Macroeconomics: Policy and Practice, 2nd edition

For courses in Intermediate Macroeconomics
Help students understand macroeconomics in theory as well as practice
Macroeconomics: Policy and Practice, Second Edition draws on the rich tapestry of recent economic events to help students understand the policy issues debated by the media and the public at large during these trying times. Building on his expertise in macroeconomic policy making at the Federal Reserve, author Frederic S. Mishkin provides detailed, step-by-step explanations of all models and highlights the techniques used by policy makers in practice. The Second Edition incorporates a wealth of new and updated content, as well as new tools and resources in MyEconLab that bring course material to life.
This text provides a better teaching and learning experience–for you and your students. It will help you to:

• Personalize learning with MyEconLab: This online homework, tutorial, and assessment program engages students in learning and provides instructors tools to keep students on track.• Enable students to connect theory to practice: An aggregate demand and supply model helps students understand theory, while numerous examples help them understand the applications of theory.
• Foster interest via engaging features and updated content: Updates that reflect the latest happenings in the world of economics and student-friendly in-text tools capture student interest.• Teach your course your way: A flexible structure allows instructors to focus on the particular areas of macroeconomics that match their course goals.

Personalize learning with MyEconLab
NEW! An enhanced Pearson e-text for Macroeconomics: Policy and Practice, Second Edition meets tech-savvy students halfway for a better learning experience.

• All of the text’s content is available to students whenever they want, wherever they are via an iPad app.• Instructors and students can highlight, bookmark, search the glossary, and take notes–all directly within the eText.
• A series of 100+ author mini-lectures accompany the analytic graphs in the text. Accessible with just a click, these mini-lectures serve as invaluable study tools for students who typically learn better when they see and hear economic analysis than when they read it.

NEW! MyEconLab for the Second Edition of Macroeconomics includes a number of tools that enable real-time data analysis.

• Many of the in-text figures allow students to see the latest data by way of the Federal Reserve Bank of St. Louis’s FRED database.     
• In addition, new real-time data analysis problems prompt students to download data from the FRED website, and then use it to answer questions about current issues.

Because MyEconLab communicates directly with the FRED site, students see new data every time it is posted to FRED. As a result, these real-time data analysis exercises offer a no-fuss solution for instructors who want to make the most recent data a central part of their macroeconomics course.
An online homework and tutorial system puts students in control of their own learning. Within MyEconLab’s structured environment, students practice what they learn, test their understanding, and then pursue a study plan that MyEconLab generates for them based on their performance on practice tests.
Flexible tools allow instructors to easily and effectively customize online course materials to suit their needs. Instructors can create and assign tests, quizzes, or homework assignments. MyEconLab saves time by automatically grading questions and tracking results in an online grade book. After registering for MyEconLab, instructors also access downloadable supplements.
Communication tools in MyEconLab foster collaboration, class participation, and group work.

• Instructors can send emails to their entire class, to individual students or to instructors who has access to their course.
• Discussion boards provides students with a space to respond and react to the discussions you create. These posts can also be separated out into specific topics where students can share their opinions/answers and respond to their fellow classmates’ posts.• ClassLive is an interactive chat tool that allows instructors and students to communicate in real time. It can be used with a group of students or one-on-one to share images or PowerPoint presentations, draw or write objects on a whiteboard, or send and receive graphed or plotted equations. ClassLive also has additional classroom management tools, including polling and hand-raising.

Enable students to connect theory to practice
Author Frederic Mishkin believes that the best way to teach macroeconomics is by continually exposing students to cases and applications so they really understand the underlying theory. As such, this text emphasizes policy and practice in macroeconomics by discussing the most exciting, current, major policy debates in the macroeconomics field. In particular, in-chapter applications and Policy and Practice cases provide important perspectives on current events, domestic and global issues, and historical episodes.

• Over 40 in-chapter applications show students how to apply theory to real-world examples. Topics include the Great Inflation from 1965 to 1982, the 2007—2009 financial crisis, the impact of oil prices on real wages and the stock market, why income inequality has been growing over time, and why some countries are rich and others poor.
• Over 30 Policy and Practice cases explore specific examples of actual policies and how they were executed. Topics include how the Federal Reserve uses the Taylor rule, nonconventional monetary policy during the 2007—2009 financial crisis, the political business cycle and Richard Nixon, the survival of the Euro, and China’s one-child policy.

The central modeling element in Macroeconomics: Policy and Practice is a powerful, dynamic aggregate demand and supply (AD/AS) model that highlights the interaction of inflation and economic activity. In this model, inflation is on the vertical axis (as opposed to the price level). This model is built step-by-step across Chapters 9—13, enabling students to grasp the basic tenets before proceeding to more advanced applications. Although this model represents a change from the way macroeconomics has been taught in the past, it is actually easier for students to learn because they only have to master one model, rather than three as in more traditional approaches, which have separate developments of the ISLM model, traditional aggregate demand/aggregate supply, and the Phillips curve.  
NEW! Substantial additional material on business cycle analysis makes it easier for students to understand the dynamic aggregate demand/aggregate demand model.

• A new section on alternative view of the business cycle in Chapter 8 distinguishes the long-run trend from deviations from this trend and introduces the concept of the output gap
• Coverage of financial frictions has been integrated into the dynamic aggregate demand and aggregate supply model at the outset, and financial frictions are treated as an additional factor that shifts the IS curve (in Chapter 10) and as a factor that shifts the AD curve (in Chapter 12)• A new section clarifies the difference between movements along the MP curve from shifts in the MP curve.

The financial crisis that hit the world economy from 2007 to 2009 made abundantly clear the interaction between finance and macroeconomics. To enlighten students as to these links, two full chapters on the interaction between finance and macroeconomics provide a coherent approach to key topics such as financial system dynamics and asymmetric information and demonstrate their relevance in macroeconomic analysis.

• Chapter 14, “The Financial System and Economic Growth,” shows how a well-functioning financial system promotes economic growth.• Chapter 15, “Financial Crises and the Economy,” examines how disruptions to the financial system affect aggregate demand and the economy, with a particular emphasis on the root causes, effects, and policy responses to the financial crisis of 2007—2009.
• An additional Web Chapter, “Financial Crises in Emerging Market Economies,” expands the analysis of economic fluctuations to economies that have recently opened up their markets to the outside world.

The text employs an international perspective to help students understand the ever-increasing globalization of the economy. For example, Chapter 4’s analysis of the interaction of saving and investment discusses open and closed economies together, rather than in separate chapters. International trade and the impact of net exports on aggregate demand appears immediately in the AD/AS model in Part 4, as opposed to in a separate chapter, and the textbook applies the aggregate demand and supply model to analyze the impact of the 2007—2009 financial crisis in the UK, Ireland, and China. The Web chapter on emerging market economies provides further international perspective.
Foster interest via engaging features and updated content
Various pedagogical features engage and motivate students by bringing the study of macroeconomics to life.

• Previews at the beginning of each chapter tell students where the chapter is heading, why specific topics are important, and how they relate to other topics in the book.• Applications apply the analysis in each chapter to explain important real-world situations.
• Policy and Practice cases explore specific examples of actual policies and how they were executed.• Macroeconomics in the News boxes introduce relevant news articles and data that are reported daily in the press and explain how to read them.
• Boxes highlight interesting material, including historical episodes and recent events.• Summary tables recap key points and serve as useful study aids.
• Key statements are set in boldface italic type so that students can easily find them for later reference.• Graphs with detailed captions demonstrate the interrelationship of the variables and illustrate policy analysis. Innovative color-blended arrows guide students’ analysis of the meaning of shifting curves.
• A Summary at the end of each chapter lists the main points covered.• Key terms, important words or phrases, are boldface when they are defined for the first time and listed by page number at the end of the chapter.
• End-of-chapter Review Questions, Problems and Real-Time Data Analysis guide students’ mastery of the material, with a particular emphasis on real-world applications.

NEW! The Second Edition reflects the recent explosion of research on economic growth as economists attempt to address the question of why some countries stay poor, while others prosper. A new introductory section in Chapter 6 discusses economic growth around the world. Chapter 6 has also been updated to include new figures that show how output per worker changes over time when there is a change in the saving rate, population growth, or technology.
NEW! Coverage of non-conventional monetary policy and the zero lower bound helps students understand current issues in macroeconomics. In recent years, monetary policymakers have entered a brave new world in which they have had to resort to nonconventional monetary policy because the policy interest rate–the federal funds rate in the United States–has hit a floor of zero (the so-called “zero lower bound”). The policy rate cannot be driven lower, thus making conventional monetary policy infeasible. Nonconventional monetary policy at the zero lower bound, such as quantitative easing, has become very controversial and is quite interesting to students. The Second Edition contains extensive discussion of this topic, with the following new material:

• A new application, “Quantitative Easing and the Money Supply, 2007—2013” (Chapter 5)
• A new section on monetary policy at the zero lower bound, which uses the dynamic aggregate demand and aggregate supply model to explain how the zero lower bound affects the conduct of monetary policy (Chapter 13)• A new Policy and Practice case, “Abenomics and the Shift in Japanese Monetary Policy in 2013” (Chapter 13)
• A new Policy and Practice case, “Nonconventional Monetary Policy and Quantitative Easing During the Global Financial Crisis” (Chapter 15)• A new section on fiscal multipliers at the zero lower bound, which explains why fiscal multipliers are likely to be larger at the zero lower bound (Chapter 16)
• A new section on nominal GDP targeting (Chapter 21)

NEW! The Second Edition includes new material on the Euro Crisis, a continuing drama since 2010 and a key contemporary topic.

• A new section in Chapter 16 explains the dynamics of these sovereign debt crises.• Three new Policy and Practice cases in Chapters 16 and 17–entitled “The European Sovereign Debt Crisis,” “The Debate Over Fiscal Austerity in Europe,” and “Will the Euro Survive?”–explore the impact of specific policies on the debt crises in the European Union.

Teach your course your way
Macroeconomics: Policy and Practice offers a highly flexible structure with many different paths that instructors can take to tailor the book to their course needs. Most instructors will begin by assigning Chapters 1—4. For a long-run emphasis, instructors can then assign Chapters 5—7. Instructors wishing to cover the short run first could instead proceed directly to Part 4.
The core chapters that most instructors will teach in their courses are in the first four parts of the book, Chapters 1—13. Instructors can assign subsequent chapters as they so choose or skip them entirely, allowing a focus on the particular areas of macroeconomics that match each instructor’s course goals. Suggested outlines for semester-long courses with varying emphases follow. (Quarter-long courses would typically use three or four fewer of the optional chapters.)

• Course Starting with a Long-Run Analysis: Chapters 1—13, and up to six of the remaining eleven chapters.
• Course Starting with Micro Foundations and Long-Run Analysis: Chapters 1—3, 18—20, 4—13, and up to three of the remaining eight chapters.• Course Starting with Short-Run Analysis: Chapters 1—5, 8—13, 6—7, and up to six of the remaining eleven chapters.
• Course Starting with Micro Foundations and Short-Run Analysis: Chapters 1—3, 18—20, 4—5, 8—13, 6—7 and up to three of the remaining eight chapters.• Course Focusing on the Micro Foundations of Modern Business Cycle Analysis: Chapters 1—3, 18—20, 4—5, 8—13, 21—22 and up to two of the remaining ten chapters.
• Course with International Focus: Chapters 1—13, 17, Web chapter on emerging market economies, and up to four of the remaining nine chapters.• Course with Finance Focus: Chapters 1—15 and up to four of the remaining seven chapters

Personalize learning with MyEconLab
NEW! An enhanced Pearson e-text for Macroeconomics: Policy and Practice, Second Edition meets tech-savvy students halfway for a better learning experience.

• All of the text’s content is available to students whenever they want, wherever they are via an iPad app.• Instructors and students can highlight, bookmark, search the glossary, and take notes—all directly within the eText.
• A series of 100+ author mini-lectures accompany the analytic graphs in the text. Accessible with just a click, these mini-lectures serve as invaluable study tools for students who typically learn better when they see and hear economic analysis than when they read it.

NEW! MyEconLab for the Second Edition of Macroeconomics includes a number of tools that enable real-time data analysis.

• Many of the in-text figures allow students to see the latest data by way of the Federal Reserve Bank of St. Louis’s FRED database.     
• In addition, new real-time data analysis problems prompt students to download data from the FRED website, and then use it to answer questions about current issues.

Because MyEconLab communicates directly with the FRED site, students see new data every time it is posted to FRED. As a result, these real-time data analysis exercises offer a no-fuss solution for instructors who want to make the most recent data a central part of their macroeconomics course.
Enable students to connect theory to practice
NEW! Substantial additional material on business cycle analysis makes it easier for students to understand the dynamic aggregate demand/aggregate demand model.

• A new section on alternative view of the business cycle in Chapter 8 distinguishes the long-run trend from deviations from this trend and introduces the concept of the output gap• Coverage of financial frictions has been integrated into the dynamic aggregate demand and aggregate supply model at the outset, and financial frictions are treated as an additional factor that shifts the IS curve (in Chapter 10) and as a factor that shifts the AD curve (in Chapter 12)
• A new section clarifies the difference between movements along the MP curve from shifts in the MP curve.

Foster interest via engaging features and updated content
NEW! The Second Edition reflects the recent explosion of research on economic growth as economists attempt to address the question of why some countries stay poor, while others prosper. A new introductory section in Chapter 6 discusses economic growth around the world. Chapter 6 has also been updated to include new figures that show how output per worker changes over time when there is a change in the saving rate, population growth, or technology.
NEW! Coverage of non-conventional monetary policy and the zero lower bound helps students understand current issues in macroeconomics. In recent years, monetary policymakers have entered a brave new world in which they have had to resort to nonconventional monetary policy because the policy interest rate—the federal funds rate in the United States—has hit a floor of zero (the so-called “zero lower bound”). The policy rate cannot be driven lower, thus making conventional monetary policy infeasible. Nonconventional monetary policy at the zero lower bound, such as quantitative easing, has become very controversial and is quite interesting to students. The Second Edition contains extensive discussion of this topic, with the following new material:

• A new application, “Quantitative Easing and the Money Supply, 2007–2013” (Chapter 5)• A new section on monetary policy at the zero lower bound, which uses the dynamic aggregate demand and aggregate supply model to explain how the zero lower bound affects the conduct of monetary policy (Chapter 13)
• A new Policy and Practice case, “Abenomics and the Shift in Japanese Monetary Policy in 2013” (Chapter 13)• A new Policy and Practice case, “Nonconventional Monetary Policy and Quantitative Easing During the Global Financial Crisis” (Chapter 15)
• A new section on fiscal multipliers at the zero lower bound, which explains why fiscal multipliers are likely to be larger at the zero lower bound (Chapter 16)• A new section on nominal GDP targeting (Chapter 21)

NEW! The Second Edition includes new material on the Euro Crisis, a continuing drama since 2010 and a key contemporary topic.

• A new section in Chapter 16 explains the dynamics of these sovereign debt crises.
• Three new Policy and Practice cases in Chapters 16 and 17—entitled “The European Sovereign Debt Crisis,” “The Debate Over Fiscal Austerity in Europe,” and “Will the Euro Survive?”—explore the impact of specific policies on the debt crises in the European Union.