital, further increases in the quantity increases in investment spending? How
rise to a prevalent view that reality is under the hood at the composition of cial woes in other countries. Cracks are Chapter 7) has “generated a pair of ‘2s’. of capital would result in even smaller would these policies affect China’s per-
grimmer. If the data are so strong, why Chinese growth, and the picture that beginning to appear in China: capital First, in the long run, each country’s growth increases in real GDP per worker. The pro- worker production function?
are so many people so down on China? emerges is of extreme weakness in outflows have surged, bankruptcies are rate of real per capita GDP is about 2% per duction function in the figure below illus- 2. According to the article, there are suspi-
The most obvious answer is that certain parts of the economy. Heavy occurring more frequently and bad year. Second, a country’s per capita GDP trates this point: An increase in capital per cions that China’s government is manip-
no one much believes the numbers. industry is in bad shape, blighted loans in the banking sector are rising. tends to converge to its long-run path at hour worked from (K/L) 2018 to (K/L) 2019 ulating the data to smooth its growth
a China has long been suspected of by overcapacity and falling demand. It is all but certain that more pain lies around 2% per year (dubbed the ‘iron law leads to an increase in output per hour trend, under-reporting GDP during eco-
massaging data to smooth its growth Service sectors from finance to health ahead, though quite how much and of convergence’).” According to Barro, the worked from (Y/L) 2018 to (Y/L) 2019 . This nomic expansions and over-reporting
trend, under-reporting GDP when care are much more robust. But ser- c how it will play out are matters for main reason for China’s remarkably high increase in output per hour is much it during economic contractions. Why
overheated and over-reporting it dur- vices, by their nature, are mainly deliv- debate. If there is one thing all can agree growth rate of real GDP per capita over the smaller than the increase resulting from would China’s statisticians massage the
ing lulls. Judging by the eerie stability ered locally; China is able to provide on about China’s economy, it is that the past two decades is that China was very the same size increase in capital per hour national-accounts data?
of key indicators recently, China’s stat- more of what it needs by itself, not gap between official data and market poor in this period and the convergence worked from (K/L)2001 to (K/L)2002, when the
isticians appear to have been doing just through imports. That is cold comfort perceptions has widened to a chasm. process predicts a response of high level of capital per hour worked was much *Barro, Robert J. “China’s growth prospects, VOX EU, 4
that. In year-on-year terms, growth b for other countries, especially com- growth. The fact that China has gotten a lot smaller. February, 2016.
over the past six quarters has been modity producers, which had come Source: “The worries about China’s slowing growth,”
7.2%, 7.2%, 7%, 7%, 6.9% and 6.8%. to count on ever-stronger Chinese Economist, January 19th, 2016.
Real GDP per
hour worked,
Y/L
(Y/L)2019 Production
(Y/L)2018 function
(Y/L)2002
(Y/L)2001
0 (K/L)2001 (K/L)2002 (K/L)2018 (K/L)2019 Capital per hour

worked, K/L
Continuous increases in capital per hour worked lead to smaller and smaller increases in output per hour worked.
82 83
M04A_HUBB1260_02_SE_C04.indd All Pages 10/10/16 3:38 PM
Here are a few examples of the articles featured in An Inside Look:

106 Chapter 5 Unemployment and Inflation
• As Canadians buy record number of pickups and SUVs, new fuel-economy rules may
prove hard to meet (Part 1)
they expected to expand operations (indicating a positive economic outlook), the PMI
• The Worrieswould
aboutbeChina’s Slowing
above 50; and if allGrowth (Part 2)
firms surveyed reported that they expected to hire more
• CIBC downgrades its 2016 Canadian economicimprove,
employees and expected the economy to outlook thefor
PMI would
the be 100.
second time in a month
In November of 2015, the PMI for Canada’s manufacturing sector was 48.6, indi-
(Part 3)
cating that Canadian manufacturers were likely to reduce the number of workers they
• U.S. short sellers
employbetting on Canadian
and decrease production. housing crash:
Canada’s ‘Anwas
outlook accident waiting
very different to that
from happen’
of
(Part 4) Germany, whose November PMI for the manufacturing sector stood at 52.9, which
meant that the German manufacturing sector was likely to expand rather than contract.
• Four ways the Fed’s rate hike will affect our lives up north (Part 5)
Keep in mind that forecasting the number of jobs that will be created or destroyed in any
economy is exceptionally difficult, but the PMI gives us a starting point.
Economics in Your Life
In this chapter, we will focus on measuring changes in unemployment as well as
After the chapter-opening real-world
changes in the price level,business
or inflation.case,
Bothwe have addedand
unemployment a personal dimension
inflation are major eco- to
nomic and political problems, so it is important to understand how they
the chapter opener, with a feature titled Economics in Your Life, which asks students to con- are measured.
Based affects
sider how economics on Germany Manufacturing
their own lives. The PMI, http://www.tradingeconomics.com/germany/
feature piques the interest of students and
manufacturing-pmi; RBC Purchasing Managers’ Index, http://www.rbc.com/newsroom/
emphasizes the connection between the material
reports/rbc-purchasing-managers-index.html.they are learning and their own experiences.
economics in Your Life

Should You Change Your Career plans if You Graduate during a recession?
Suppose you are in the second year of your degree, majoring in economics and geology. You plan to find a job in
the energy industry after graduation. The energy industry, particularly the oil and gas sector, has seen much less
growth since 2014 and unemployment in the entire economy is still quite high. After meeting with some older
students, you learn that many of them already have jobs in the finance industry. Should you switch your major
to economics and finance? As you read this chapter, see if you can answer this question. You can check your
answer against the one we provide on page 124 at the end of this chapter.
U
nemployment and inflation are the macroeconomic problems most discussed
in the media and during political campaigns. For many people, the state of
the economy can be described by just two measures: the unemployment
rate and the inflation rate. In the 1960s, Arthur Okun, an American econo-
mist, coined the term misery index, which adds the inflation rate and the unemployment
rate together to give a rough measure of the state of the economy. As we will see in later
chapters, although inflation and unemployment are important problems, the long-run suc-
cess of an economy is generally judged by its ability to generate high levels of real GDP
per person. We devote this chapter to discussing how unemployment and inflation rates are
Unemployment rate The
percentage of the labour force that is measured. In particular, we’ll look closely at the measures produced by Statistics Canada on a
unemployed. monthly basis.

xxii P R E FA C E
At the end of the chapter, we use the chapter concepts to answer the questions asked at
the beginning of the chapter.
Here are a few examples of the topics featured in Economics in Your Life:
• What’s the best country for you to work in? (Chapter 4)
• Should you change your career plans if you graduate during a recession? (Chapter 5)
• When consumer confidence falls, is your job at risk? (Chapter 8)
• Should you buy a house during a recession? (Chapter 11)
• Exchange rate risk can affect your savings (Chapter 15)
Solved Problems
Many students have great difficulty handling applied economics problems. We help students
overcome this hurdle by including two or three worked-out problems tied to select chapter-
opening learning objectives. Our goals are to keep students focused on the main ideas of each
chapter and to give students a model of how to solve an economic problem by breaking it
down step by step. Additional exercises in the end-of-chapter Problems and Applications sec-
tion are tied to every Solved Problem. Additional Solved Problems appear in the Instructor’s
Manual and the print Study Guide. In addition, the Test Item Files include problems tied to
the Solved Problems in the main book.
4 Chapter 1 Economics: Foundations and Models The Economic Problems All Societies Must Solve 5
Optimal Decisions are Made at the Margin Solving the problem

Economics is sometimes referred to as the marginal science because of how economists Step 1: Review the chapter material. This problem is about making decisions,
tend to think about decisions. Some decisions are “all or nothing.” When you finish so you may want to review the section “Optimal Decisions Are Made at the
your undergraduate degree, you can choose to either get a job or go to graduate school. Margin,” which is on page 4. Remember to “think marginal” whenever you
However, most decisions are not the all-or-nothing type and involve doing a little more see the words additional or extra.
or a little less. For example, when you have a job, your choices are not whether to spend Step 2: Explain whether you agree or disagree with your friend. We have seen
everything you earn or to save it all, but how much to save. that any activity should be continued up to the point where marginal benefit
Economists use the term marginal to mean “extra” or “additional.” Should you is equal to marginal cost. In this case, that means watching episodes until the
spend your next hour watching Netflix or studying? The marginal benefit (MB) of point where the extra enjoyment you get out of knowing what happens next
watching another hour is the enjoyment you receive. The marginal cost (MC) is the is equal to the damage not studying does to your performance in your eco-
lower grade you receive because you studied less. You aren’t the only one who has to nomics class. Your friend has not done a marginal analysis, so you shouldn’t
make decisions at the margin. Netflix has to decide how many seasons of a popular agree with her, yet. Her statement about your mark based on the amount you
show to make available to its subscribers. Should the company make another season have studied so far doesn’t help you decide to watch the next episode. She
available? The marginal benefit of this would be the extra revenue it gets from new could be right that watching the episode that is starting really soon is a good
users and existing subscribers who would have left the service if that season weren’t idea, but she has not provided you with any proof—you need more informa-
available, and the marginal cost would be the extra wages, royalties, and equipment tion to know for sure.
costs (server space) needed to make the season available. If your goal is to make the Step 3: Explain what additional information you need. You need more infor-
net benefit (benefit minus cost) as big as possible, then you have a really simple decision mation to make the optimal decision. You need to know the additional enjoy-
rule—do more of any activity with a marginal benefit greater than the marginal cost. As long as ment you will get from watching the episode. You also need to know how
MB > MC, do more. If you’ve gotten as much net benefit as possible, you’ll find that much your mark will rise if you get back to studying. In short, you need to
MB is pretty close to MC. In fact, MB = MC is an easy way of deciding when to do know the marginal cost (the change in your mark) and the marginal benefit
no more of something. When it comes to a firm’s profit (revenue – cost), if producing (extra satisfaction).
the next unit increases revenue (MB) more than costs (marginal cost), making that unit Step 4: Compare marginal cost and marginal benefit. Once you know the mar-
will increase your profits. If producing the next unit increases costs more than revenue, ginal cost and the marginal benefit of watching the next episode, compare the
making that unit will actually reduce profits. If producing the next unit increases rev- two. If the marginal cost is greater than the marginal benefit, then watching
enue by the same amount as it increases costs, stop! You’ve now maximized profits and the next episode is a bad idea. If the marginal cost is less than the marginal
net benefits. benefit, then watching one more episode is a good idea.
People often apply this rule without really thinking about it. Usually you will know
whether the extra enjoyment of another hour spent watching a program is worth the Your turn: For more practice, do related problem 1.5 on page 16 at the end of this chapter. MyEconLab
additional cost of spending one hour less studying for your economics midterm without
a mathematical formula. However, business people often have to make careful calcula-
tions using analysis tools like spreadsheets to determine whether the extra revenue of
increased production is greater than or less than the additional costs. Economists refer to
Marginal analysis Analysis that this sort of analysis as marginal analysis. the economic problems all Societies Must Solve 1.2 Learning ObjEcTivE
involves comparing marginal benefits In each chapter of this book, you will see the special feature Solved Problem. This Discuss how a society answers
and marginal costs. feature will enhance your understanding of the material by leading you through the Living in a world of scarcity means that we face trade-offs: Doing more of one thing
these three key economic
steps of solving an applied economic problem. After reading the problem, you can means that we have to do less of something else. The best way to measure the cost of questions: What goods and
test your understanding by working out the related problems at the end of the chap- something is the value of what we give up to get it. The value of what we give up to services will be produced? How
ter and in the study guide. You can also find more Solved Problems and tutorials at engage in an activity is called the opportunity cost. To be accurate, the opportunity will the goods and services be
MyEconLab. cost of something (such as a good or service) is the value of the next best alternative. produced? Who will receive the
What is the opportunity cost of spending an extra hour studying? It depends on what goods and services produced?
you would have chosen to do if you weren’t studying. If you would have spent the hour
watching TV, then that is the opportunity cost, never mind that you could have spent Trade-off The idea that because of
the same time studying. The easiest way to demonstrate what opportunity cost is all scarcity, producing more of one good
about is with an example. Let’s say that a federal government employee, who is currently or service means producing less of
Solved Problem 1.1 earning $80 000 a year, is thinking about leaving his or her job to start a consulting
company. The opportunity cost of starting the consulting company is the $80 000 salary
another good or service.
that is no longer received from the government, even if the person doesn’t pay him- or Opportunity cost The highest-
Binge Watching and Decisions herself a salary in the new business. valued alternative that must be given
Since all societies face trade-offs, they must make choices when answering the fol- up to engage in an activity.
at the Margin lowing three fundamental economic questions:
Suppose you’ve decided to take a break from studying eco- watch one more episode because you’ll receive a decent mark
1. What goods and services will be produced?
nomics to watch an episode of your favourite show on Net- (say 70%) if you watch and don’t study anymore that night.
2. How will the goods and services be produced?
flix. The episode ends on a cliff-hanger and you now have Do you agree with your friend’s reasoning? What, if any,
3. Who will receive the goods and services produced?
approximately 12 seconds to decide if you should watch the additional information do you need to have to decide if you
next episode to find out what happens or get back to study- should watch the extra episode? When would watching the Throughout this book, we’ll return to these questions. For now, we briefly intro-
ing. Your friend sitting beside you argues that you should extra episode be a good idea? When would it be a bad idea? duce each one.
M01_HUBB1260_02_SE_C01.indd 4-5 21/11/16 5:03 PM

P R E FA C E xxiii
Don’t Let This Happen to You

We know from many years of teaching which concepts students find most difficult. Each
chapter contains a box feature called Don’t Let This Happen to You that alerts students to the
most common pitfalls in that chapter’s material. We follow up with a related question in the
end-of-chapter Problems and Applications section.
Measuring GDP 87
Don’t Let This Happen to You

Remember What Economists Mean ownership of that company. When you buy a share of
by Investment Microsoft stock, nothing new is produced; there is just
a transfer of that small piece of ownership of Microsoft.
Notice that the definition of investment in this chap- Similarly, buying a rare coin or putting $1000 into a
ter is narrower than in everyday use. For example, savings account does not result in an increase in pro-
people often say they are investing in the stock market duction. GDP is not affected by any of these activities,
or in rare coins. As we have seen, economists reserve so they are not included in the economic definition of
the word investment for purchases of machinery, facto- investment.
ries, and houses. Economists don’t include purchases
of stocks or rare coins or deposits in savings accounts
in the definition of investment because these activi- MyEconLab
ties don’t result in the production of new goods. For Your Turn: Test your understanding by doing related problem 1.6 on
example, a share of Microsoft stock represents part page 103 at the end of this chapter.
The Demand Side of the Market 55
Making the Connection

Measuring GDP
Each chapter includes two or more Making the Con- the
Making
inferior to normal good
the transformation of Lobster from
As we features
nection have seen thatfrom the circular
provide real-worldflow model, total incomeConnection
reinforcement and total expenditure When economists describe a product as being inferior they
aren’t saying it is poor quality, they’re just saying that consum
will both be equal to GDP. This means that there are two ways
ers buy less of to
it whenmeasure
their incomesGDP rise. The same product can be an inferior good to
of key concepts and help students learn how to inter- some and a normal good to others. It all depends on the attitudes of people in a given
based on the circular flow, the expenditure approach andtimethe income
and place approach.
and these attitudes can change. Expenditure approach Measuring
pret whatexpenditure
In the they read on the web
approach, alland
the in newspapers.
spending on domestically A lobster dinner in Toronto or Calgary can easilyGDP
produced goods and cost $50byor adding up all
more. In many fancythe different
All Canada Photos/Alamy Stock Photo

restaurants, a lobster dinner is the most expensive item on the menu. The high price
Making
servicesthe Connection
is added up. In features
the income use approach,
relevant, stimu-
all the income received
and honoured place on menu would suggest thattypes
bytheCanadians lobster of
is a expenditure
normal good—when in the economy.
incomes rise, demand for lobster will rise.
lating,
as theand provocative
result of production newsthat
stories focused
takes onCanada
place in busi- is added Thisup. Statistics
isn’t always the case. InCanada Income
many parts of the Maritimes approach
where Measuring
lobster is caught,
it is considered something you eat only if you can’t afford GDPanything better—an
by adding upinferior
all the income
uses both
nesses the expenditure
and policy issues. Each approach
Makingand thethe income approach
Connection good.toHistorically,
measure GDP.
in these While
regions, lobster was fed to prisoners and apprentices as a
hasweatfocus on the
least one expenditure
supporting approach inproblem
end-of-chapter modellingto GDP cheap
throughout
source of protein,the rather text, the meal forreceived
than as a fancy
won’t brag about having a lobster sandwich for lunch.production.
the wealthy.by the owners
Maritimers generally of factors of
income approach can be useful. Figure 4.2

allow students to test their understanding of the topic shows the components Whetherof both
a good approaches
is normal or inferior depends on social attitudes, tastes, and pref
erences. The only way to know for sure if a good is normal or inferior is to observe Despite it’s high cost in many restaurants,
to measuring GDP. how consumers’ behaviour changes as their incomes change.
discussed. Here are a few examples of new Making lobster can still be an inferior good.
Your turn: MyEconLab
Test your understanding by doing related problem 1.4 on page 73 at the end of this chapter.
the Connection features:
Income Approach
• Get Fit or Get Fined (Chapter 1)
The circular flow model indicates that GDP can be measured by adding updemand
all the
•income
The Transformation of Lobster from Inferior to Normaldrinks
in the economy. Statistics Canada breaks income down showGood change?
into
this impact
Consumers will
(Chapter
by shifting the 3)
four categories
fewer cans of energy drinks at every price. We
demand curve for energy drinks to the left.
Goods and services that are used together—like hamburgers and buns—are
•based
Prices Willtype
on the Rise of (Chapter
the income:5) compensation of employees, gross operating
complements. When two goods surplus,
are complements, the more consumers buy of one, Complements Goods and services
that are used together.
the more they will buy of the other. A decrease in the price of a complement causes the
gross mixed income, and taxes
• Canada’s Mini Recession (Chapter 9) minus subsidies. We go through
demand each
curve for a of
good these
to shift to cate-
the right. An increase in the price of a complement
causes the demand curve to shift to the left.
gories in turn. Many people drink Red Bull, Monster Energy, or Beaver Buzz Energy when work
• Apple Didn’t Want My Cash! (Chapter 10) ing out. So, for these people, energy drinks and gym memberships are complements.
Suppose that the market demand curve in Figure 3.1 represents the willingness of con The Supply Side of the Market 61
•Compensation
Greece and Germany: Diverse Economies,
of Employees. Common
Compensation Currency
sumers to buy energy drinks when the average price of a gym membership is $40 per
of employees
month. If thecoversprice of gym allmemberships
the ben- drops to $30 per month, consumers will buy
(Chapter 15)
efits workers receive from providing their labour to firms. Thismore makes up the single larg-
gym memberships and more energy drinks, making the demand curve for energy A shift in the
demand curve
Figure 3.3
drinks shift to the right. is a change in A Change in Demand versus a
est element of GDP in the income approach at 51.6 percent ofTastes. GDP. Price
($ per can)
demand.
Change in Quantity Demanded
Graphs and Summary

Compensation Tables
of employees is broken down into two components—wages
Consumers can be influenced by an advertising campaign for a product. If the
firms making Red Bull, Monster and sala-
Energy, Beaver Buzz Energy, or other energy drinks
If the price of energy drinks falls from
$3.00 to $2.50, the result will be a move-
begin to advertise heavily online, consumers are more likely to buy cans at every price, A
ment along the demand curve from
ries, and
Graphs areemployers’ social contributions.
an indispensable Wages and
part of a principles salaries are
of economics thedemand
course
and the paycurve workers
will shift toreceive 3.00
the right. An economist would say that the advertis
B
C point A to point B—an increase in quan-
tity demanded from 60 million cans to
2.50
ing campaign has affected consumers’ taste for energy drinks. Taste is a catchall category
in are
but exchange
a majorfor stumbling
their effortsblock
at their
forjobs.
manyWages and salaries
students. Everyaccounted
thatchapter for subjective
refers to the many 86.1 percent A movement
elements that can enter into a consumer’s decision to
along the
70 million cans. If consumers’ incomes
increase, or if another factor changes
that makes consumers want more energy
of employee compensation and 44.4 percent of GDP in 2015.buy a product. A consumer’s taste for a product can change for many reasons. Some
demand curve drinks at every price, the demand curve
except Chapter 1 includes end-of-chapter problems that require stu- times trends play a substantial role.
is a change in
For example, the popularity of lowcarbohydrate
quantity
will shift to the right—an increase in
Employers’ social contributions cover all the payments made by employers
diets caused a decline in demand to forsocial
some goods, such as bread and doughnuts, and
demanded. demand. In this case, the increase in
dents to draw, read, of

andtheir
interpret graphs.
ThisInteractive graphing exer- to the Canada
demand from D1 to D2 causes the quan-
an increase in the demand for meat. In general, when consumers’ taste for a product Demand, D1 Demand, D2
programs on behalf employees. includes things like payments
tity of energy drinks demanded at a price
increases, the demand curve will shift to the right, and when consumers’ taste for a prod
0 60 70 80 Quantity of $3.00 to increase from 60 million cans
cises appear
Pension on Employment
Plan, the book’s supporting
Insurance, website. We usecare
and any health four devices
uct decreases,to
premiums the demand curve for the product will shift to the left.
paid to the govern-
(millions of
cans per month)
at point A to 80 million cans at point C.
help
ment students read and
or a private interpret
health graphs:Social contributions amounted
plan provider. Population and Demographics. Population and demographics can affect the
to
demand for a product. 13.9 percent
increase Population
in each of the
of thedecrease
determines
variables. A total number of consumers
in these variables would who
causecould
the demand
employee compensation and 7.2 percent of GDP. demand a product. curveAstopopulation
shift in the increases, the number of consumers grows and so does
opposite direction.
demand. An increase in population will shift the demand curve to the right.
A Change in Demand versus a Change in Quantity
Demanded
It is important to understand the difference between a change in demand and a change in
quantity demanded. A change in demand refers to a shift of the demand curve. A shift
occurs if there is a change in one of the variables, other than the price of the product, that
M03A_HUBB1260_02_SE_C03.indd 55 affects the willingness of consumers to buy the product. A change in quantity demanded 18/11/16 2:59 PM
refers to a movement along the demand curve as a result of a change in the product’s
price. Figure 3.3 illustrates this important distinction. If the price of energy drinks falls
from $3.00 to $2.50 per can, the result will be a movement along the demand curve
A01_HUBB1260_02_SE_FM.indd 23 from point A to point B—an increase in quantity demanded from 60 million to 70 mil- 22/11/16 6:47 PM
The Demand Side of the Market 57
xxiv P R E FA C E
suggest. This is because you expect that your income will be higher in the future, mean-
ing that you believe you can afford to consume more now. When the economy slows
down1. and Detailed
people expectcaptions
their incomes to be lower in the future, they often put off
major purchases or buy different things. How an expected income change affects the
2. forNotes
demand a productindepends
the graphs
on whether the product is a normal or an inferior good.
When incomes are generally falling (e.g., when the economy is doing poorly), people
3. Colour-coded
tend to buy more inferior goods,curves
even if their incomes haven’t actually changed.
Table 3.1 summarizes the most important variables that cause market demand curves
4. Summary tables with
to shift. Note that the table shows graphs
the shift in the(see pages
demand curve57,
that61, andfrom
results 234
an for examples)
An Increase in Shifts the Demand Curve Why? Table 3.1

income (and the good is Consumers spend more of Variables that Shift Market
Price
normal) their higher incomes on the
Demand Curves
good.
RIGHT
D1 D2
0 Quantity
income (and the good is Price Consumers spend less of

inferior) their higher incomes on the
good.
LEFT
D1 D2
0 Quantity
the price of a substitute Price Consumers buy less of

good the substitute good and
more of this good.
RIGHT
D1 D2
0 Quantity
the price of a Price Consumers buy less of

complementary good the complementary good
and less of this good too.
LEFT
D1 D2
0 Quantity
taste for the good Price Consumers are willing

to buy a large quantity
of the good at every price.
RIGHT
D1 D2
0 Quantity
population Price Additional consumers

result in a greater
demand at every price.
RIGHT
D1 D2
0 Quantity
the expected future Price Consumers buy more of

price of the good the good today to avoid
the higher future price.
RIGHT
D1 D2
0 Quantity
M03A_HUBB1260_02_SE_C03.indd 57 08/10/16 5:43 PM
Review Questions and Problems and Applications

Every exercise in a chapter’s Review Questions and Problems and Applications sections are
available in MyEconLab. Using MyEconLab, students can complete these and many other
exercises online, get tutorial help, and receive instant feedback and assistance on exercises
they answer incorrectly. Also, student learning is enhanced by having the summary mate-
rial and problems grouped together by learning objective, which will allow students to focus
on the parts of the chapter they found most challenging. Each major section of the chapter,
paired with a learning objective, has at least two review questions and three problems.
We include one or more end-of-chapter problems that test students’ understanding of
the content presented in the Solved Problem, Making the Connection, and Don’t Let This
Happen to You features in the chapter. Instructors can cover a feature in class and assign the
corresponding problem for homework. The Test Item Files also include test questions that
pertain to these special features.

Another random document with
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mistaken. Otherwise, I should have brought them away at the first
moment.”
“I see,” said Mr. Carteret. “It is most unfortunate!”
“It is, indeed!” said Lady Violet; “but the matter will not be allowed to
drop. They were brought to the meet by that young profligate, Lord
Frederic Westcote.”
“You amaze me,” said Mr. Carteret. He bowed, started his horse, and
jogged along for five minutes, then he turned to the right upon a
crossroad and suddenly found himself with hounds. They were
feathering excitedly about the mouth of a tile drain into which the fox
had evidently gone. No master, huntsmen or whips were in sight, but
sitting wet and mud-daubed upon horses dripping with muddy water
were Grady dressed in cowboy costume and three naked Indians.
Mr. Carteret glanced about over the country and understood. They
had swum the brook at the place where it ran between steep clay
banks and the rest of the field had gone around to the bridge. As he
looked toward the south, he saw Lord Ploversdale riding furiously
toward him followed by Smith, the huntsman. Grady had not
recognized Mr. Carteret turned out in pink as he was, and for the
moment the latter decided to remain incognito.
Before Lord Ploversdale, Master of Fox-hounds, reached the road,
he began waving his whip. He appeared excited. “What do you mean
by riding upon my hounds?” he shouted. He said this in several ways
with various accompanying phrases, but neither the Indians nor
Grady seemed to notice him. It occurred to Mr. Carteret that,
although Lord Ploversdale’s power of expression was wonderful for
England, it nevertheless fell short of Arizona standards. Then,
however, he noticed that Grady was absorbed in adjusting a kodak
camera, with which he was evidently about to take a picture of the
Indians alone with the hounds. He drew back in order both to avoid
being in the field of the picture and to avoid too close proximity with
Lord Ploversdale as he came over the fence into the road.
“What do you mean, sir!” shouted the enraged Master of Fox-
hounds, as he pulled up his horse.
“A little more in the middle,” replied Grady, still absorbed in taking the
picture.
“A little more in the middle”

Lord Ploversdale hesitated. He was speechless with surprise for the
moment.
Grady pressed the button and began putting up the machine.
“What do you mean by riding on my hounds, you and these
persons?” demanded Lord Ploversdale.
“We didn’t,” said Grady amicably, “but if your bunch of dogs don’t
know enough to keep out of the way of a horse, they ought to learn.”
Lord Ploversdale looked aghast and Smith, the huntsman, pinched
himself to make sure that he was not dreaming.
“Many thanks for your advice,” said Lord Ploversdale. “May I inquire
who you and your friends may be?”
“I’m James Grady,” said that gentleman. “This,” he said, pointing to
the Indian nearest, “is Chief Hole-in-the-Ground of the Olgallala
Sioux. Him in the middle is Mr. Jim Snake, and the one beyond is
Chief Skytail, a Pawnee.”
“Thank you, that is very interesting,” said Lord Ploversdale, with
polite irony. “Now will you kindly take them home?”
“See here,” said Grady, strapping the camera to his saddle, “I was
invited to this hunt, regular, and if you hand me out any more hostile
talk—” He paused.
“Who invited you?” inquired Lord Ploversdale.
“One of your own bunch,” said Grady, “Lord Frederic Westcote. I’m
no butterin.”
“Your language is difficult to understand,” said Lord Ploversdale.
“Where is Lord Frederic Westcote?”
Mr. Carteret had watched the field approaching as fast as whip and
spur could drive them, and in the first flight he noticed Lord Frederic
and the Major. For this reason he still hesitated about thrusting
himself into the discussion. It seemed that the interference of a third
party could only complicate matters, inasmuch as Lord Frederic
would so soon be upon the spot.
Lord Ploversdale looked across the field impatiently. “I’ve no doubt,
my good fellow, that Lord Frederic Westcote brought you here and I’ll
see him about it, but kindly take these fellows home. They’ll kill all
my hounds.”
“Now you’re beginning to talk reasonable,” said Grady. “I’ll discuss
with you.”
The words were hardly out of his mouth before hounds gave tongue
riotously and went off. The fox had slipped out of the other end of the
drain and old Archer had found the line.
As if shot out of a gun the three Indians dashed at the stake-and-
bound fence on the farther side of the road, joyously using their
heavy quirts on the Major’s thoroughbreds. Skytail’s horse being
hurried too much, blundered his take-off, hit above the knees and
rolled over on the Chief who was sitting tight. There was a stifled
grunt and then the Pawnee word “Go-dam!”
Hole-in-the-Ground looked back and laughed one of the few laughs
of his life. It was a joke which he could understand. Then he used
the quirt again to make the most of his advantage.
“That one is finished,” said Lord Ploversdale gratefully. But as the
words were in his mouth, Skytail rose with his horse, vaulted up and
was away.
The M. F. H. followed over the fence shouting at Smith to whip off the
hounds. But the hounds were going too fast. They had got a view of
the fox and three whooping horsemen were behind them driving
them on.
The first flight of the field followed the M. F. H. out of the road and so
did Mr. Carteret, and presently he found himself riding between Lord
Frederic and the Major. They were both a bit winded and had
evidently come fast.
“I say,” exclaimed Lord Frederic, “where did you come from?”
“I was cured by the Broncholine,” said Mr. Carteret, “amazing stuff!”
“Is your horse fresh?” asked Lord Frederic.
“Yes,” replied Mr. Carteret, “I happened upon them at the road.”
“Then go after that man Grady,” said Lord Frederic, “and implore him
to take those beggars home. They have been riding on hounds for
twenty minutes.”
“Were they able,” asked Mr. Carteret, “to stay with their horses at the
fences?”
“Stay with their horses!” puffed the Major.
“Go on like a good chap,” said Lord Frederic, “stop that fellow or I
shall be expelled from the hunt; perhaps put in jail. Was Ploversdale
vexed?” he added.
“I should judge by his language,” said Mr. Carteret, “that he was
vexed.”
“Hurry on,” said Lord Frederic. “Put your spurs in.”
Mr. Carteret gave his horse its head and he shot to the front, but
Grady was nearly a field in the lead and it promised to be a long
chase as he was on the Major’s black thoroughbred. The cowboy
rode along with a loose rein and an easy balance seat. At his fences
he swung his hat and cheered. He seemed to be enjoying himself
and Mr. Carteret was anxious lest he might begin to shoot for pure
delight. Such a demonstration would have been misconstrued.
Nearly two hundred yards ahead at the heels of the pack galloped
the Indians, and in the middle distance between them and Grady
rode Lord Ploversdale and Smith vainly trying to overtake the
hounds and whip them off. Behind and trailing over a mile or more
came the field and the rest of the hunt servants in little groups, all
awestruck at what had happened. It was unspeakable that Lord
Ploversdale’s hounds which had been hunted by his father and his
grandfather should be so scandalized.
Mr. Carteret finally got within a length of Grady and hailed him.
“Hello, Carty,” said Grady, “glad to see you. I thought you were sick.
What can I do? They’ve stampeded. But it’s a great ad. for the show,
isn’t it? I’ve got four reporters in a hack on the road.”
“Forget about the show,” said Mr. Carteret. “This isn’t any laughing
matter. Ploversdale’s hounds are one of the smartest packs in
England. You don’t understand.”
“It will make all the better story in the papers,” said Grady.
“No, it won’t,” said Mr. Carteret. “They won’t print it. It’s like a
blasphemy upon the Church.”
“Whoop!” yelled Grady, as they tore through a bullfinch.
“Call them off,” said Mr. Carteret, straightening his hat.
“But I can’t catch ’em,” said Grady, and that was the truth.
Lord Ploversdale, however, had been gaining on the Indians, and by
the way in which he clubbed his heavy crop, loaded at the butt, it
was apparent that he meant to put an end to the proceedings if he
could.
Just then hounds swept over the crest of a green hill and as they
went down the other side, they viewed the fox in the field beyond. He
was in distress, and it looked as if the pack would kill in the open.
They were running wonderfully together, the traditional blanket would
have covered them, and in the natural glow of pride which came over
the M. F. H., he loosened his grip upon the crop. But as the hounds
viewed the fox so did the three sons of the wilderness who were
following close behind. From the hilltop fifty of the hardest going men
in England saw Hole-in-the-Ground flogging his horse with the heavy
quirt which hung from his wrist. The outraged British hunter shot
forward scattering hounds to right and left, flew a ditch and hedge
and was close on the fox who had stopped to make a last stand.
Without drawing rein, the astonished onlookers saw the lean Indian
suddenly disappear under the neck of his horse and almost instantly
swing back into his seat waving a brown thing above his head. Hole-
in-the-Ground had caught the fox!
“Most unprecedented!” Mr. Carteret heard the Major exclaim. He
pulled up his horse, as the field did theirs, and waited
apprehensively. He saw Hole-in-the-Ground circle around, jerk the
Major’s five hundred guinea hunter to a standstill close to Lord
Ploversdale and address him. He was speaking in his own language.
As the Chief went on, he saw Grady smile.
“He says,” said Grady translating, “that the white chief can eat the
fox if he wants him. He’s proud himself bein’ packed with store grub.”
The English onlookers heard and beheld with blank faces. It was
beyond them.
The M. F. H. bowed stiffly as Hole-in-the-Ground’s offer was made
known to him. He regarded them a moment in thought. A vague light
was breaking in upon him. “Aw, thank you,” he said, “thanks awfully.
Smith, take the fox. Good afternoon!”
Then he wheeled his horse, called the hounds in with his horn and
trotted out to the road that led to the kennels. Lord Ploversdale,
though he had never been out of England, was cast in a large mold.
The three Indians sat on their panting horses, motionless, stolidly
facing the curious gaze of the crowd; or rather they looked through
the crowd, as the lion with the high breeding of the desert looks
through and beyond the faces that stare and gape before the bars of
his cage.
“Most amazing! Most amazing!” muttered the Major.
“It is,” said Mr. Carteret, “if you have never been away from this.” He
made a sweeping gesture over the restricted English scenery,
pampered and brought up by hand.
“Been away from this?” repeated the Major. “I don’t understand.”
Mr. Carteret turned to him. How could he explain it?
“With us,” he began, laying an emphasis on the “us.” Then he
stopped. “Look into their eyes,” he said hopelessly.
The Major looked at him blankly. How could he, Major Hammerslea
of “The Blues,” tell what those inexplicable dark eyes saw beyond
the fenced tillage! What did he know of the brown, bare, illimitable
range under the noonday sun, the evening light on far, silent
mountains, the starlit desert!
HOW MR. CARTERET PROPOSED

II
HOW MR. CARTERET PROPOSED
Barclay slowly guided his horse through the mounted throng to the
spot where Mr. Carteret was sitting on a chestnut thoroughbred
horse watching hounds as they came straggling out of the spinney.
They had drawn blank. The fox was not at home. When Barclay
reached his friend he pulled up casually as if he had come for no
express purpose, and said nothing. After a few moments he began,
as if an idea had just come to him:
“It has occurred to me, Carty,” he said, “that if we brought American
horses to England, we could make a lot of money.”
“That idea has occurred to others,” replied Mr. Carteret, without
turning his head. He was absorbed in the enjoyable discovery that
the scene before him was like a hunting-print. The browns of the
wood and bracken, the winter green of the hill pastures, the scarlet
coats, the gray sky of the English winter, were all happily true to art.
“As I say,” he went on, “the idea has occurred to others, but I have
never heard that any one made money.”
“That is because they haven’t sent over good horses,” said Barclay.
“Suppose we brought over only such thoroughbred horses as we
raise on the Wyoming ranch.”
“I don’t think it would make any difference,” said Mr. Carteret. “There
is a prejudice against American horses.”
“Exactly,” said Barclay; “and the way to meet it would be to have
them ridden and handled by a well-known Englishman. In fact, I have
the man in mind.”
“Who?”
“Young Granvil,” was the answer.
Why Barclay should be interested in making money out of a horse
business or in any other way had perplexed Mr. Carteret, for it was
not according to his habits of mind. Now it became clear to him, and
he suppressed a cynical smile. “I don’t suppose Lady Withers has
discussed this matter with you,” he observed.
“In a general way, yes,” replied Barclay; “but it was my suggestion.”
“Of course,” said Mr. Carteret.
Barclay paused awkwardly for a moment, then he said: “Why
shouldn’t I talk it over with Lady Withers? She is a very intelligent
woman, and a good judge of a horse.”
“An excellent judge of almost everything,” said his friend, “and
especially of young men. My son,” he continued (Barclay was five
years his junior), “it is commendable of Lady Withers to provide for
the Hon. Cecil James Montague Granvil. He is her nephew and flat
broke, and he needs people to look after him because he is almost
less than half-witted. But that is no reason why you should be the
person to look after him.”
“You are unjust to Cecil,” said Barclay, “and most unkind in your
insinuations as to Lady Withers. This was my own idea entirely, and I
think it would be profitable for both of us. You know you are always
complaining because I don’t take more interest in the ranches.”
“If I have been unkind to Lady Withers,” said Mr. Carteret, “I am
going to be much more so.”
Barclay looked challengingly. “What do you mean?” he demanded.
“Lady Withers,” said Mr. Carteret, “is a widow, aged forty-four,—you
can verify that in Burke,—a man-eater by temperament and habit.
You are twelve years younger than she, with a great deal more
money than is good for you. Whether she intends to marry you I
don’t pretend to know, but it is not unlikely. At any rate, you are
unquestionably on the list as a source of income and supply.”
Somewhat to Mr. Carteret’s surprise, Barclay listened calmly.
“Do you really think Lady Withers considers me eligible?” he asked.
“She does, if she has any true conception of your securities.”
Barclay smiled a pleased smile. “I shall not stop to discuss Lady
Withers’s age,” he said. “Have you any objections to her aside from
that?”
Mr. Carteret looked at him with outward calm, but inwardly he was
filled with horror. “Are you engaged to her?” he asked.
“I am not,” said Barclay.
“Then I shall tell you,” he went on, “that I have objections. Their
nature I have no time to disclose at present further than to say that
any woman who puts a nice girl like her niece upon the horse she is
riding to-day is a bad lot.”
Barclay’s expression changed. “What is the matter with the horse?”
he demanded.
“I’m not sure that I know all that is the matter with him,” said Carty,
“but I wouldn’t ride him over a fence for the Bank of England.”
“Do you know that, or are you just talking?” said Barclay.
“I ought to know,” said the other. “I owned him. After what he did to
me, I ought to have shot him. We’d better jog along,” he added, “or
we shall get pocketed and never get through the gate.”
The huntsman had called his hounds and was carrying them to the
next cover, and Mr. Carteret set his horse to a trot and struggled for
a place in the vast scarlet-coated throng that surged toward the gate
leading out of the meadow. At the same time Barclay disappeared.
The vast scarlet-coated throng that surged toward the gate
“I hope he tells Lady Withers about the horse,” said Mr. Carteret to
himself. “If she doesn’t keep her hands off him, I shall tell her several
things myself.”
Just at that moment the eddying currents of the human maelstrom
brought him alongside a slender little figure in a weather-beaten
habit and a bowler hat jammed down to her ears over a mass of
golden hair. Although the knot of hair was twisted cruelly tight, and
although the hat did its best to cover it, even a man’s eye could see
that it was profuse and wonderful. It was unnecessary for him to look
at the horse. He knew that he was beside Lady Mary Granvil, Lady
Withers’s niece. “Good afternoon,” he said and she turned toward
him. It was a sad rather than a pretty face, but one’s attention never
rested long upon it, for a pair of gray eyes shone from under the
brows, and after the first glance one looked at the eyes.
“Good afternoon,” he said again. The eyes rather disconcerted him.
“Do you happen to know anything about that horse you’re riding?”
“It’s one that my aunt bought quite recently,” said the girl. “She and
Cecil wished me to try it.”
“I hope you won’t think me rude,” said Mr. Carteret, “but I once
owned him, and I think you’ll find this horse of mine a much
pleasanter beast to ride. I’ll have the saddles changed.”
Lady Mary looked at him, and a light flashed in her gray eyes. “You
are very good,” she said, “but this is my aunt’s horse, and my brother
told me to ride it.” She forged ahead, and disappeared in the
currents of the crowd.
“I did that very badly,” Mr. Carteret said to himself, and fell into the
line and waited for his turn at the gate.
He and Barclay, Lady Withers, and many other people were stopping
the week-end at Mrs. Ascott-Smith’s, who had Chilliecote Abbey, and
when he got home that afternoon he went at once to the great
library, where the ceremony of tea was celebrated. The daylight was
fading from the mullioned windows as it had faded on winter
afternoons for three hundred years. Candles burned on the vacant
card-tables, while the occupants of the room gathered in the glow of
the great Elizabethan fireplace and conversed and ate. As he
approached the circle, Lady Withers put down her tea cup.
“Did you have another run after we pulled out?” she asked.
“Yes,” said Mr. Carteret; “rather a good one.”
Suddenly her eyes began to beam. There was a display of red lips
and white teeth, and a sort of general facial radiation. It was an effort
usually fatal to guardsmen, but it affected Mr. Carteret like the
turning on of an electric heater, and he backed away as if he felt the
room were warm enough. “I am so glad,” she said.
“Tell me,” she went on in her soft, delightfully modulated voice,
“aren’t you interested with Mr. Barclay in some farms?”
“We own two ranches together,” said Mr. Carteret.
“Yes, that was it,” said Lady Withers; “and you raise horses on
them?”
Mr. Carteret apprehended what was coming. “Yes; ranch horses,” he
said dryly.
“And such good ones, as Mr. Barclay was telling me,” said Lady
Withers. “He made me quite enthusiastic with his account of it all,
and he is so anxious to have dear Cecil manage them in England;
but before Cecil decides one way or the other I want your advice.”
Mr. Carteret looked at her and stroked his mustache. His opportunity
to save Barclay had come. “My advice would be worth very little,” he
said; “but I can give you all the facts, and of course Barclay—well, he
can’t.”
A shade of apprehension crossed Lady Withers’s face. “And why
not?” she demanded.
“I should rather not go into that,” said Mr. Carteret. “Of course the
great objection to the scheme is that it would be unprofitable for Mr.
Granvil, because no one would buy our horses.”
“But wouldn’t they,” said Lady Withers, “if they were good ones?”
“Major Hammerslea can answer that question better than I,” said Mr.
Carteret. He looked toward that great man and smiled. The Major
was the author of “Schooling and Riding British Hunters,” and Mr.
Carteret knew his views.
“No one,” said the Major, impressively, “would buy an American
horse if he desired to make or possess a really good hunter.”
“But why advertise that they were American?” observed Lady
Withers, blandly.
“How could you hide it?” said the Major.
“Exactly,” said Mr. Carteret.
“Furthermore,” observed the Major, his interest in the controversy
growing, “the output of a single breeding institution would scarcely
make it worth Cecil’s while to manage an agency for their
distribution.”
“I think you don’t understand,” said Lady Withers, “that Mr. Carteret
has a large place.”
“My friend the Duke of Westchester,” began the Major, “has in his
breeding farm eight thousand acres—”
“But I’ve no doubt that Mr. Carteret’s is very nearly as large,”
interrupted Lady Withers.
“I don’t think size has anything to do with it,” said Mr. Carteret,
uneasily. “The fact is, we don’t raise the kind of horse that English
dealers would buy.”
“I think size has much to do with it,” replied the Major.
“I wish,” said Lady Withers, “that you would tell Major Hammerslea
exactly how large your farms are.”
“I don’t know exactly,” said Mr. Carteret, uneasily.
“But, about how large?” insisted Lady Withers.
“There is something over a million acres in the Texas piece,” said Mr.
Carteret, with some embarrassment, “and something under six
hundred thousand in Wyoming.”
Lady Withers and the Major both looked at him with eyes of
amazement. But Lady Withers’s amazement was admiring.
“I thought so,” said she, calmly. The Major in silence walked over to
the table and took a cigar. “Looking at it from all points of view,” she
continued, “it would be just the thing for Cecil. He is intelligent with
regard to horses.”
“But I don’t wish to go to Texas,” said the Hon. Cecil, who had joined
the group. “They say the shootin’ ’s most moderate.”
“It isn’t necessary yet for you to go to Texas,” said Lady Withers,
coldly. “Mr. Carteret and I are arranging to employ your talents in
England.”
“Of course another objection,” said Mr. Carteret, “is that Granvil is
too good a man to waste on such an occupation. The horse business
is very confining. It’s an awful bore to be tied down.”
“You are absolutely right about that,” said the Hon. Cecil, with a burst
of frankness. “You don’t know what a relief it is to be out of the
Guards. Awfully confining life, the Guards.”
“I think,” said Lady Withers, apparently oblivious to the views of her
nephew, “that Mr. Barclay takes rather the more businesslike view of
these matters. It is he, I fancy, who looks after the affairs of your
estates; and I should judge,” she continued, “that, after all, his advice
to a young man like Cecil with a very moderate income would be
wiser. I believe very much in an occupation for young men.”
Mr. Carteret saw that his time had come. He looked at Lady Withers
and smiled sadly. “Of course I’m very fond of Barclay,” he said in a
lower tone, “and of course he is an awfully charming, plausible boy
—” Then he stopped, apparently because Major Hammerslea was
returning with his cigar.
“What do you mean?” asked Lady Withers.
Mr. Carteret made no direct reply, but moved toward the piano, and
Lady Withers followed. “It is best to speak plainly,” he said,
“because, after all, business is business, as we say.”
“Exactly,” said Lady Withers. Her teeth had ceased to gleam. The
radiance had left her face, though not the bloom upon it. Her large,
beaming eyes had contracted. She looked twenty years older.
“The fact is,” said Mr. Carteret, steadily, “that Barclay is not the
business manager of our ranches. He is not a business man at all. It
is true that he still retains a certain interest in the ranch properties
but he has been so unbusinesslike that everything he’s got is in the
hands of a trustee. He gets his income monthly, like a remittance-
man. He is not in actual want; but—”
“I see,” said Lady Withers, coldly. “I had misunderstood the
situation.” She turned and crossed to one of the card-tables and sat
down.
After she had gone, Mr. Carteret lighted a cigarette and went out. It
was his intention to go to his room, have his tub, and change. His
mind was relieved. He had no fear that Lady Withers would either
beam or radiate for a young man whose fortune was in captivity to a
trustee. He had saved Barclay, and he was pleased with himself. As
he passed through the twilight of the main hallway, the front door
opened, and Lady Mary Granvil and Barclay entered side by side. It
was the girl’s voice that he heard first.
“Please have it dressed at once,” she was saying.
“But there’s no hurry,” said Barclay.
“Please, at once,” said the girl. There was something in her tone that
made Mr. Carteret turn from the stairs and go forward to meet them.
“I’ve snapped my collar-bone,” said Barclay. “It’s nothing.”
The girl drew back a step into the heavy shadow of the corner, but
Mr. Carteret did not notice it. “So old True Blue has put you down at
last,” he said.
“Yes,” said Barclay evasively; “that is—”
“He was not riding True Blue,” said Lady Mary resolutely. “He was
riding my horse. Mr. Barclay changed with me.”
“The horse was all right,” said Barclay, hurriedly. “It was my own
fault. I bothered him at a piece of timber. It wasn’t the horse you
thought it was,” he added rather anxiously. “It was one they got from
Oakly, the dealer.”
Now, Mr. Carteret had sold the horse in question to Oakly, yet he
said nothing, but stood and looked from one to the other. Disturbing
suspicions were springing up in the depths of his mind.
The girl broke the silence. “You ought to get it set without any more
delay,” she said; “you really ought. It will begin to swell. Go up, and I
shall have them telephone for the doctor.”
“You are quite right,” said Mr. Carteret; “but I’ll see about the doctor.”
He turned and started toward the end of the long hall, searching for a
bell that he might summon a servant. Presently it occurred to him
that he had no idea of the doctor’s name, and that there might be
several doctors. He stopped, turned, and came back noiselessly
upon the heavy rug and all but invisible in the dusk of the unlighted
hallway. Suddenly he stopped. The girl had been watching Barclay
as he went up the stairs. As he passed out of sight, she turned and
dropped into a chair with a little sigh, like one who has been under a
strain. On the table beside her lay the silk muffler in which his arm
had been tied. She took it up and began folding it. Then she
smoothed it with curious little strokings and touches, and then
suddenly pressing it to her cheek, put it down and disappeared
through the morning-room doorway in a confusion in which she had
surprised herself. Mr. Carteret stepped back behind a curtain, and
when he was sure that Lady Mary was not coming back, instead of
ordering the doctor, he went to Barclay’s room.
“I should like to know,” he began, “how it was that you were riding
Mary Granvil’s horse?”
Barclay met his look steadily. “I wanted to try it with a view to
purchase,” he answered. “You know Lady Withers had said she
wished to sell it.”
“Excuse me for being plain,” said Mr. Carteret, “but my opinion is that
no man would have ridden that horse when hounds were running
unless he wanted to marry either the woman who owned it or the
woman who was riding it.”
“Well?” said Barclay.
“Well,” said Mr. Carteret, “is it Lady Withers?”
“No,” said Barclay decisively; “it isn’t Lady Withers.”
Mr. Carteret looked at his young friend with outward indifference.
Inwardly he was experiencing much relief. “When are you going to
announce your engagement?” he asked.
Barclay shook his head grimly. “I wish I knew,” he said. “I’m up
against it, I fancy.”
“It’s not my business,” said Mr. Carteret, “but I should like to know
what you mean.”
“Why, in a word, Carty,” said Barclay, “I’m not it, that’s all, and the
situation is such that I don’t see what I can do to make her change
her mind.”
Mr. Carteret looked perplexed. What he had seen in the hall gave
him a feeling of guilt. “When did she refuse you?” he asked at last.
“She hasn’t refused me,” answered Barclay. “You don’t ask a woman
to marry you when you know that she cares for some one else.”
“So she cares for some one else?” observed Mr. Carteret.
“You could guess whom,” said Barclay.
“Supposing she does like Brinton a bit,” said Mr. Carteret, “what’s to
prevent you from getting into the race?”
“Can’t you see!” exclaimed Barclay. “If Lady Withers thought I
wanted to marry her,—you know what she’d do.”
“Well,” said Mr. Carteret, “if she isn’t forced to marry your money,
she’ll have to marry Tappingwell-Sikes’s, and, on the whole, I think
she’d prefer your railroads to his beer.”
“What Sikes may do,” said Barclay, “is not my business; but I want
no woman to marry me if she doesn’t want to.”
“Your sentiments are not discreditable,” observed his friend; “but,
after all, she may want to. You can’t be sure until you ask her.”
“Yes, I can,” said Barclay. “Besides,” he went on, “am I anything
wonderful that she should jump at me?”
“That is not an original suggestion,” said Mr. Carteret, thoughtfully,
“yet it may be in point. However, it is a great mistake to act upon it
when you are making love.”
“In the second place,” Barclay continued, “Captain Brinton has the
inside track.”
“I don’t think so,” said Mr. Carteret, decisively; “they’re too much
together in public.”
Barclay shook his head dismally. “Over here it means they’re
engaged,” he said.
“Well, what do you mean to do about it?” asked Mr. Carteret after a
pause.
“What is there to do?” answered Barclay. “Nothing but wait.”
“My boy,” said the older man, “I’m not surprised that you’re in love
with Mary Granvil; I am myself, and, what’s more, I’m not going to
have her thrown away on a bounder like Tappingwell-Sikes. If you

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Preface xv Taking into Account More Than Two Variables

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