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Australia in the Global Environment

-
Second
@ Pearson Parkin Bade edition
Copyright © Pearson Australia (a division ot arsoA ustralia Group Pty Ltd) 2019 - 9781488625596 - R r in/Macroeconomics 2e
 To Harry, Lucy, Ruby, Madeleine
and Maggie

Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2019 - 9781488625596 - Parkin/ Macroeconomics 2e
This page intentionally left blank.
About the Authors

M ichae/ Parkin is Professor Emeritus in the DepartmentofEconomics

at the University of Western Ontario, Canada. Professor Parkin studied economics
in England and began his university teaching career immediately after graduating
with a B.A. He learned the subject on the job at the University of Essex, England's
most exciting new university of the 1960s, and at the age of 30 became one of the
youngest full professors. His many visiting positions include spells at the Reserve
Bank of Australia, the University of New South Wales, Bond University and the
Bank of Japan. He is a past president of the Canadian Economics Association and
has served on the editorial boards of the American Economic Review and the Journal
of Monetary Economics. His research in macroeconomics, monetary economics and
international economics has resulted in more than 160 publications in journals and
edited volumes, including the American Economic Review, the Journal of Political
Economy, the Review of Economic Studies, the Journal of Monetary Economics and the
Journal of Money, Credit, and Banking. He became most visible to the public with his
work that discredited the use of wage and price controls to tame inflation.

Robin Bade was an undergraduate at the University of Queensland

where she earned degrees in mathematics and economics. After a spell teaching
high school mathematics and physics, she enrolled as a Ph.D. student at ANU,
from which she graduated in 1970. She has held faculty appointments at the
University of Edinburgh, Bond University, and at the Universities of Manitoba,
Toronto, and Western Ontario. Her research on international capital flows appears
in the International Economic Review and the Economic Record.
Robin has been teaching introductory economics (alongside macroeconomics
and international economics) since 1970. She developed many of the ideas found
in this text while conducting tutorials with her students at the University of
Western Ontario.

Robin and Michael are a wife-and-husband team. Their most notable joint
research created the Bade-Parkin Index of central bank independence and
spawned a vast amount of research on that topic. They don't claim credit for the
independence of the new European Central Bank, but its constitution and the
movement towards greater independence of central banks around the world
were aided by their pioneering work. Their joint textbooks include
Macroeconomics (Prentice-Hall), Modern Macroeconomics (Pearson Education
Canada), Economics: Canada in the Global Environment, the Canadian adaptation
of Parkin, Economics (Pearson) and Foundations of Economics (Pearson). They
are dedicated to the challenge of explaining economics ever more clearly to a
growing body of students.
Music, theatre, opera, art and walking on the beach provide their relaxation
and fun.

ix

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 Brief Contents

PART 1 INTRODUCTION
1 Getting Started 1
2 The Australian and Global Economies 31
3 The Economic Problem 57
4 Demand and Supply 83
PART 2 MONITORING THE MACROECONOMY
5 GDP: A Measure of Total Production and
Income 119
6 Jobs and Unemployment 151
7 The CPI and the Cost of Living 175
PART 3 UNDERSTANDING THE MACROECONOMY
8 Economic Growth 201
9 Finance, Saving and Investment 229
10 Money, the Price Level and Inflation 257
11 Aggregate Supply and Aggregate Demand 289
12 Aggregate Expenditure Multiplier 317
13 The Short-Run Policy Tradeoff 349
PART 4 MACROECONOMIC POLICY
14 Fiscal Policy 373
15 Monetary Policy 403
16 International Trade Policy 433
17 International Finance 459
Glossary G-1
Index 1-1

xi

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 Contents

PART 1 INTRODUCTION

• EYE on the BENEFIT AND COST of

CHAPTER 1 UNIVERSITY
Getting Started 1 Did You Make the Right Decision? 15
LEARNING OBJECTIVES 1

1.1 Definition and Questions 2 CHAPTER 2

Scarcity 2 The Australian and Global
Economics Defined 2 Economies 31
What, How and For Whom? 3
LEARNING OBJECTIVES 31
Can the Pursuit of Self-Interest Be in the Social
Interest? 4
2 .1 What, How and For Whom? 32
REVIEW 1.1 7 What Do We Produce? 32
How Do We Produce? 34
1.2 TheEconomicWayofThinking 8
For Whom Do We Produce? 37
Economic Ideas 8
A Choice Is a Tradeoff 8 REVIEW 2.1 38
Cost: What You Must Give Up 8 2.2 The Global Economy 39
Benefit: What You Gain 9 The People 39
Rational Choice 9 The Economies 39
How Much? Choosing at the Margin 10 What in the Global Economy? 40
Choices Respond to Incentives 11 How in the Global Economy? 42
Economics as Social Science 12 For Whom in the Global Economy? 42
Economics as Policy Tool 14
REVIEW 2.2 45
REVIEW 1.2 16
2.3 The Circular Flows 46
CHAPTER SUMMARY 17 Households and Firms 46
CHAPTER REVIEW 18 Markets 46
Real Flows and Money Flows 46
Appendix: Making and Using Graphs 21 Governments 48
Basic Idea 21 Governments in the Circular Flow 49
Interpreting Data Graphs 22 Circular Flows in the Global Economy 50
Interpreting Graphs Used in Economic Models 24
REVIEW 2 .3 52
The Slope of a Relationship 27
Relationships Among More Than Two CHAPTER SUMMARY 53
Variables 28
CHAPTER REVIEW 54
APPENDIX REVIEW 30 • EYE on the AUSTRALIAN ECONOMY
• EYE on the PAST What We Produce 33
Adam Smith and the Birth of Economics as a Social • EYE on the PAST
Science 13 Ch anges in What We Produce 34

xiii

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xiv CONTENTS

• EYE on the AUSTRALIAN ECONOMY • EYE on YOUR LIFE

Changes in How We Produce in the Information Your Comparative Advantage 74
Economy 36 • EYE on the NEWS
• EYE on the DREAMLINER Food Production Possibilities and Opportunity Cost 76
Who Makes the Dreamliner? 41
• EYE on the GLOBAL ECONOMY CHAPTER4
Differences in How We Produce 43 Demand and Supply 83
• EYE on YOUR LIFE LEARNING OBJECTIVES 83
The Australian and Global Economies in Your Life 45
Competitive Markets 84
• EYE on the PAST
The Fluctuating Size of Government 50 4.1 Demand 85
The Law of Demand 85
• EYE on the GLOBAL ECONOMY
Demand Schedule and Demand Curve 85
The Ups and Down s in International Trade 52
Ch anges in Demand 87
Illustrating Changes in Buying Plans 88
CHAPTER 3 REVIEW 4.1 89
The Economic Problem 57
4.2 Supply 90
LEARNING OBJECTIVES 57
The Law of Supply 90
3.1 Production Possibilities 58 Supply Schedule and Supply Curve 90
Production Possibilities Frontier 58 Changes in Supply 92
REVIEW 3.1 63 Illustrating a Change in Selling Plans 93
3.2 Opportunity Cost 64 REVIEW 4 .2 95
The Opportunity Cost of a Mobile Phone 64 4.3 Market Equilibrium 96
Opportunity Cost and the Slope of the PPF 65 Price: A Market's Automatic Regulator 96
Opportunity Cost Is a Ratio 65 Predicting Price Changes: Three Questions 97
Increasing Opportunity Costs Are Everywhere 66 Effects of Changes in Demand 98
Your Increasing Opportunity Cost 66 Effects of Changes in Supply 100
REVIEW 3.2 67 Effects of Changes in Both Demand and Supply 102
3.3 Economic Growth 68 REVIEW 4 .3 104

REVIEW 3.3 70 4.4 Price Rigidities 105

Price Floor 105
3.4 Specialisation and Trade 71
Price Ceiling or Price Cap 107
Absolute Advantage and Comparative Advantage 71
Sticky Price 109
Comparative Advantage: An Example 72
Achieving Gains from Trade 74 REVIEW 4.4 112
REVIEW 3.4 78 CHAPTER SUMMARY 113
CHAPTER SUMMARY 79 CHAPTER REVIEW 114
CHAPTER REVIEW 80 MATHEMATICAL NOTE 116
• EYE on YOUR LIFE • EYE on YOUR LIFE
Your Production Possibilities Frontier 62 Understanding and Using Demand and Supply 94
• EYE on the ENVIRONMENT • EYE on the GLOBAL ECONOMY
Is Wind Power Free? 66 The Markets for Cocoa and Ch ocolate 99
• EYE on the GLOBAL ECONOMY • EYE on the GLOBAL ECONOMY
Expanding Production Possibilities 69 Why Did the Price of Coffee Fall? 101
• EYE on the GLOBAL ECONOMY • EYE on the AUSTRALIAN ECONOMY
Hong Kong's Rapid Economic Growth 70 Measuring the Effect of the Minimum Wage 107
• EYE on the GLOBAL ECONOMY • EYE on the NEWS
No One Knows How to Make a Pencil 71 Demand and Supply: The Price of Wool 110

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 CONTENTS xv

PART 2 MONITORING THE MACROECONOMY

CHAPTER 5 • EYE on the NEWS
Where Are We Heading? 140
GDP: A Measure of Total
Production and Income 119
LEARNING OBJECTIVES 119 CHAPTER 6
5.1 GDP, Income and Expenditure 120 Jobs and Unemployment 151
GDP Defined 120 LEARNING OBJECTIVES 151
Circular Flows in the Australian Economy 121
6.1 Labour Market Indicators 152
Expenditure Equals Income 122
Labour Force Survey 152
REVIEW 5.1 124
Labour Force Survey Criteria 152
5.2 Measuring Australian GDP 125 Two Main Labour Market Indicators 153
The Expenditure Approach 125 Broader Measures of Unemployment 154
The Income Approach 127 REVIEW 6.1 156
GDP and Related Measures of Production and
Income 128 6 .2 Labour Market Trends and
Real GDP and Nominal GDP 130 Fluctuations 157
Calculating Real GDP 130 Unemployment Rate 157
Using the Real GDP Numbers 131 The Participation Rate 158
Alternative Measures of Underused Labour
REVIEW 5.2 132
Resources 160
5.3 The Uses and Limitations of Real A Closer Look at Part-Time Employment 161
GDP 133 REVIEW 6.2 162
The Standard of Living Over Time 133
Tracking the Course of the Business Cycle 134 6.3 Unemployment and Full
The Standard of Living Among Countries 136 Employment 163
Goods and Services Omitted from GDP 137 Frictional Unemployment 163
Other Influences on the Standard of Living 138 Structural Unemployment 163
Cyclical Unemployment 164
REVIEW 5.3 142
"Natural" Unemployment 164
CHAPTER SUMMARY 143 Unemployment and Real GDP 165

CHAPTER REVIEW 144 REVIEW 6.3 170

Appendix: Measuring Real GDP 147 CHAPTER SUMMARY 171

The Problem With Base-Year Prices 147
Value Production in the Prices of Adjacent Years 147 CHAPTER REVIEW 172

APPENDIX REVIEW 150 • EYE on the AUSTRALIAN ECONOMY

The Labour Force Survey 155
• EYE on the AUSTRALIAN ECONOMY
Is a Computer Program an Intermediate Good or a
• EYE on the AUSTRALIAN ECONOMY
The Gig Economy 159
Final Good? 126
• EYE on the BOOMS and BUSTS • EYE on the UNEMPLOYED
How Do We Track the Booms and Busts in Our How Long Does It Take to Find a Job? 164
Economy? 136 • EYE on YOUR LIFE
• EYE on YOUR LIFE Your Labour Market Status and
Making GDP Personal 138 Activity 166

• EYE on the GLOBAL ECONOMY • EYE on the NEWS

Which Country Has the Highest Standard of The Australian Labour Market
Living? 139 in 2018 168

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xvi CONTENTS

Nominal and Real Values in Macroeconomics 189

CHAPTER 7 Nominal GDP and Real GDP 189
The CPI and the Cost of Nominal Wage Rate and Real Wage Rate 190
Living 175 Nominal Interest Rate and Real Interest Rate 192
LEARNING OBJECTIVES 175 REVIEW 7.3 196

7.1 The Consumer Price Index 176 CHAPTER SUMMARY 197

Reading the CPI Numbers 176 CHAPTER REVIEW 198
Constructing the CPI 176
• EYE on the PAST
The CPI Market Basket 176
700 Years of Inflation and Deflation 180
The Quarterly Price Survey 177
Calculating the CPI 178 • EYE on the AUSTRALIAN ECONOMY
Measuring Inflation and Deflation 179 Deflating the GDP Balloon 189
REVIEW 7.1 181 • EYE on the PAST
The Nominal and Real Wage Rates of Presidents of the
7.2 The CPI and Other Price Level Measures 182 United States 191
Sources of Bias in the CPI 182
• EYE on BOX OFFICE HITS
The Magnitude of the Bias 183
Which Movie Really Was the Biggest Box Office
Two Consequences of the CPI Bias 184
Hit? 192
Alternative Measures of the Price Level and Inflation
Rate 185 • EYE on YOUR LIFE
REVIEW 7.2 187 A Student's CPI 193
• EYE on the NEWS
7.3 Nominal and Real Values 188 Have Australian Wages Stagnated? 194
Dollars and Cents at Different Dates 188

PART 3 UNDERSTANDING THE MACROECONOMY

New Growth Theory 218
CHAPTER 8 Policies to Achieve Faster Growth 220
Economic Growth 201 REVIEW 8 .3 224
LEARNING OBJECTIVES 201
CHAPTER SUMMARY 225
8.1 The Basics of Economic Growth 202
Economic Growth Versus Business Cycle CHAPTER REVIEW 226
Expansion 202 • EYE on the PAST
Calculating Growth Rates 202 How Fast Has Real GDP per Person Grown? 204
The Magic of Sustained Growth 202 • EYE on the GLOBAL ECONOMY
REVIEW 8.1 205 Labour Productivity in Australia, Europe and the
United States 211
8 .2 The Mechanics of Economic Growth 206
The Production Function 206 • EYE on the GLOBAL ECONOMY
The Quantity of Labour 206 Why Do Americans Earn More and Produce More than
Growth of the Supply of Labour 208 Australians? 214
Growth of Labour Productivity 211 • EYE on YOUR LIFE
Labour Productivity Source of Improved Living How You Influence and Are Influenced by Economic
Standards 212 Growth 220
REVIEW 8 .2 215 • EYE on RICH and POOR NATIONS
Why Are Some Nations Rich and Others Poor? 221
8.3 What Makes an Economy Grow? 216
Preconditions for Productivity Growth 216 • EYE on the NEWS
The Pace of Productivity Growth 217 Making an Economy Grow 222

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 CONTENTS xvii

10.2 The Banking System 264

CHAPTER 9 Deposit-Taking Institutions 264
Finance, Saving and What Banks Do 264
Investment 229 The Reserve Bank of Australia 266
LEARNING OBJECTIVES 229 REVIEW 10.2 269

9.1 Financial Institutions and Markets 230
Some Finance Definitions 230
Markets for Financial Capital 231
Financial Institutions 233
Insolvency and Illiquidity 234
Interest Rates and Asset Prices 234
REVIEW 9.1 235
9.2 The Loanable Funds Market 236
Flows in the Loanable Funds Market 236
The Demand for Loanable Funds 237
The Supply of Loanable Funds 240
Equilibrium in the Loanable Funds Market 243
Changes in Demand and Supply 244
REVIEW 9.2 245
9.3 Government in Loanable Funds Market 246
A Government Budget Surplus 246
A Government Budget Deficit 247
REVIEW 9.3 252
CHAPTER SUMMARY 253
CHAPTER REVIEW 254
• EYE on YOUR LIFE
Your Participation in the Loanable Funds
Market 248
• EYE on FINANCIAL MARKETS
Why Have Interest Rates Been So Low?
• EYE on the NEWS
Interest Rates Low but Fall 250
10. 3 Regulating the Quantity of Money 270
Creating Deposits by Making Loans 270
The Reserve Bank's Policy Tools 271
How Open Market Operations Change the
Monetary Base 272
The Multiplier Effect of an Open Market
Operation 273
The Money Multiplier 274
REVIEW 10.3 276
10.4 Money, the Interest Rate and the Price
Level 277
The Demand for Money 277
Changes in the Demand for Money 278
The Supply of Money 279
The Nominal Interest Rate 279
Changin g the Interest Ra te 280
The Money Market in the Long Run 281
REVIEW 10.4 284
CHAPTER SUMMARY 285
CHAPTER REVIEW 286
• EYE on the PAST
The "Invention" of Banking 267
• EYE on YOUR LIFE
Money and Your Role in Its Creation 270
• EYE on CREATING MONEY
249 How Does the Reserve Bank Create Money and
Regulate Its Quantity? 275
• EYE on the NEWS
The Reserve Bank in Action 282

CHAPTER 1Q
Money, the Price Level and CHAPTER 11
Inflation 257 Aggregate Supply and Aggregate
LEARNING OBJECTIVES 257 Demand 289
LEARNING OBJECTIVES 289
10.1 What is Money? 258
Definition of Money 258 11.1 Aggregate Supply 290
The Functions of Money 258 Aggregate Supply Basics 290
Money Today 260 Changes in Aggregate Supply 293
Official Measures of Money: Ml and M3 260 REVIEWll.1 295
Cheques, Credit Cards, Debit Cards
and EFTPOS? 261 11 .2 Aggregate Demand 296
An Embryonic New Money: e-Cash 262
Aggregate Demand Basics 296
Changes in Aggregate Demand 298
REVIEW 10.1 263

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xviii CONTENTS

The Aggregate Demand Multiplier 300 REVIEW 12.3 335

REVIEW 11.2 301 12.4 The AD Curve and Equilibrium
11.3 Explaining Economic Trends and Expenditure 336
Fluctuations 302 Deriving the AD Curve from Equilibrium
Macroeconomic Equilibrium 302 Expenditure 336
Three Types of Macroeconomic Equilibrium 303 REVIEW 12.4 340
Economic Growth and Inflation Trends 304
CHAPTER SUMMARY 341
The Business Cycle 305
Inflation Cycles 306 CHAPTER REVIEW 342
Deflation and the Great Depression 308
MATHEMATICAL NOTE 344
REVIEWll.3 312
• EYE on the AUSTRALIAN ECONOMY
CHAPTER SUMMARY 313 The Australian Consumption Function 322
CHAPTER REVIEW 314 • EYE on the PAST
• EYE on the AUSTRALIAN ECONOMY Say's Law and Keynes' Principle of Effective
Australian Economic Growth, Tnflation and the Demand 328
Business Cycle 304 • EYE on YOUR LIFE
• EYE on YOUR LIFE Looking for Multipliers 333
Using the AS-AD Model 308 • EYE on the MULTIPLIER
• EYE on the BUSINESS CYCLE How Big Is the Government Expenditure Multiplier? 334
How Did Australia Escape the Global Recession of • EYE on the NEWS
2008? 309 The Expenditure Multiplier in Reverse Gear 338
• EYE on the NEWS
The Outlook for the Australian Economy in CHAPTER 13
2019- 2020 310
The Short-Run Policy
Tradeoff 349
CHAPTER 12 LEARNING OBJECTIVES 349
Aggregate Expenditure 13.1 The Short-Run Phillips Curve 350
Multiplier 317 Aggregate Supply and the Short-Run Phillips
LEARNING OBJECTIVES 317 Curve 351
Aggregate Demand Fluctuations 353
12.1 Expenditure Plans and Real GDP 318
Why Bother with the Phillips Curve? 354
The Consumption Function 318
Imports and Real GDP 322 REVIEW 13.1 355
REVIEW 12.1 323 13.2 Short-Run and Long-Run Phillips Curves 356
The Long-Run Phillips Curve 356
12.2 Equilibrium Expenditure 324
Expected Inflation 357
Induced Expenditure and Autonomous
The Natural Rate Hypothesis 358
Expenditure 324
Changes in the Natural Unemployment Rate 359
Aggregate Planned Expenditure and Real GDP 324
Have Changes in the Natural Unemployment Rate
Equilibrium Expenditure 326
Changed the Tradeoff? 360
Convergence to Equilibrium 327
REVIEW 13.2 362
REVIEW 12.2 329
13.3 Influencing Inflation and
12.3 Expenditure Multipliers 330
Unemployment 363
The Basic Idea of the Multiplier 330
Influencing the Expected Inflation Rate 363
The Size of the Multiplier 331
Targeting the Unemployment Rate 364
The Multiplier and the MPC 331
The Multiplier, Imports and Income Taxes 332 REVIEW 13.3 368
Business-Cycle Turning Points 334 CHAPTER SUMMARY 369

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 CONTENTS xix

CHAPTER REVIEW 370 • EYE on the TRADEOFF

• EYE on the GLOBAL ECONOMY Can We Keep Inflation Low as Unemployment
Inflation and Unemployment 353 Falls? 361

• EYE on the PAST • EYE on YOUR LIFE

The U.S. Phillips Curve 354 The Short-Run Tradeoff in Your Life 365

• EYE on the PAST • EYE on the NEWS

A Live Test of the Natural Rate Hypothesis 359 Today's Shifting Short-Run Tradeoff 366

PART 4 MACROECONOMIC POLICY

• EYE on the AUSTRALIAN ECONOMY
CHAPTER 14 Structural and Cyclical Budget Balances 383
Fiscal Policy 373
• EYE on the GLOBAL ECONOMY
LEARNING OBJECTIVES 373 Some Real-World Tax Wedges 389
14.1 The Australian Government Budget 374 • EYE on the BUDGET DEFICIT
The Budget Making Process 374 Will Australia's Government Budget Return to and
The Budget in 2017 /18 374 Remain in Surplus? 393
Budget Balance and Debt 376 • EYE on YOUR LIFE
Why Do Deficits and Debts Matter? 376 Your Views on Fiscal Policy and How Fiscal Policy
The Budget Time Bomb 378 Affects You 395
REVIEW 14.1 380
• EYE on the NEWS
14.2 Fiscal Stimulus 381 A Supply-Side Policy 396
Schools of Thought and Cracks in Today's
Consensus 381 CHAPTER 15
Fiscal Policy and Aggregate Demand 382 Monetary Policy 403
Automatic Fiscal Policy 382
LEARNING OBJECTIVES 403
Cyclical and Structural Budget Balances 383
Discretionary Fiscal Policy 384 15.1 Objective, Framework and Tools 404
A Successful Fiscal Stimulus 385 Monetary Policy Objective 404
Limitations of Discretionary Fiscal Policy 386 Statement on the Conduct of Monetary Policy 404
REVIEW 14.2 387 A Prerequisite for Achieving the Goals of Monetary
Policy 405
14.3 The Supply Side: Potential GDP and Responsibility for Monetary Policy 406
Growth 388 The Conduct of Monetary Policy 406
Full Employment and Potential GDP 388
REVIEW 15.1 411
Fiscal Policy, Employment and Potential GDP 388
Fiscal Policy and Potential GDP: A Graphical 15.2 Monetary Policy Transmission 412
Analysis 390 Quick Overview 412
Taxes, Deficits and Economic Growth 391 Interest Rate Changes 412
The Supply-Side Debate 392 Exchange Rate Changes 414
Combined Demand-Side and Supply-Side Effects 394 Money and Bank Loans 414
Long-Run Fiscal Policy Effects 395 The Long-Term Real Interest Rate 415
REVIEW 14. 3 398 Expenditure Plans 415
The Reserve Bank Fights Recession 416
CHAPTER SUMMARY 399 The Reserve Bank Fights Inflation 418
CHAPTER REVIEW 400 Loose Links and Long and Variable Lags 420
• EYE on the PAST A Final Reality Check 420
Australian Government Budgets Since 1970/71 377 REVIEW 15.2 421

• EYE on the GLOBAL ECONOMY 15.3 Alternative Monetary Policy Strategies 422
Australia's Deficit and Debt in Global Perspective 379 How Well Does Inflation Targeting Work? 422

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XX CONTENTS

Money Targeting 424 • EYE on the NEWS

Nominal GDP Targeting 425 The Benefits of Free Trade 452
Why Targets and Rules? 425
428
REVIEW 15.3
CHAPTER 17
CHAPTER SUMMARY 429 International Finance 459
CHAPTER REVIEW 430 LEARNING OBJECTIVES 459
• EYE on the RESERVE BANK in a CRISIS
17.1 Financing International Trade 460
Did the Reserve Bank Save Us from the Global
Balance of Payments Accounts 460
Financial Crisis? 410
Borrowers and Lenders 462
• EYE on the GLOBAL ECONOMY Debtors and Creditors 462
Inflation Targeting Around the World 423 Current Account Balance 463
• EYE on YOUR LIFE Net Exports 463
Your Views on Monetary Policy and How Monetary REVIEW 17.1 466
Policy Affects You 425
17.2 The Exchange Rate 467
• EYE on the NEWS Demand in the Foreign Exchange Market 468
A Reserve Bank Interest Rate Decision 426 The Law of Demand for Foreign Exchange 468
Changes in the Demand for Australian Dollars 469
CHAPTER 16 Supply in the Foreign Exchange Market 471
International Trade Policy 433 The Law of Supply of Foreign Exchange 471
LEARNING OBJECTIVES 433 Changes in the Supply of Australian Dollars 472
Foreign Exchange Market Equilibrium 474
16.1 How Global Markets Work 434 Exchange Rate Expectations 476
International Trade Today 434 Purchasing Power Parity 476
What Drives International Trade? 434 Monetary Policy and the Exchange Rate 478
Why Australia Imports Cars 436 Pegging the Exchange Rate 478
Why Australia Exports Coal 437 The People's Bank of China in the Foreign Exchange
Winners, Losers and Net Gains From Trade 438 Market 479
REVIEW 16.1 440 REVIEW 17.2 484
16.2 International Trade Restrictions 441 CHAPTER SUMMARY 485
Tariffs 441
Import Quotas 444 CHAPTER REVIEW 486
Other Import Barriers 445 • EYE on the AUSTRALIAN ECONOMY
REVIEW 16.2 446 The Australian Balance of Payments 461
16.3 The Case Against Protection 447 • EYE on the GLOBAL ECONOMY
Three Traditional Arguments for Protection 447 Current Account Balances Around the World 465
Four Newer Arguments for Protection 449 • EYE on the AUSTRALIAN DOLLAR
Why Is International Trade Restricted? 450 Why Does Our Dollar Fluctuate? 475
REVIEW 16.3 454 • EYE on the GLOBAL ECONOMY
CHAPTER SUMMARY 455 Purchasing Power Parity 477
• EYE on the GLOBAL ECONOMY
CHAPTER REVIEW 456
The Managed Yuan 481
• EYE on the AUSTRALIAN ECONOMY
• EYE on YOUR LIFE
Australian Exports and Imports 435
Your Foreign Exchange Transactions 481
• EYE on GLOBALISATION
• EYE on the NEWS
Who Wins and Who Loses from Globalisation? 439
Big Range of Exchange Rate Forecasts 482
• EYE on the PAST
The History of Australian Tariffs 441 Glossary G-1
• EYE on YOUR LIFE Index 1-1
International Trade 451

Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2019 - 9781488625596 - Parkin/ Macroeconomics 2e
 Preface

Why?
With a crowded market of established macroeconomics text-
books, why have we written Macroeconomics: Australia in the
Global Environment and its microeconomics companion? Is
this rational behaviour?
We think so. We have been driven to write this book by
what our own students and several hundred of our fellow
economists in universities around the world have repeatedly
told us. Economics is a core competency for the responsible
citizen and a foundation tool for every type of career. But the challenges of learn-
ing and teaching economics are formidable. Students have diverse backgrounds
and learning styles. We must fit an entire course in macroeconomics into too
few weeks. And we must meet the challenge of using new technologies in our
classrooms.
As we contemplated these challenges, it became clear to us that to meet
them, we needed to rethink the way we teach our subject and to create a new
learning system for our students.

LOWERING THE BARRIERS TO ENTRY

Most economists want to teach a serious, analytical course that explains the core
principles of our subject and helps students apply these principles in their lives
and jobs. We are not content to teach "dumbed-down" economics. But most
students drown rather than learn to swim when thrown into the deep end of the
pool. In this book and its accompanying learning tools, we make painstaking
efforts to lower the barriers to learning and to reach out to the beginning
student.
We focus on core concepts. We steer a steady path between an overload of
detail that swamps the students and a minimalist approach that leaves the student
dangling with too much unsaid. We explain tough concepts with the simplest,
most straightforward language possible, and we reinforce them with clear, fully
explained graphs. And we offer students a rich array of active learning tools that
provide alternative ways of accessing and mastering the material.

• Focus on Core Concepts

Each chapter concentrates on a manageable number of main ideas (most com-
monly three or four) and reinforces each idea several times throughout the chap-
ter. This patient, confidence-building approach guides students through unfa-
miliar terrain and helps them to focus their efforts on the most important tools
and concepts of our discipline.
xxi

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xxii PREFACE

• Figures That Tell the Whole Story

We developed the style of our figures with extensive feedback from focus group
participants and student reviewers. All our figures make consistent use of
colour to show the direction of shifts and contain detailed, numbered captions
designed to direct students' attention step by step through the action. Because
beginning students of economics are often apprehensive about working with
graphs, we have made a special effort to present material in three ways- with
graphs, words and tables-in the same figure. And in an innovation that seems
necessary but is to our knowledge unmatched, nearly all of the information
supporting a figure appears on the same page as the figure itself. No more
flipping pages back and forth!

• Many Learning Tools for Many Learning Styles

Our text and its integrated print and electronic learning package recognise
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All students can profit from an active learning approach. The textbook
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PRACTICE MAKES PERFECT

Everyone agrees that the only way to learn economics is to do it! Reading
and remembering doesn't work. Active involvement, working problems and
repeated self-testing: These are the ingredients to success in this subject. We
have structured this text and its accompanying electronic and print tools to
encourage learning by doing. The central device that accomplishes this goal
is a tightly knit learning system based on our Learning Objectives-Review
structure.

• Learning Objectives
Each chapter opens with the chapter's Learning Objectives-a list of (usually)
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chapter. Each item in the Learning Objective corresponds to a major section of
the chapter that engages the student with a conversational writing style, well-
chosen examples and rich, carefully designed illustrations.

• Reviews
A full-page Review containing Practice Problems and an In the News exercise,
each with solutions, immediately follows each chapter section. The Reviews
serve as stopping points and encourage students to review the concept and to
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clarity to the Review problems and solutions.

• Chapter Summaries
At the end of each chapter, a Chapter Summary summarises what the student
has just learned with a set of key points and a list of key terms.

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 PREFAC E xxiii

• Chapter Reviews
Following the Chapter Summary, the Chapter Review includes a set of Study
Plan Problems and Applications, a set of Additional Problems and Applications,
and a Multiple Choice Quiz.

• Conveying the Excitement

Students learn best when they can see the point of what they are studying.
We show the point in a series of Eye On ... features. Current and recent events
appear in Eye on the Australian Economy boxes. We place our present experience
in global and historical perspectives with Eye on the Global Economy and Eye on
the Past boxes. Eye on the News, which appears once each chapter, is an extract
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ORGANISATION

We cover all the standard topics of the principles of macroeconomics curriculum.

And we do so in the order that is increasingly finding favour. We believe that a
powerful case can be made for teaching the subject in the order in which we pres-
ent it here.
We begin with the fundamental questions of economics and an overview
of the economic way of thinking; the key facts about the performance of the
Australian and global economies and the circular flows through markets for
goods and factors of production; the production possibilities frontier and the
gains from trade; and demand and supply and the effects of price controls and
sticky prices. We present the rest of the material in three broad parts, monitoring,
understanding and policy.
A key organising device is the idea that at full employment, the real economy
is influenced by only real variables and the price level is proportional to the
quantity of money. This so-called "classical dichotomy" has been incredibly fruit-
ful in advancing our understanding of both the full-employment economy and
the ever-present cycles around full employment. By having a firm understanding
of the real forces that determine potential GDP (and the natural unemployment
rate), the student better appreciates the more complex interactions of real and
monetary forces that make our economy fluctuate. Further, the student sees that
the long-term trends in our economy play a larger role in determining our stan-
dard of living and cost of living than do the fluctuations around those trends.
Deciding the order in which to teach the components of macroeconomics
involves a tradeoff between building all the foundations and getting to policy
issues early in the course. There is little disagreement that the place to begin af-
ter the preliminaries of production possibilities and demand and supply, is with
coverage of the definitions and measurement of the key economic aggregates. We
provide a carefully paced and thoroughly modern treatment of this material with
separate chapters devoted to GDP, jobs and unemployment, and inflation and the
cost of living.
Our chapters on understanding the macroeconomy begin with the real forces
that determine potential GDP and its long-term growth rate, followed by an
explanation of how financial markets work to channel saving and harness it to
bring the capital accumulation that feeds economic growth.
We then turn to the monetary economy and explain what money is, how it is
created, and how its quantity determines the price level and the cost of living.

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xxiv PREFACE

With all the prerequisites in place, we provide a well-paced and comprehen-

sive account of the aggregate supply-aggregate demand model of the determi-
nation of real GDP and the price level. We follow this material with an optional
explanation of the traditional Keynesian model of aggregate demand and round
off the part with an explanation of the short-run Phillips curve tradeoff between
inflation and output (and unemployment).
Four policy chapters, including an explanation of how the foreign exchange
market works, round off the coverage of macroeconomics.
Extensive reviewing suggests that most people like this structure. But
we recognise that there is a range of opinion about sequencing, and we have
designed our text so that it works equally well if other sequences are preferred.
The Flexibility Chart on p. xxvi provides a guide to the alternative pathways.

RESOURCES FOR EDUCATORS AND STUDENTS

A suite of resources is provided to assist with delivery of the text, as well as to sup-
port teaching and learning. These resources can be downloaded from the Pearson
website: www.pearson.corn.au/ 9781488625596.

• Solutions Manual
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• Test Bank
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• PowerPoint® Resource
We have created three sets of PowerPoint®lecture presentations based on our own
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• Lectures with full-colour, animated figures, and textbook tables
• Figures and tables from the textbook, animated with step-by-step walk-
through to enliven a user 's own personal slides
• Eye On features
A student version of the lecture presentations is also available on MyLab
Economics.

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Another random document with
no related content on Scribd:
282.—Prothesis applied to face 207
Subcutaneous Hydrocarbon Protheses
283.—Circulation of the head (author) Facing 210
284.—Eckstein insulated syringe 232
285.—Quinlan paraffin heater 232
286.—Author’s electrothermic paraffin heater 244
287.—Smith paraffin heater 246
288 a, 288 b.—Microphotograph, showing
fibromatosis Facing 258
289.—Author’s drop syringe 265
290.—Author’s all-metal syringe 266
291.—Smith’s all-metal syringe 267
292, 293.—Anterior superior third nasal deficiency
and correction thereof 289
294, 295.—Anterior median third nasal deficiency and
correction thereof 292
296, 297.—Anterior inferior third nasal deficiency and
correction thereof 294
298 a, 298 b.—Anterior superior and inferior third
nasal deficiency and correction thereof 301
299, 300.—Anterior total nasal deficiency and
corrections thereof 303
301.—Untoward effect of paraffin injection about
lobule and anterior nasal line 311
302, 303.—Profile view, showing correction of antero-
lateral deficiency about chin 330
304, 305.—Frontal view, showing correction of antero-
lateral deficiency about chin; also correction of
deficiency of cheeks 332
Rhinoplasty
306.—Deficiency of superior and middle third of nose 342
307.—Post-ulcerative deformity of superior third of
nose 342
308.—Loss of right ala, lobule and columna 342
309.—Loss of lobule, inferior septum and columna 342
310.—Ulcerative loss of right median lateral skin of
nose 343
311.—Loss of nasal bones, partial dorsum, lobule and
septum 343
312.—Destruction of nasal bones with dorsum and
lobule intact 343
313.—Total loss of nose 343
314, 315, 316.—Koomas method of rhinoplasty 353
317.—Graefe method of rhinoplasty 353
318, 319, 320, 321.—Delpech method of rhinoplasty 354
322, 323.—Lisfranc method of rhinoplasty 355
324.—Labat method of rhinoplasty 356
325.—Keegan method of rhinoplasty 356
326.—Duberwitsky method of rhinoplasty 357
327.—Dieffenbach method of rhinoplasty 357
328.—Von Ammon method of rhinoplasty 358
329.—Auvert method of rhinoplasty 358
330.—Von Langenbeck method of rhinoplasty 359
331, 332.—Petrali method of rhinoplasty 360
333.—Forque method of rhinoplasty 361
334.—D’Alguie method of rhinoplasty 361
335.—Landreau method of rhinoplasty 361
336.—Von Langenbeck method of rhinoplasty 361
337.—Von Langenbeck method of rhinoplasty 362
338.—Szymanowski method of rhinoplasty 362
339.—Nélaton method of rhinoplasty 365
340.—Heuter method of rhinoplasty 365
341.—Bürow method of rhinoplasty 365
342.—Szymanowski method of rhinoplasty 366
343, 344.—Serre method of rhinoplasty 367
345, 346.—Maisonneuve method of rhinoplasty 369
347, 348, 349.—Dieffenbach arm-flap method 373
350.—Szymanowski arm-flap method 375
351.—Fabrizi arm-flap method 376
352, 353.—Steinthal thoracic flap method 377
354, 355.—Volkman method of rhinoplasty 379
356.—Keegan method of rhinoplasty 380
357, 358.—Verneuil method of rhinoplasty 380
359, 360.—Thiersch method of rhinoplasty 381
361, 362.—Helferich method of rhinoplasty 382
363, 364.—Sedillot method of rhinoplasty 383
365.—Berger arm-flap method 385
366.—Berger retention apparatus 385
367, 368.—Szymanowski rhinoplasty method 386
369.—König rhinoplasty method 391
370.—Von Hacker rhinoplasty method, arrangement
of frontal flap to allow chiseling 392
371.—Von Hacker rhinoplasty method, making osteo-
periostic support 392
372.—Von Hacker rhinoplasty method, bone-lined flap
in position 392
373, 374.—Rotter rhinoplastic method 394
375, 376.—Schimmelbusch frontal flap method 395
377, 378.—Helferich rhinoplasty method 397
379, 380, 381.—Krause rhinoplasty method 399
382.—Nélaton rhinoplasty method 400
383.—Nélaton rhinoplasty method, making bony
support 400
384.—Nélaton rhinoplasty method, cutting through
bony plate 401
385.—Nélaton rhinoplasty method, disposition of
frontal flap 401
386.—Israel method, forearm flap 402
387.—Israel method, position of forearm to place flap 403
388.—Nélaton method, outlining frontal flap 407
389.—Nélaton method, locating cartilage strip 408
390.—Nélaton method, excision of cartilage strip 409
391.—Nélaton method, placing of cartilage strip 410
392.—Nélaton method, bringing down frontal flap 411
393.—Nélaton method, placing frontal flap 411
394, 395.—Steinhausen partial rhinoplasty method 412
396, 397.—Neumann partial rhinoplasty method 413
398, 399, 400.—Later Neumann partial rhinoplasty
method 415
401.—Bardenheuer method, shape of flap 416
402.—Bardenheuer method, disposition of flap 416
403.—Ollier method first step 417
404.—Ollier method, second step 418
405.—Ollier method, position nasal bone occupies 418
406.—Von Langenbeck method, first step 419
407.—Von Langenbeck method, showing separation
and elevation of nose flaps 419
408.—Nélaton method, first step 421
409.—Nélaton method, making lower nasal flap 421
410.—Nélaton method, forming base of nose 422
411.—Nélaton method, ultimate disposition of flap 422
412.—Bayer-Payr restoration of lobule, first step 425
413.—Bayer-Payr restoration of lobule, disposition of
flaps 425
414.—Bayer-Payr restoration of lobule, placing of
pedicles after division 425
415.—Ch. Nélaton method, attachment of forearm
flap 426
416.—Ch. Nélaton method, forearm flap in position,
lateral flaps 426
417.—Ch. Nélaton method, disposition lateral flaps 426
418.—Denonvillier method, making of flap for ala 428
419.—Denonvillier method, disposition of flap for
anterior pedicle ala 428
420.—Denonvillier method, making of flap for ala,
posterior pedicle 428
421.—Denonvillier method, disposition of flap for ala, 428
 posterior pedicle
422, 423.—Mutter method of restoration of ala 429
424, 425.—Von Langenbeck method of restoration of
ala 430
426.—Busch method of restoration of ala 430
427.—Dieffenbach method of restoration of ala 431
428.—Dupuytren method of restoration of ala 431
429.—Fritz-Reich method of restoration of ala 431
430, 431, 432, 433.—Sedillot method of restoration of
ala 432
434, 435.—Nélaton method of restoration of ala 433
436, 437.—Bonnet method of restoration of ala 434
438, 439.—Weber method of restoration of ala 434
440.—Thompson mucosa flap 435
441, 442.—Thompson method of restoration of ala 435
443, 444.—Blandin method of restoration of ala 436
445, 446.—Von Hacker method of restoration of ala 436
447, 448.—Kolle method of restoration of ala 437
449.—Denonvillier method of restoration of ala 438
450, 451, 452.—Von Hacker method of restoration of
ala 439
453.—König method of restoration of ala 440
454, 455.—Kolle method of restoration of ala 441
456, 457.—Kolle method of restoration of lobule 442
458, 459.—Blandin method of restoration of
subseptum 444
460, 461.—Dupuytren method of restoration of
subseptum 445
462.—Serre method of restoration of subseptum 445
463, 464.—Dieffenbach method of restoration of
subseptum 446
465.—Heuter method of restoration of subseptum 446
466.—Szymanowski method of restoration of
subseptum 446
467, 468.—Szymanowski method of restoration of 447
 subseptum
Cosmetic Rhinoplasty
469 a, 469 b.—Monk method of correction of angular
nose 450
470, 471, 472.—Median nasal incision for angular
nose 451
473, 474.—Kolle method of lateral incision for angular
nose 452
475, 476.—Kolle chisel set 453
477.—Kolle metal mallet 453
478, 479.—Kolle method of correction of retroussé
nose 454
480, 481.—Kolle method of correction of broad lobule 456
482, 483.—Kolle method of correction of elongated
lobule 458
484.—Kolle method of correction of elongated lobule
and base of nose after excision 460
485.—Kolle method of correction of elongated lobule
base of alæ and lobule 460
486, 487.—Kolle plaster cast of lobule operation 461
488, 489.—Kolle plaster cast of lobule operation 462
490, 491.—Kolle plaster cast of lobule operation 463
492, 493.—Kolle plaster cast of lobule operation 464
494, 495.—Gensoul method of correcting broad nasal
base 465
496, 497.—Kolle method of correction of broad nasal
base 465
498, 499.—Linhardt method of reduction of thickened
alæ 466
500, 501.—Dieffenbach method of reduction of
thickened nose 467
Electrolysis in Dermatology
502.—Electric wet cell 470
503.—Series connection of cells 472
504.—Shunt rheostat connection 473
505.—Cell selector 474
506.—Cell selector and battery connection 474
507.—Milliampèremeter 475
508.—Direct current wall plate 475
509.—Wall-plate connections 475
510 a.—Portable wet cell apparatus 476
510 b.—Portable dry cell apparatus 477
511.—Sponge electrode 478
512.—Arm electrode 478
513, 514.—Electrolytic needle holders 479
515.—Interrupting current needle holder 479
516.—Needle holder with magnifying glass 479
517.—Epilating forceps 481
518.—Electrolysis method for destroying growths 483
519.—Multiple needle electrode 484
520.—Kolle electric apparatus for tattooing scars 487
Case Recording Methods
521.—Nose stencil 492
522.—Method of making nose plaster cast 494
PLASTIC AND COSMETIC
SURGERY
 CHAPTER I
HISTORICAL

It seems almost incredible that at this late day so little is generally

known to the surgical profession of the beautiful and practical, not to
say grateful, art of plastic or restorative surgery, successfully
practiced even by the ancients.
The progress of the art has been much interrupted. It is only the
later methods of antisepsis, which have so greatly added to general
surgery, that have placed it firmly upon the basis of a distinct and
separate art in surgical science.
To Aulus Cornelius Celsus, a Latin physician and philosopher,
supposed to have lived in the time of Augustus, we owe the first
authentic principles of the science. He was a most prolific writer and
an urgent worker. After having introduced the Hippocratic system to
the Romans he became known as the Roman Hippocrates. His best-
known work handed down to us is the “De Medicina,” the first edition
of which, divided into eight books, appeared in Florence in 1478. The
seventh and eighth volumes, designated the “Surgical Bible,” contain
much valuable data in reference to opinions and observations of the
Alexandrian School of Medicine.
In considering plastic operations about the face (Curta in auribus,
labrisque ac naribus) he writes, “Ratio curationis ejus modi est; id
quod curtatum est, in quadratum redigere; ab interoribus ejus angulis
lineas transversas incidere, quæ citeriorem partem ab ulteriore ex
toto diducant; deinda ea quæ resolvimus, in unum adducere. Si non
satis junguntur, ultra lineas, quas ante fecimus, alias dua lunatas et
ad plagam conversas immittere, quibus summa tantum cutis
diducatur, sic enim fit, ut facilius quod adducitur, segui possit, quod
non vi cogendum est, sed ita adducendum ut ex facili subsequatur;
et dimissum non multum recedat.”
 Centuries elapsed before a clear understanding of the above was
deduced. Several analyses have been advanced, those of O. Weber
and Malgaigne being the most generally accepted.
As shown in Fig. 1 the method advanced is one for the restoration
or repair of an irregular defect about the face in which two transverse
incisions forming angular skin flaps, dissected from the underlying
tissue, are advanced, joining the denuded free ends.
Should there be a lack of tissue to accomplish perfect coaptation a
semilunar incision beyond either outer border is added, as shown in
Fig. 2, which permits of greater traction, leaving two small
quatrespheral areas to heal over by granulation:
 Fig. 1.—Celsus Incision for Restoration of
Defect.

Fig. 2.—Celsus Incision to Relieve Tension.

This is the oldest known reference to plastic surgery of times

remote.
 From the Orient, however, Susrata in his Ayur-Veda, the exact
period of which is unknown, discloses the use of rhinoplastic
methods.
For centuries following, and throughout the middle ages, the art
seems to have waned and remained practically unknown, as far as is
shown in the literature of that period.
A revivalist first appeared about the middle of the fifteenth century
in the person of Branca, of Catania, a Sicilian surgeon, who about
1442 established a reputation of building up noses from the skin of
the face (exore). His son Antonius enlarged upon his methods and is
said to have utilized the integument of the arm to accomplish the
same result, thus overcoming the extensive scarring of the face
following the elder’s mode. He seems to have been the first authority
employing the so-called Italian rhinoplastic method. He is also known
to have ventured, more or less, successfully in operations about the
lips and ears.
Balthazar Pavoni and Mongitore repeated these methods of
operative procedure with more or less success and the brothers
Bojanis acquired great celebrity at Naples in the art of remodeling
noses.
Vincent Vianeo followed the work of the above.
But, somehow, the heroic efforts of these men dropped so much
into oblivion that Fabricius ab Aquapende, in writing of the
rhinoplastic work of the brothers Bojani, of Calabria, says: “Primi qui
modum reparandi nasum coluere, fuerunt calabri; deinde devenit ad
medicos Bononienses.”
That Germany was interested at an early date is shown in the
admirable work of a chevalier of the Teutonic Order, Brother Heinrich
Von Pfohlspundt, who wrote a book on the subject entitled “Buch der
Brundth Ertznei,” with a subtitle, “Eynem eine nawe nasse zu
mache.” His volume appeared in 1460, about the time of Antonio
Branca, of whose methods he was ignorant, claiming to have
learned the art from an Italian who succored many by his skill.
 Between the years of 1546 and 1599 Kaspar Tagliacozzi,
Professor at Bologna, followed the art of rhinoplasty. His pupils
published a book at Venice, describing his work in 1597, entitled “De
Corturum chirurgia per insitionem,” which established the first
authentic volume in restorative surgery. His operation for restoring
the entire nose from a double pedicle flap taken from the arm was
declared famous and the operation he then advocated still bears his
name.
The great Ambroise Pare knew little of rhinoplasty except what he
learned from hearsay. As an instance, he relates in 1575 that “A
gentleman named Cadet de Saint-Thoan, who had lost his nose, for
a long time wore a nose made of silver and while being much hurt by
the criticisms and taunts of his acquaintances heard of a master in
Italy who restored noses. He went there and had his facial organ
restored, and returned to the great surprise of his friends, who
marveled at the change in their formerly silver-nosed friend.”
Now again came a century of forgetfulness, the scientific world
taking no cognizance of the work done until, suddenly, in 1794, a
message came from Poonah, India, to the effect that an East Indian
peasant named Cowasjee, a cowherd following the English army,
was captured by Tippo Sahib, who ordered the prisoner’s nose to be
amputated. His wounds were dressed and healed by English
surgeons. Shortly after this the victim of this odd mode of
punishment was befriended by the Koomas, a colony of potters, or,
as others claim, a religious sect, who knew how to restore the nose
by means of a flap taken from the forehead. They operated on him
and restored his nose much to the surprise of Pennant, who reported
the case in England.
Shortly following this, and in the same year, cases of similar nature
are described in the Gentlemen’s Magazine (England), and
Pennant’s “Views of Hindoostan.”
In 1811 Lynn successfully accomplished the operation in a case in
England, and in 1814 Carpue published his results in two cases
successfully operated by him by the so-called Hindoo method.
 France now took up the art of rhinoplasty. Delpech introduced a
modification of the method of the Koomas in 1820, while Lisfranc
performed the first operation of this nature in Paris in 1826.
In 1816 Graefe, of Germany, took up the work of Tagliacozzi but
modified his method by diminishing the number of operations.
Bünger, of Marburg, thereupon, in 1823, successfully made a
man’s nose by taking the necessary tegument from the patient’s
thigh.
A still later modification in the art of rhinoplasty was that of Larrey,
who in 1830 overcame a large loss about the lobule of the nose by
taking the flaps to restore the same from the cheeks.
Among the better advocates of reparative chirurgery were
Dieffenbach, v. Langenbeck, Ricard, v. Graefe (1816), Alliot, Blandin,
Zeis, Serre, and Joberi, while Thomas D. Mutter, in 1831, published
the results he obtained in America—his co-workers being Warren
and Pancoast.
Although Le Monier, a French dentist, as early as 1764 originally
proposed closure of the cleft in the soft palate, no one attempted to
carry out his suggestion until in 1819 the elder Roux, of Paris,
performed the operation. The following year Warren, of Boston,
independently decided upon and successfully did an improved
operation to the same end.
During the years 1865-70 Joseph Lister distinguished himself in
the discovery and meritorious employment of carbolic acid as a
means of destroying, or at least arresting, infectious germ life, the
principle of which, now so fully developed, has advanced the
obtainable surgical possibilities inestimably.
The credit of first collecting data of plastic operations belongs to
Szymanowski, of Russia. In his magnificent volume of surgery
(1867), he embodies a somewhat thorough treatise on restorative
surgery, leaving the subject to be treated more fully and
independently, as it should be, to some other enthusiastic surgeon
specialist. His work is the result of careful study of such operations
on the cadaver, a method much to be recommended to the
prospective or operating plastic surgeon.
Several years later, 1871, Reverdin added a valuable method to
the still incomplete art, by introducing the now well-known circular
epidermal skin grafts for covering granulating surfaces. Thiersch
improved this method in 1886 by showing that comparatively large
pieces of skin could be transplanted. Wolfe, of Glasgow, had also
been successful in utilizing fairly large skin grafts.
Krause, however, improved upon all of these methods by
transplanting large flaps of skin without detaching the subcutaneous
tissue, a procedure which causes more or less injury to the graft in
other methods, and by his method overcoming the subsequent
contraction, heretofore a bad feature when the skin-grafted area had
healed.
“The results of most plastic operations have been as satisfactory
as the most sanguine could hope for or the most critical expect,”
says John Eric Erichsen.
Many important additions have been made in the past few years—
the outcome of untiring attempt and skill. Czerny replaces part of an
amputated breast with a fatty tumor taken from the region of the
thigh. Glück successfully repairs a defect in the carotid artery with
the aid of a piece of the jugular vein. Glück, Helferich, and others
have advocated implanting muscular tissue taken from the dog into
muscular deficiencies in the human, due to whatever cause.
The transplantation of a zoöneural section into a defect of a nerve
in the human was successfully accomplished by Phillippeaux and
Vulpian.
Glück, who later restored a sciatic nerve in a rabbit by the
transplantation of the same nerve taken from a hen, went so far as to
restore a 5-cm. defect of the radial nerve of a patient by the
employment of a bundle of catgut fibers, fully establishing the
function of the nerve within a year’s time.
Guthrie has successfully replaced the organs and limbs of animals
and has actually transplanted the heads of two dogs.
 The transplantation of a toe, to make up a part of a lost finger, is
proposed by Nicoladoni. Van Lair hints at the possibility of removing
a part or a whole organ immediately before death to repair other
living organs.
Von Hippel has successfully implanted a zoöcorneal graft from a
rabbit upon the human eye, and Copeland has taken the corneal
graft from one human and transplanted it upon the cornea of another
to overcome opacity.
The transplantation of pieces of bone to overcome a defect of like
tissue has been fully investigated by Ollier, v. Bergman, J. Wolff,
MacEwen, Jakimowitsch, Riedinger, and others. They discovered
that a graft of bone, with or without its periosteum, can be made to
heal into a defect when strict antisepsis is maintained.
Von Nussbaum was the first to introduce the closing of an osseous
defect by the use of a pedunculated flap of periosteum.
Poncet and Ollier employed small tubular sections of bone, while
Senn has obtained excellent results from the use of chips of aseptic
decalcified bone.
Hahn succeeded in implanting the fibula into a defect of the tibia.
On the other hand, cavities in the bones have been successfully
filled by Dreesmann and Heydenreich with a paste of plaster made
with a five-per-cent carbolic-acid solution, and at a later period by the
employment of paraffin (Gersuny) and iodoform wax, as advocated
by Mosetig-Moorhof.
The thyroid glands taken from the sheep, it is claimed, have been
successfully implanted in the abdomen of individuals whose thyroid
glands had been lost by disease or otherwise.
Protheses of celluloid compound or gutta-percha and painted to
resemble the nose or ear have been introduced with grateful result.
Metal and glass forms have been used to replace extirpated testicles
or to take the place of the vitreous humor of the eye (Mule).
Sunken noses have been raised with metal wire, metal plates,
amber, and caoutchouc. Metal plates have been skillfully fitted into
the broken bony vault of the cranium.
Lastly comes Gersuny’s most valuable method of injecting paraffin
compounds subcutaneously for the restoration of the contour of
facial surfaces and limbs, which is rapidly taking the place of
extensive plastic transplantory and the much-objected-to metal and
bone-plate operations for building up depressed noses and other
abnormal cavities.
And the end of possibilities is not yet reached. The successful
plastic surgeon has become an imitator of nature’s beauty to-day.
His skill permits of many almost unbelievable corrections of
defects that would otherwise evoke the pity and too often the
aversion of the onlooker, especially if these occur in the faces of
those that have become marred in birth or age, by accident or
disease. Withal, it is a noble, generous art, worthy of far more
extensive use than it now enjoys.
The above fragmentary references include a number of plastic
possibilities. They are introduced only in the sense of general
interest to the cosmetic surgeon, the special and detailed subject
matter herein given under the various divisions have to do only with
plastic and cosmetic operations about the face.
 CHAPTER II
REQUIREMENTS FOR OPERATING

THE OPERATING ROOM

The ideal operating room for the plastic surgeon need not
necessarily be large, since it requires less work to render it aseptic.
Furniture and possibly amphitheater accommodation are always a
means of infection unless scrupulously cleansed, a task of time,
difficult at best.
The room should be provided with large windows, with facilities for
the introduction of the air from without. Two doors, and those well
fitted, are all the room should have—but one being used, if possible.
The Walls.—The walls should be of plaster, smoothly laid and well
painted, so that they may be readily washed down with antiseptic
solutions—a daily morning rule. Glass or tiled walls are much used
now and add considerably to the appearance and safety of the room,
as plaster in time will crack, while the paint, owing to the heat of
sterilizers or steam, often creeps and blisters, exposing an absorbing
surface which readily wears down, exposing parts inaccessible for
even acute cleanliness.
The Floors.—The floors of these rooms are now usually laid with
tile mosaic or marble or a composition resembling linoleum. The
base should be curved and all corners sloped off to improve
drainage and to keep off dust and dirt.
Skylight.—A skylight of metal and glass is a valuable accessory. It
should be fixed or never permitted to be opened during an operation.
Disinfection.—Spraying the room with an antiseptic is hardly
necessary, since all germ life descends to the floor and can best be
removed by washing with a 1-1000 bichlorid solution.
 Should it be necessary to perform an unusually extensive
operation in a private house, the room must be cleared of all
furniture, pictures, drapery, and carpet. After plugging up the
crevices in the windows and doors it should be well fumigated either
with sulphur candles, as now commonly furnished, or, better, with
formaldehyd.
The superiority of formaldehyd as a disinfecting agent is now well
established. An illustration of an apparatus, largely doing away with
the difficulties and dangers encountered in the use of the older and
ordinary styles of the pressure or nonpressure type, is shown in Fig.
3. The main difficulty with these has always been their almost
inaccessibility for cleansing purposes, and in such where this is not
the case, the size of the aperture has been made so small that the
inside could not be reached. In the pressure apparatus the tops are
bolted on, making them exceedingly difficult to remove, with the
result that the necessary cleaning was not properly attended to. The
corrosive action of formaldehyd gas is such that under these
conditions any apparatus would soon become useless.
In the type shown a single clamp arrangement is used (a). By the
turning of the hand screw (b) two planed metal faces (the upper
surface of the boiler and under surface of the cover) are brought
together and sealed. When the cover (c) is removed the entire inside
of the boiler is in sight and can be thoroughly cleansed, which should
be done each time the apparatus is used. The pipes through which
the formaldehyd gas passes after generation are arranged so that
they can be taken off and cleaned.
 Fig. 3.—Formaldehyd Disinfecting Apparatus.

The gas is generated in the boiler (d) and passes out from the top,
down through the pipe (e), and from thence through a series of pipes
(f) underneath the boiler, which are subjected to direct heat from the
lamp (g). By this means the gas becomes superheated, the