The first edition of this textbook was published at a time of calm in the U.S. and world economies. In fact, at the time (in 2005), many economists believed that the so-called Great Moderation, an era of relative stability that began in the mid-1980s, would continue indefinitely. We chose, nonetheless, to put recessions and the policies governments use to fight them front and center, believing that the business cycle is still the core issue in economics. And subsequent events have both validated that decision and provided plenty of material to incorporate in each new edition. And so it is with this edition.

Above all, Robin and I hope that this fourth edition of Macroeconomics leaves students with the sense that they have learned a lot about the world they’re living in, but we also believe that hard times in the world economy have, perversely, greatly improved our ability to teach economics. We can now vividly illustrate that economics really does make sense of the world and that it really matters. We hope you share our enthusiasm.

A Thorough Revision Reflecting Recent Events The financial crisis of 2008 is slowly receding in the rearview mirror, but the aftershocks continue to reverberate, and most of the big changes since the third edition reflect those aftershocks. We have, of course, updated virtually every data-based figure and table in the book, but beyond that, we have updated or replaced many of the real-world narratives that provide context for the analytical content, and which we believe make this book special.

This doesn’t mean that we have torn up the basic analysis of previous editions. On the contrary, one little-appreciated aspect of world economic developments since the crisis is how well basic economic models have worked in tracking, for example, the effects of fiscal policy and monetary expansion. As a result, we make extensive use of recent events to illustrate economic principles and concepts, in a way that wouldn’t have been possible in a more stable world.

This incorporation of recent developments literally begins at the start, in the first chapter: Chapter 21, “Macroeconomics, The Big Picture.” Previously, we began by depicting mass unemployment in the 1930s; now we begin with a new chapter-opening story about mass unemployment in today’s Spain (“The Pain in Spain”).

Depression-type conditions are no longer something that happened long ago; as we show in Chapter 23, “Unemployment and Inflation,” they’re happening right now to young Europeans who are a lot like our students. And as we also show, even in America, college graduates have faced years of tough times and many students’ families and friends will have experienced the pain of protracted unemployment firsthand, so we believe that the analysis has gained extra relevance.

Later on, we use recent data to demonstrate the validity of a number of key concepts. For example, economists talk about sticky wages that may not fall even in the face of unemployment; as we show in Chapter 27, “Aggregate Demand and Aggregate Supply,” in recent years that stickiness has been dramatically illustrated by a surge in the number of workers whose wages don’t change at all from year to year. Similarly, we don’t need to appeal to events decades ago to support the concept of a short-run trade-off between unemployment and inflation, as we show in Chapter 31, “Inflation, Disinflation, Deflation.” You can see that trade-off clearly by looking across advanced countries and seeing that where unemployment has risen, inflation has fallen the most.

Another example of how recent events have allowed us to look at economic concepts in a new way is the effect of fiscal policy. This used to be a very difficult topic to teach in a way that seemed real, because large discretionary changes in government spending hardly ever happened. That’s no longer true. The U.S. stimulus program of 2009–2010 gave substance to the concept of expansionary fiscal policy that we illustrated in the third edition. But now, in the fourth edition, we have even more real-world experience. As we discuss in Chapter 28, “Fiscal Policy,” since 2010 many but not all countries have imposed drastic fiscal austerity, and—as we discuss in the new Economics in Action, “Austerity and the Multiplier”—international comparisons between countries with varying degrees of austerity make the discussion of fiscal impacts much more concrete and accessible.

Meanwhile, long-run fiscal issues—including concerns about solvency—have also become a lot less abstract. We see this in another new Economics in Action: “Are We Greece?”, which nobody would have considered writing a few years ago.

What about the analysis of crises themselves? We already had a crisis chapter in the third edition, but it’s now possible to say much more. Chapter 32, “Crises and Consequences,” extends the story to cover the many aftershocks of the 2008 crisis, especially the successive waves of turmoil that have swept Europe. It also includes a discussion of Dodd-Frank financial reform, which is now a crucial part of the economic scene and parts of which are starting to show real results.

And there’s more. For example, when we discuss open-economy economics in Chapter 34, we can illustrate the difference between fixed and floating exchange rates by comparing experiences around the European periphery, where Iceland and Latvia have followed dramatically different paths. One new Economics in Action illustrates how Latvia has taken on outsize significance in the debate over fiscal policy, serving as an example of successful austerity (“Lats of Luck”). Another looks at the advantages that Iceland, a country with its own currency, has had over euro-using countries, like Greece, when workers’ wages needed to be cut during tough economic times (“The Little Currency That Could”).

A Revision that Extends Beyond Post-Crisis Analysis We don’t want to convey the sense that all the changes in this edition reflect the aftermath of the financial crisis. We have also added a lot of new material in Chapter 24 on long-run growth, ranging from the all-too-visible effects of rapid growth on air quality in Beijing (in the opening story, “Airpocalypse Now”), to the disturbing collapse of productivity growth in Italy (in a new Global Comparison, “What’s the Matter with Italy?”), to the costs of climate protection (in another new Economics in Action). Progress in air travel has helped illustrate one of our favorite themes, the often inconspicuous nature of progress. Today’s jets look a lot like the jets of the 1960s, but they’re vastly more efficient as we discuss in the new Chapter 24 business case, “How Boeing Got Better.”

In this new edition, we pay particular attention to how changes in technology are transforming the economic landscape. For example, to illustrate market equilibrium we discuss the rise of Uber (in a new Chapter 3 business case, “An Uber Way to Get a Ride”). Similarly, the opening story in Chapter 8 on international trade illustrates how international supply chains have produced the latest iPhone.

We believe environmental concerns are one of the most pressing issues today and are a good means of sparking students’ interest in economics. Chapter 3 on supply and demand has been changed to focus on the economic effects of fracking. There we trace the supply shocks and demand changes that gave rise to investment in the technology of fracking. Being careful not to take sides, we trace how the supply changes from fracking have significantly altered the equilibrium of the natural gas market. We take this new approach even further in applications throughout. In Chapter 24 on growth, we examine the financial costs and environmental benefits of limiting carbon emissions: in a new Economics in Action, “The Cost of Limiting Carbon,” students learn that with the right incentives, growth and environmental damage need not go hand in hand. A new business case in the growth chapter illustrates how stimulus spending on concentrated thermal solar power plants has lead to job creation and environmental benefits (“Here Comes the Sun”).

And as always, we pay great attention to integrating an international perspective, in our Global Comparison feature, but also in the many globally oriented applications and stories. All global examples are highlighted with the following icon:

A listing of opening stories, Economics in Actions, For Inquiring Minds, Global Comparisons, and business cases can be found inside the front cover and on the facing page.

A New Online Feature: Work It Out Tutorials This new feature ties together our textbook and the accompanying online course materials to offer students interactive assistance with solving one key problem in every chapter. Available in , the new Work It Out feature includes an online tutorial that guides students through each step of the problem-solving process. There are also choice-specific feedback and video explanations, providing interactive assistance tailored to each student’s needs. Students can use the Work It Outs, along with the other offerings in , to independently test their comprehension of concepts, build their math and graphing skills, and prepare for class and exams.

Our basic approach to textbook writing is the same as it was in the first edition: