FROM PAUL AND ROBIN More than a decade ago, when we began writing the first edition of this textbook, we had many small ideas: particular aspects of economics that we believed weren’t covered the right way in existing textbooks. But we also had one big idea: the belief that an economics textbook could and should be built around narratives, that it should never lose sight of the fact that economics is, in the end, a set of stories about what people do.

Many of the stories economists tell take the form of models—for whatever else they are, economic models are stories about how the world works. But we believed that students’ understanding of and appreciation for models would be greatly enhanced if they were presented, as much as possible, in the context of stories about the real world, stories that both illustrate economic concepts and touch on the concerns we all face as individuals living in a world shaped by economic forces.

Those stories have been integrated into every edition, including this one, which contains more stories than our earlier editions. Once again, you’ll find them in the chapter opening stories, in boxed features like Economics in Action, For Inquiring Minds, and Global Comparisons, but now in our new Business Cases as well.

As in the previous edition, we’ve made extensive changes and updates in coverage to reflect current events—events that have come thick and fast in a turbulent, troubled world economy, which is affecting the lives and prospects of students everywhere. Currency is very important to us.

We have also expanded our coverage of business issues, both because business experience is a key source of economic lessons and because most students will eventually find themselves working in the business world. We are especially pleased with how the new Business Cases have turned out and how they augment the overall number and richness of our stories.

As you’ll see, there’s a great deal of new material, and there are some significant changes (and, we hope, improvements) in pedagogy. But we’ve tried to keep the spirit the same. This is a book about economics as the study of what people do and how they interact, a study very much informed by real-world experience.

FROM IRIS AND JACK When we were approached about the possibility of adapting the latest edition of Paul and Robin’s wonderful book for the Canadian market we were incredibly excited. The U.S. edition of the text, which started out as a top-tier product, has only improved with each new edition.

We believe the narratives approach adopted by Paul and Robin is an excellent way to expose students to the beauty of economics and its power to explain and understand the world we all live in.

Many of the narratives contained in the chapter opening stories, Economics in Action, For Inquiring Minds, Global Comparisons, and Business Cases have been altered, sometimes significantly, so as to infuse them with content relevant to Canadians. Of course Canadians, living in an open economy that is quite dependent on trade, are used to thinking about global economic issues and linkages. With that in mind a few of the narratives have not changed much from what appeared in the third U.S. edition. Throughout we have taken great care whenever altering the text so as to maintain the quality of the underlying narratives.

Chapters 14 and 15, the two chapters that deal with money, banking, the central banking system, and monetary policy have been almost entirely rewritten so as to properly cover this material from the Canadian perspective. Of course discussion of other government policies, such as fiscal and trade policy, and other facets of the economy have also been given a Canadian treatment as well.

We are extremely pleased to be able to do our part to bring these narratives to a Canadian audience. If, after reading this text, some students decide that economics is really interesting and go on to take additional economics courses, we would be happy. But most importantly, we hope that all students feel this text greatly enhances and assists their study of economics.

Although the second U.S. edition was a resounding success, further establishing Macroeconomics as one of the bestselling macroeconomics textbooks in the United States, we learn with each new edition that there is always room for improvement. So, for the second Canadian edition, we undertook each revision with four goals in mind:

We hope that the following revisions lead to a more successful teaching experience for you.

Now, more than ever, students entering the business community need a strong understanding of economic principles and their applications to business decisions. To meet this demand, almost every chapter now concludes with a real-world Business Case, showing how the economic issues discussed in the chapter play out in the world of entrepreneurs and bottom lines.

The cases range from the 2009 bankruptcy of General Motors, once the symbol of North American economic success, and its rebound in 2010, to a look at how small businesses in Newfoundland adapted in order to survive during the recent recession, to an examination of the productivity surge in retailing driven by improvements in global logistics at Loblaws and Walmart. They also place the individual consumer and firm in the macroeconomy with examples that illustrate the changing job market during a recession (Workopolis.com and Monster.ca), the role of gift cards in secondary markets (CardSwap.ca), and the value of “breakage” when individual consumers fail to use up their gift cards completely.

Each case is followed by critical thinking questions that prompt students to apply the economics they learned in the chapter to real-life business situations (answers to these questions are found in the Instructor’s Resource Manual). See a full list of the Business Cases on the inside front cover.

The second Canadian edition has been updated to remain the most current textbook on the market in its content, data, and examples.

New Chapter: “Crises and Consequences” This new chapter provides an up-to-date look at the recent financial crisis and the aspects of the U.S. banking system that allowed it to take place. Starting with the story of the Lehman Brothers collapse, the chapter integrates coverage of the dangers of banking, the trade-off between liquidity and rate of return, the emergence of “shadow banks,” and the early bank runs of the recession. Also covered: asset bubbles, financial contagion, financial panic, a comparison of the Canadian and U.S. banking systems, and a look at how the financial crisis of 2008 fits into a long history of economic crises. The chapter concludes with a discussion of why banking crises are so bad for so many, and the role governments and regulations play in crises.

Economics in Action: A Richer Story to Be Told Students and instructors alike have always championed Macroeconomics for its applications of economic principles, especially our Economics in Action feature. In the second Canadian edition, we have revised or replaced a significant number of Economics in Action applications in every chapter to ensure that the book remains fresh and cutting edge. We believe this provides the richness of content that drives student and instructor interest. All Economics in Action features are listed on the inside cover.

Opening Stories We have always taken great care to ensure that each chapter’s opening story illustrates the key concepts of that chapter in a compelling and accessible way. And, as always, we update most of these in each edition and provide many completely new stories. New openers include the story of Facebook and the huge amounts of funding needed to obtain its large server farms; the story behind Canada’s Economic Action Plan and the reactions to the stimulus; the story of China’s economic rise, surpassing Japan as the world’s second largest economy, and the method economists use to measure such trends; and the story of Mark Carney and his high profile roles, first as Governor of the Bank of Canada, then as Governor of the Bank of England.

Streamlined Chapters Because less is often more, we’ve streamlined the exposition in a number of places where our desire for thoroughness got a little ahead of our pedagogy. The chapters on fiscal policy and monetary policy, in particular, are a lot smoother in this edition.

A More Focused Treatment of the Keynesian Cross The main coverage of the Keynesian cross in the chapters on aggregate expenditure and AD/AS has been retained, but coverage of the integrated 45-degree diagrams in later chapters on fiscal policy and monetary policy has been cut back. This change was made in response to input from instructors who were vocal in their request for less integrated coverage of the Keynesian cross to make our book more accessible to their students. Keynesian coverage remains as important as ever in these chapters. But the treatment is now more focused and, we hope, free of unnecessary complexity.

A More Visual Exposition The research tells us that students read more online, in shorter bursts, and respond better to visual representations of information than ever before. In the second Canadian edition, we’ve worked hard to present information in the format that best teaches students.

We’ve shortened our paragraphs for easier reading and included numbered and bulleted lists whenever content would allow. You will find helpful new summary tables in this edition. And, most helpful, are the visual displays in the book, including dynamic representations that turn paragraphs of text into a more accessible, and appealing, visual presentation.

Our basic approach to textbook writing remains unchanged:

We realize that some of our chapters will be considered optional. Below is a list of what we view as core chapters and those that could be considered optional. We’ve annotated the list of chapters to indicate what they cover should you wish to incorporate them.

Worth Publishers is pleased to offer an enhanced and completely revised supplements and media package to accompany this textbook. The package has been crafted to help instructors teach their principles course and to give students the tools to develop their skills in economics.

Instructor’s Resource Manual with Solutions Manual The Instructor’s Resource Manual is a resource meant to provide materials and tips to enhance the classroom experience. The Instructor’s Resource Manual provides the following:

Printed Test Bank The Test Bank provides a wide range of questions appropriate for assessing your students’ comprehension, interpretation, analysis, and synthesis skills. Totalling over 4500 questions, the Test Bank offers multiple-choice, true/false, and short-answer questions designed for comprehensive coverage of the text concepts. Questions have been checked for continuity with the text content, overall usability, and accuracy.

The Test Bank features include the following:

Computerized Test Bank The printed Test Bank is available in CD-ROM format for both Windows and Macintosh users. With this program, instructors can easily create and print tests and write and edit questions. Tests can be printed in a wide range of formats. The software’s unique synthesis of flexible word-processing and database features creates a program that is extremely intuitive and capable.

Lecture PowerPoint Presentation The enhanced PowerPoint presentation slides are designed to assist you with lecture preparation and presentations. The slides are organized by topic and contain graphs, data tables, and bulleted lists of key concepts suitable for lecture presentation. Key figures from the text are replicated and animated to demonstrate how they build. The slides have been designed to allow for easy editing of graphs and text. These slides can be customized to suit your individual needs by adding your own data, questions, and lecture notes.

CoursePacks Plug our content into your course management system. Whatever you teach, or whether you use Blackboard, WebCT, Desire2Learn, Angel, Sakai, or Moodle to manage your course, we have free content and support available. Registered instructors can download cartridges with no hassle and no strings attached. Content includes our most popular free resources and book-specific content. For more information, go to http://worthpublishers.com/catalog/Other/Coursepack.

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Our deep appreciation and heartfelt thanks to the following reviewers, class-testers, and contributors whose input helped us shape the U.S. third edition.

We are indebted to the following reviewers for their suggestions and advice on improving the second Canadian edition.

We owe a huge debt of gratitude to Paul Krugman and Robin Wells who, with the assistance of many of the people named above, have created a wonderful text that is both a pleasure to read and a great tool for learning. We also benefitted from the extensive work undertaken by Anthony Myatt for the first Canadian edition.

We would like to thank all the fine people at Worth Publishers. In particular we are indebted to Chris Spavins who was the Worth sales representative that first recommended us for this project. Charles Linsmeier, publisher, skillfully guided the project along, providing us lots of freedom, but carefully nudging us or others whenever he sensed an improvement could be reached. Julia Jevmenova, field manager in the Canadian market, has provided plenty of support and marketing advice. We would also like to thank Tracey Kuehn, Barbara Seixas, Sharon Balbos, Craig Bleyer, and, of course, Elizabeth Widdicombe for making this project possible.

We have also benefitted greatly from all the hard work of the fantastic team at First Folio. Bob Templeton and Brad Smith patiently edited the drafts and acted as a sounding board for new ideas and refinements. Kim Hutchinson ensured the formatting and illustrating remained clear and concise. Arleane Ralph efficiently copy-edited and proofread the entire manuscript. Julie Kretchman acted as the project manager and helped make sure everyone had what they needed to stay on schedule.

We can honestly say that until you work on a project like this you truly don’t understand the impact of the vast array of experts and professionals who are assembled to bring such an undertaking to completion. We are indebted to them all. Their assistance has not only made this text possible, it has made it much better.

Lastly, we would like to thank our families for all the love, support, and understanding they have provided us over the years. We hope that this book can help them and the next generation of students understand why we think economics is so cool.

Iris Au Jack Parkinson

We must also thank the many people at Worth Publishers for their contributions. Elizabeth Widdicombe, president of Freeman and Worth, and Catherine Woods, senior vice president, played an important role in planning for this revision. We have Liz to thank for the idea that became the Business Case in each chapter. Charles Linsmeier, publisher, ably oversaw the revision and contributed throughout. A special thanks to Craig Bleyer, our original publisher at Worth and now national sales director, who put so much of his effort into making each edition a success. His keen instincts showed again in the revision plan for this edition.

Once again, we have had an incredible production and design team on the U.S. third edition, people whose hard work, creativity, and dedication paid off as we developed the Second Canadian Edition. Once again, you have outdone yourselves. Thank you all: Tracey Kuehn, Lisa Kinne, and Anthony Calcara for producing this book; Babs Reingold and Lyndall Culbertson for their beautiful interior design which is the basis for this second Canadian edition; Barbara Seixas, who worked her magic yet again despite the vagaries of the project schedule; Cecilia Varas and Elyse Rieder for photo research; Stacey Alexander for coordinating all the production of the supplemental materials.

Many thanks to Marie McHale for devising and coordinating the impressive collection of media and supplements that accompany our book. Thanks to the incredible team of supplements writers and coordinators who worked with Marie on the supplements and media package; we are forever grateful for your tireless efforts.

And most of all, special thanks to Sharon Balbos, executive development editor on each of our editions. Much of the success of this book is owed to Sharon’s dedication and professionalism. As always, she kept her cool through rough spots. Sharon, we’re not sure we deserved an editor as good as you, but we’re sure that everyone involved as well as our adopters and their students have been made better off by your presence.

Paul Krugman Robin Wells