Macro Changes from 2E

The 3^rd edition of Macroeconomics for Life has 15 chapters instead of 12, to support a variety of approaches to teaching principles of macroeconomics.

We split 2E Chapter 6, GDP, Economic Growth, and Business Cycles, into two separate chapters – Ch 6, Measuring GDP and Living Standards, and Ch 7, Potential GDP, Economic Growth, and Business Cycles. This allows you to move the subject of economic growth elsewhere in your course if you wish.

Starting in Chapter 9, The Aggregate Supply and Aggregate Demand Model, macro models centre around AS/AD. While the treatment of long-run equilibrium is traditional, we use a “time-enhanced” approach to short-run AS/AD. We emphasize that production takes time, which means AS decisions are made before, and in expectation of, subsequent AD decisions. Starting from long-run equilibrium, explanations of AD shocks include scenarios where AD turns out to be greater/less than the expected equilibrium. This approach incorporates the central role of expectations in a simple fashion.

For those who don’t teach the Keynesian aggregate expenditure model, the new Chapter 10, The Aggregate Expenditure Model, can be skipped without disrupting subsequent chapters. Instead of deriving AD from AE, Chapter 9 motivates the downward-sloping AD using the international substitution effect, which students find very straightforward. We cover multipliers in both Chapter 10 and Chapter 13, Fiscal Policy, Multipliers, Deficits and Debt, using injections and leakages in the circular flow model to provide intuition. Multipliers are still covered even if you skip Chapter 10, The Aggregate Expenditure Model. There are numerical multiplier examples and graphical illustrations using the AS/AD model.

Chapter 12, Steering Blindly? Money, Monetary Policy, and the Bank of Canada, combines 2E Chapter 9, Demanders and Suppliers of Money, and 2E Chapter 11, Monetary Policy and the Bank of Canada, into a single chapter like most other texts. This combined chapter contains a new, intuitive presentation of how central banks with ample reserves now control market interest rates with central-bank-administered interest rates. There is a brief historical discussion of open market operations, and a feature titled “R.I.P. Money Multiplier,” for those who want to mention the outdated monetary policy tools.

While we integrate core disagreements among macroeconomists in each of the relevant chapters, there are more extensive discussions of those differences in Chapter 15, Controversies in Macroeconomics. Chapter 9, The Aggregate Supply and Aggregate Demand Model, covers concepts macroeconomists agree on – positive and negative AS and AD shocks, and the impact on real GDP, unemployment and the price level. The more controversial Hands-Off and Hands-On disagreements on the loanable funds market and return to long-run macroeconomic equilibrium are now in Chapter 15. This placement limits the presentation of contrasting positions within many chapters, leaving most space for core concepts, and more choice about which topics to cover.

Without the four introductory micro chapters, there are 11 manageable macroeconomic chapters. If you omit Chapter 10, The Aggregate Expenditure Model, and Chapter 15, Controversies in Macroeconomics, 9 macro chapters remain. Whatever approach you choose, there is more class time for experiments, applications, formative assessments, group work, and other active-learning techniques that promote deeper and more durable learning.

For more details, request an Instructor Copy and look at the Preface for Instructors.

New or Reorganized Chapters in Macroeconomics for Life 3E