Features of This Instructor S Manual

Preface

Features of this Instructor’s Manual

Each chapter of this Instructor’s Manual contains the following elements:

Chapter Summary

An overview of the main economic concepts covered in each chapter of the book.

Learning Objectives

A list of the student learning goals listed at the beginning of each text chapter.

Chapter Outline with Teaching Tips

Detailed descriptions of the economic concepts in the book, key term definitions, and teaching tip boxes. The teaching boxes include recommendations on how to integrate key figures and tables as well as the special features: the “Inside Look” newspaper feature, “Economics in Your Life,” “Solved Problems,” “Making the Connection,” “and “Don’t Let This Happen to You.”

Extra Solved Problems

Each chapter of the book has a Solved Problem to support two of the chapter’s learning objectives. This Instructor’s Manual includes Solved Problems for the remaining learning objectives. You can assign these extra Solved Problems as homework or present them during classroom lectures.

Extra Economics in YOUR Life!

Each chapter of the book opens and closes with a special feature entitled Economics in YOUR Life! that emphasizes the connection between the material and the students’ personal experiences and questions. This Instructor’s Manual includes an extra Economics in YOUR Life! to present in class.

Extra Making the Connection

Each chapter of the book has two or more Making the Connection features to provide real-world reinforcement of key concepts. Several chapters of this Instructor’s Manual include extra Making the Connections to present in class.

Extra Inside Look

Each chapter of the book closes with a newspaper excerpt and analysis related to the content of the chapter. This Instructor’s Manual includes one extra Inside Look feature to present in class. vi Preface Preface vii

Solutions to Review Questions and Applications

Solutions to the Thinking Critically questions that accompany the “Inside Look” newspaper feature and the end-of-chapter Review Questions and Problems and Applications. Revisions to the Main Text

If you used Hubbard/O’Brien, First Edition, here is a summary of the changes the authors made to the main text. Knowing about these changes will help you revise your current teaching notes and class presentations.

New Streamlined Approach to Chapter 3

We have streamlined Chapter 3, “Where Prices Come From: The Interaction of Demand and Supply,” to make the chapter more accessible to students encountering demand and supply curves for the first time.

Chapter 3 now opens with a discussion of Apple and its iPod and iTunes, a company and products that the majority of students are familiar with. We return to the company and its products in the graphs, a Making the Connection feature, and the end-of-chapter An Inside Look to provide students with continuity as they read and learn about new concepts.

We added a new table, Table 3-3, “How Shifts in Demand and Supply Affect Equilibrium Price (P) and Quantity (Q).” This table provides an important summary of a key topic that many students find challenging.

A Clearer Development of Consumer Surplus and Producer Surplus in Chapter 4

Adopters of the first edition praised our use of consumer surplus and producer surplus to analyze the efficiency of competitive markets and the economic effects of price ceilings and price floors. But some instructors and students found our introduction of these important concepts to be a little too terse. In this edition, we proceed more slowly, employing three new graphs in our expanded explanation.

A New, More Flexible Presentation of Aggregate Demand and Aggregate Supply in Chapter 12

We received much positive feedback on our approach to the aggregate demand–aggregate supply model in the first edition. We also received some recommendations on how to make the discussion more flexible. In this second edition, we retain our approach of making the AD-AS model dynamic by emphasizing two points: First, changes in the position of the short-run (upward-sloping) aggregate supply curve depend mainly on the state of expectations of the inflation rate. Second, the existence of growth in the economy means that the long-run (vertical) aggregate supply curve shifts to the right every year. This dynamic AD-AS model makes it possible for instructors to provide students with a more realistic account of the business cycle. In particular, it is now possible for instructors to show that in a recession, the price level does not decline but increases less than it otherwise would have. We know, however, that some instructors believe that students need more help in understanding the dynamic AD-AS model, while other instructors would prefer to use the basic AD-AS model in order to free up class time for other viii Preface macroeconomic topics. To address these two concerns, we made the following revisions to our discussion of aggregate demand and aggregate supply. Preface ix

New Layered, Full-Color Acetate for the Dynamic AD-AS Model

Chapter 12, “Aggregate Demand and Aggregate Supply Analysis,” now includes a three-layer, full-color acetate for the key introductory dynamic AD-AS graph (Figure 12-8, “An Increase in Potential Real GDP” on page 408 of the main text). We created this acetate to help students see how the graph builds step by step and to help make the graph more accessible to students and easier for instructors to present. The acetate will help instructors who want to use dynamic AD-AS in class but may believe the model needs to be developed carefully.

New Basic AD-AS Graphs That Make It Possible to Omit Dynamic AD-AS

As in the first edition, we introduce aggregate demand and aggregate supply in Chapter 12 by devoting most of the chapter to discussing the basic AD-AS model, turning to the dynamic AD-AS model only in a final, self-contained section. Instructors who do not wish to cover the dynamic AD-AS model can skip this last section in Chapter 12. Chapter 14, “Monetary Policy,” includes a new graph, Figure 14-7, “Monetary Policy,” that shows expansionary and contractionary policy using only the basic AD-AS model, which makes it possible to skip the dynamic AD-AS discussion of monetary policy, which is in a self-contained section. Chapter 15, “Fiscal Policy,” also includes a new graph, Figure 15-5, “Fiscal Policy,” that shows expansionary and contractionary policy using only the basic AD-AS model, which makes it possible to skip the dynamic AD-AS discussion of fiscal policy, which again is in a self-contained section. Chapter 16, “Inflation, Unemployment, and Federal Reserve Policy,” now uses only the basic AD-AS model in discussing the Phillips curve. Instructors may now safely omit the sections on the dynamic AD-AS model without any loss in continuity to the discussion of macroeconomic theory and policy.

New Personal Dimension: Economics in YOUR Life!

Each chapter opens with a discussion of a real-world business that is familiar to students. To pique the interest of students and emphasize the connection between the material they are learning and their own experiences, we have added a personal dimension to the chapter opener with a new feature titled Economics in YOUR Life!, which asks students to consider questions about how economics affects their personal lives. At the end of the chapter, we use the concepts covered to answer the questions.

Updated and New Chapter-opening Business Cases

As in the previous edition, each chapter-opening business case provides a real-world context for learning, sparks students’ interest in economics, and helps unify the chapter. In the second edition, we updated or replaced the cases. New companies we cover include Apple, MySpace, and FedEx.

Dozens of New Examples, Including Several New Making the Connection Features

Each chapter includes two to four Making the Connection features that present real-world reinforcement of key concepts and help students learn how to interpret what they read on the Web or in newspapers. One-third of the Making the Connection features are new to this edition, and most others have been updated. Several Making the Connection features discuss health care, which remains a pressing policy issue. Each Making the Connection now has at least one supporting end-of-chapter problem to allow students to test their understanding of the topic discussed. x Preface

A New An Inside Look Newspaper Article and Analysis in Every Chapter

As in the previous edition, each chapter-opening business case provides a real-world context for learning, sparks students’ interest in economics, and helps unify the chapter. Each case describes an actual company facing a real situation. The company is integrated in the narrative, graphs, and pedagogical features of the chapter. Many of the chapter openers focus on the role of the entrepreneur in developing new products and bringing them to the market.

Many Additions to the End-of-Chapter Review Questions and Problems and Applications—Grouped by Learning Objective to Improve Assessment

At least one-third of the Review Questions and Problems and Applications are new, and many others have been revised and updated. In this edition, all the end-of-chapter material—summary, review questions, and review problems—is grouped under learning objectives. The goals of this new organization are to help make it easier for professors to assign problems based on learning objectives, both in the book and in MyEconLab and to students efficiently review material that they find difficult. If students have difficulty with a particular learning objective, a professor can easily identify which end-of-chapter questions and problems support that objective and assign them for homework and discuss them in class. Every exercise in a chapter’s Problems and Applications section is available in MyEconLab. Students can complete these and many other exercises online, get tutorial help, and receive instant feedback and assistance on those exercises they answer incorrectly. Also, student learning will be enhanced by having the summary material and questions and problems grouped together by learning objective, which will allow them to focus on the parts of the chapter they found most challenging. Each major section of the chapter, paired with a learning objective, has at least two review questions and three problems. As in the first edition, we include one or more end-of-chapter problems that test the students’ understanding of the content presented in the Solved Problem, Making the Connection, and Don’t Let This Happen to You! special features in the chapter. Professors can cover the feature in class and assign the corresponding problem for homework. The test banks also include test questions that pertain to these special features.

Organizing Your Syllabus

The Instructor’s Manual can be a valuable resource for both experienced and first-time instructors. Both the textbook and Instructor’s Manual provide comprehensive coverage of traditional macroeconomic theory and applications along with relatively new developments in the field.

Chapter 7, “GDP: Measuring Total Production and Income,” and Chapter 8, “Unemployment and Inflation” carefully provide definitions of macroeconomic statistics such as GDP, CPI, and payroll employment, that dominate news headlines.

The comprehensive coverage of macroeconomic models and policy issues allows instructors with somewhat different course objectives the flexibility to choose different chapter sequences. The authors provide an overview of issues of long-run growth, business cycles, and the financial system in Chapter 9, “Economic Growth, the Financial System, and Business Cycles.” Instructors who wish to explore more deeply the sources of long-run growth and government policies towards growth can also assign Chapter 10, “Long-Run Economic Growth: Sources and Policies.” Monetary policy has a central role in the economy, so the book includes two chapters on monetary policy: Chapter 14, “Monetary Policy,” and Chapter 16, “Inflation, Unemployment, and Federal Reserve Policy.” Chapter 16 discusses the role of the Fed and inflation targeting with an insider’s perspective. Preface xi

Chapter 11, “Output and Expenditure in the Short Run,” contains a thorough discussion of the traditional Keynesian 45o-line aggregate expenditure model. Many instructors find this model useful in introducing students to the short-run relationship between spending and production. However, instructors may also safely omit Chapter 11 and proceed directly to Chapter 12, “Aggregate Demand and Aggregate Supply Analysis.” The discussion of macroeconomic policy issues in Chapter 14, “Monetary Policy” and Chapter 15, “Fiscal Policy” assumes only knowledge of the material in Chapter 12.

The following chart can help you organize your syllabus based on your teaching preferences and objectives:

CORE POLICY OPTIONAL Chapter 1: Economics: Chapter 4: Economic Chapter 1 Appendix: Using Graphs Foundations and Models Efficiency, Government Price and Formulas Uses the debate of outsourcing Setting, and Taxes to discuss the role of models in Chapter 4 Appendix: Quantitative economic analysis. Chapter 14: Monetary Policy Demand and Supply Analysis Uses the aggregate demand Provides a quantitative analysis of Chapter 2: Trade-offs, and aggregate supply model rent control. Comparative Advantage, and the to show the effects of Market System monetary policy on real GDP Chapter 5: Firms, the Stock Market, Includes coverage of the role of and the price level. Chapter and Corporate Governance the entrepreneur, property 14 is a self-contained Unique chapter that includes rights, and the legal system in a discussion, so instructors may coverage of the Sarbanes-Oxley Act. successful market system. safely omit the material in Chapter 16. Chapter 5 Appendix: Tools to Chapter 3: Where Prices Come Analyze Firms’ Financial From: The Interaction of Chapter 15: Fiscal Policy Information Demand and Supply Uses the aggregate demand Covers present value and financial and aggregate supply model statements. Chapter 7: GDP: Measuring to show how taxes and Total Production and Income government spending affect Chapter 6: Comparative Advantage Covers how total production is the economy. Includes and the Gains from International measured and the difference significant coverage of the Trade between real and nominal supply-side effects of fiscal This chapter may be delayed until variables. policy. after Chapter 16.

Chapter 8: Unemployment and Chapter 6 Appendix: Multinational Inflation Firms Covers the three types of Covers the benefits and challenges unemployment, how inflation is of operating overseas businesses. measured, and the difference between real and nominal Chapter 11: Output and Expenditure interest rates. in the Short Run Uses the Keynesian 45º-line Chapter 9: Economic Growth, aggregate expenditure model to the Financial System, and introduce students to the short-run Business Cycles relationship between spending and Provides an overview of key production. The discussion of macroeconomic issues by monetary and fiscal policy in later discussing the business cycle in chapters uses only the aggregate the context of long-run growth. demand and aggregate supply xii Preface

Discusses the roles of model, which allows instructors to entrepreneurship, financial omit Chapter 11. institutions, and policy in economic growth. Chapter 10: Long-Run Chapter 11 Appendix: The Algebra Economic Growth: Sources and of Macroeconomic Equilibrium Policies Uses equations to represent the Highlights the importance of aggregate expenditure model institutions, policies, and described in the chapter. technological change for economic growth. Chapter 12 Appendix: Macroeconomic Schools of Thought Chapter 12: Aggregate Demand Covers the monetarist model, the and Aggregate Supply Analysis new classical model, and the real Carefully develops the AD-AS business cycle model. model and then makes the model dynamic to account better for Chapter 16: Inflation, actual movements in real GDP Unemployment, and Federal and the price level. Reserve Policy Discusses the short-run and long- Chapter 13: Money, Banks, and run Phillips curves. Also covers the the Federal Reserve System roles of expectations formation and Explores the role of money in central bank credibility in monetary the economy, the money supply policy. process, and the structure of the Federal Reserve. Chapter 17: Macroeconomics in an Open Economy Explains the linkages among countries at the macroeconomic level and how policymakers in all countries take these linkages into account when conducting monetary and fiscal policy.

Chapter 18: The International Financial System Covers the international financial system and explores the role central banks play in the system. Preface xiii

Supplements for Instructors

In addition to the Instructor’s Manual, the following supplements are available:

. Two Test Banks . TestGen Computerized Test Program . PowerPoint Lecture Presentation . Acetates of all figures and tables . Instructor’s Resource CD-ROM with Test Banks, Instructor’s Manual, and PowerPoint . presentations . BlackBoard and WebCT Course Content . Classroom Response Systems . MyEconLab

Two Test Banks (in print format and electronic TestGen format)

Two test banks to accompany the text. Each test bank includes more than 2,000 multiple-choice, short answer, and graphing questions.

Test questions are annotated with the following information:

. Difficulty: 1 for straight recall, 2 for some analysis, 3 for complex analysis . Type: multiple-choice, true/false, short-answer, essay . Topic: the term or concept the question supports . Skill: fact, definition, analytical, conceptual . Learning objective . AACSB (see description that follows) . Page number . Special feature in the main book: chapter-opening business example, Economics in YOUR Life!, Solved Problem, Making the Connection, Don’t Let this Happen to You! and An Inside Look.

The Association to Advance Collegiate Schools of Business (AACSB)

The test bank authors have connected select test bank questions to the general knowledge and skill guidelines found in the AACSB standards.

What is the AACSB?

AACSB is a not-for-profit corporation of educational institutions, corporations, and other organizations devoted to the promotion and improvement of higher education in business administration and accounting. A collegiate institution offering degrees in business administration or accounting may volunteer for AACSB accreditation review. The AACSB makes initial accreditation decisions and conducts periodic reviews to promote continuous quality improvement in management education. Pearson Education is a proud member of the AACSB and is pleased to provide advice to help you apply AACSB Learning Standards. xiv Preface

What are AACSB Learning Standards?

One of the criteria for AACSB accreditation is the quality of the curricula. Although no specific courses are required, the AACSB expects a curriculum to include learning experiences in such areas as:

. Communication . Ethical Reasoning . Analytic Skills . Use of Information Technology . Multicultural and Diversity . Reflective Thinking

These six categories are AACSB Learning Standards. Questions that test skills relevant to these standards are tagged with the appropriate standard. For example, a question testing the moral questions associated with externalities would receive the Ethical Reasoning tag.

How Can Instructors Use the AACSB Tags?

Tagged questions help you measure whether students are grasping the course content that aligns with the AACSB guidelines noted above. In addition, the tagged questions may help instructors identify potential applications of these skills. This in turn may suggest enrichment activities or other educational experiences to help students achieve these skills.

TestGen

The computerized TestGen package allows instructors to customize, save, and generate classroom tests. The test program permits instructors to edit, add, or delete questions from the test banks; edit existing graphics and create new graphics; analyze test results; and organize a database of tests and student results. This software allows for extensive flexibility and ease of use. It provides many options for organizing and displaying tests, along with search and sort features. The software and the test banks can be downloaded from the Instructor’s Resource Center (www.prenhall.com/hubbard).

PowerPoint ® Slides (2 sets)

There are two sets of PowerPoint slides:

1. A comprehensive set of PowerPoint slides that can be used by instructors for class presentations or by students for lecture preview or review. The presentation includes all the graphs, tables, and equations in the textbook. It displays figures in step-by-step, automated mode, using a single click per graph curve.

2. A comprehensive set of PowerPoint slides with Classroom Response Systems (CRS) questions built in so instructors can incorporate CRS “clickers” into their classroom lectures. For more information on Prentice Hall’s partnership with CRS, see the facing page. Instructors may download these PowerPoint presentations from the Instructor’s Resource Center (www.prenhall.com/hubbard).

Acetates

All figures and tables from the text are reproduced and provided as full-page, four-color acetates. Preface xv

Instructor’s Resource CD-ROM

The Instructor’s Resource CD-ROM contains all the faculty and student resources that support this text. Instructors have the ability to access and edit the

. Instructor’s Manual, . Test Banks, and . PowerPoint presentations.

By simply clicking on a chapter or searching for a keyword, faculty can access an interactive library of resources. Faculty can pick and choose from the various supplements and export them to their hard drives.

Blackboard and WebCT Course Content

Prentice Hall offers fully customizable course content for the Bb and WebCT Course Management Systems.

Classroom Response Systems

Classroom Response Systems (CRS) is an exciting new wireless polling technology that makes large and small classrooms even more interactive because it enables instructors to pose questions to their students, record results, and display the results instantly. Students can answer questions easily, using compact remote-control transmitters. Prentice Hall has partnerships with leading classroom response systems providers and can show you everything you need to know about setting up and using a CRS system. We’ll provide the classroom hardware, text-specific PowerPoint slides, software, and support, and we’ll also show you how your students can benefit! Learn more at www.prenhall.com/crs.

For the Professor

MyEconLab is an online course management, testing, and tutorial resource. Instructors can choose how much, or how little time to spend setting up and using MyEconLab. Each chapter contains two Sample Tests, Study Plan Exercises, and Tutorial Resources. Student use of these materials requires no initial setup by their instructor. The online Gradebook records each student’s performance and time spent on the Tests and Study Plan and generates reports by student or by chapter. Instructors can assign Tests, Quizzes, and Homework in MyEconLab using four resources:

. Pre-loaded Sample Test questions . Problems similar to the end-of-chapter problems . Test Bank questions xvi Preface

. Self-authored questions using Econ Exercise Builder

For the Student

MyEconLab puts students in control of their learning through a collection of testing, practice, and study tools tied to the online, interactive version of the textbook and other medial resources. Within MyEconLab’s structured environment, students practice what they learn, test their understanding, and pursue a personalized Study Plan generated from their performance on Sample Tests and tests set by their instructors. At the core of MyEconLab are the following features:

. Sample Tests, two per chapter . Personal Study Plan . Tutorial Instruction . Graphing Tool Supplements for Students Study Guide

The study guide contains the following features:

. Chapter summary . Discussion of each learning objective . Section-by-section review of the concepts presented . Helpful study hints . Additional Solved Problems to supplement those in the text . Key terms with definitions . A self-test, including 40 multiple-choice questions, plus a number of short-answer and true/false questions, with accompanying answers and explanations Companion Web Site

The free companion Web site, www.prenhall.com/hubbard, gives students access to an interactive study guide that provides instant feedback, economics updates, student PowerPoint slides, and many other resources to promote success in the principles of economics course. PowerPoint Slides

For student use as a study aide or note-taking guide, PowerPoint slides, may be downloaded from the companion Web site, at www.prenhall.com/hubbard. The slides include:

. All graphs, tables, and equations in the text . Figures in step-by-step, automated mode, using a single click per graph curve . End-of-chapter key terms with hyperlinks to relevant slides CourseSmart eTextbook

CourseSmart is an exciting new choice for students looking to save money. As an alternative to purchasing the print textbook, students can purchase an electronic version of the same content and save up to 50 percent off the suggested list price of the print text. With a CourseSmart etextbook, students can search the text, make notes online, print out reading assignments that incorporate lecture notes, and bookmark important passages for later review. For more information, or to purchase access to the CourseSmart eTextbook, visit www.coursesmart.com.