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Rice University
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OpenStax College
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Welcome to Principles of Macroeconomics 2e (2nd Edition), an OpenStax resource. This textbook was written to increase student access to high-quality learning materials, maintaining highest standards of academic rigor at little to no cost.

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About Principles of Macroeconomics 2e

Principles of Macroeconomics 2e (2nd edition) covers the scope and sequence requirements of most introductory macroeconomics courses. The text includes many current examples, which are handled in a politically equitable way. The outcome is a balanced approach to both Keynesian and classical views, and to the theory and application of economics concepts. The second edition has been thoroughly revised to increase clarity, update data and current event impacts, and incorporate the feedback from many reviewers and adopters.

Coverage and scope

To develop the first edition of Principles of Macroeconomics, we acquired the rights to Timothy Taylor’s Principles of Economics and solicited ideas from economics instructors at all levels of higher education, from community colleges to PhD-granting universities. For the second edition, we received even more expansive and actionable feedback from hundreds of adopters who had used the book for several academic terms. These knowledgeable instructors informed the pedagogical courses, learning objective development and fulfillment, and the chapter arrangements. Faculty who taught from the material provided critical and detailed commentary.

The result is a book that covers the breadth of economics topics and also provides the necessary depth to ensure the course is manageable for instructors and students alike. We strove to balance theory and application, as well as the amount of calculation and mathematical examples.

The book is organized into seven main parts:

  • What is Economics? The first two chapters introduce students to the study of economics with a focus on making choices in a world of scarce resources.
  • Supply and Demand, Chapters 3 and 4, introduces and explains the first analytical model in economics: supply, demand, and equilibrium, before showing applications in the markets for labor and finance.
  • Elasticity and Price, Chapter 5, introduces and explains elasticity and price, two key concepts in economics.
  • The Macroeconomic Perspective and Goals, Chapters 6 through 10, introduces a number of key concepts in macro: economic growth, unemployment and inflation, and international trade and capital flows.
  • A Framework for Macroeconomic Analysis, Chapters 11 through 13, introduces the principal analytic model in macro, namely the aggregate demand/aggregate supply Model. The model is then applied to the Keynesian and Neoclassical perspectives. The expenditure-output model is fully explained in a stand-alone appendix.
  • Monetary and Fiscal Policy, Chapters 14 through 18, explains the role of money and the banking system, as well as monetary policy and financial regulation. Then the discussion switches to government deficits and fiscal policy.
  • International Economics, Chapters 19 through 21, the final part of the text, introduces the international dimensions of economics, including international trade and protectionism.

Alternate Sequencing Principles of Macroeconomics 2e was conceived and written to fit a particular topical sequence, but it can be used flexibly to accommodate other course structures. One such potential structure, which will fit reasonably well with the textbook content, is provided below. Please consider, however, that the chapters were not written to be completely independent, and that the proposed alternate sequence should be carefully considered for student preparation and textual consistency.

Chapter 1 Welcome to Economics!
Chapter 2 Choice in a World of Scarcity
Chapter 3 Demand and Supply
Chapter 4 Labor and Financial Markets
Chapter 5 Elasticity
Chapter 20 International Trade
Chapter 6 The Macroeconomic Perspective
Chapter 7 Economic Growth
Chapter 8 Unemployment
Chapter 9 Inflation
Chapter 10 The International Trade and Capital Flows
Chapter 12 The Keynesian Perspective
Chapter 13 The Neoclassical Perspective
Chapter 14 Money and Banking
Chapter 15 Monetary Policy and Bank Regulation
Chapter 16 Exchange Rates and International Capital Flows
Chapter 17 Government Budgets and Fiscal Policy
Chapter 11 The Aggregate Demand/Aggregate Supply Model
Chapter 18 The Impacts of Government Borrowing
Chapter 19 Macroeconomic Policy Around the World
Chapter 21 Globalization and Protectionism

Appendix A The Use of Mathematics in Principles of Economics
Appendix B The Expenditure-Output Model

Changes to the second edition

OpenStax only undertakes revisions when significant modifications to a text are necessary. In the case of Principles of Macroeconomics, we received a wealth of constructive feedback. Many of the book’s users felt that consequential movement in economic data, coupled with the impacts of national and global events, warranted a full revision. We also took advantage of the opportunity to improve the writing and sequencing of the text, as well as many of the calculation examples. The major changes are summarized below.

  • Augmented explanations in chapters one through four provide a more comprehensive and informative foundation for the book.
  • A clearer explanation, using a numerical example, has been given for finding the utility maximizing combination of goods and services a consumer should choose.
  • The Theory of Production has been added to the chapter on costs & industry structure.
  • A more complete treatment has been given to labor markets, including the theories of competitive and monopsonistic labor markets, and bilateral monopoly; and the labor markets chapter and the poverty and economic inequality chapter have been resequenced.
  • Substantial revisions to the AD/AS model in chapters 11-13 present the core concepts of macroeconomics in a clearer, more dynamic manner.
  • Case studies and examples have been revised and, in some cases, replaced to provide more relevant and useful information for students.
  • Economic data, tables, and graphs, as well as discussion and analysis around that data, have been thoroughly updated.

Wherever possible, data from the Federal Reserve Economic Database (FRED) was included and referenced. In most of these uses, links to the direct source of the FRED data are provided, and students are encouraged to explore the information and the overall FRED resources more thoroughly.

Additional updates and revisions appear throughout the book. They reflect changes to economic realities and policies regarding international trade, taxation, insurance, and other topics. For issues that may change in the months or years following the textbook's publication, the authors often provided a more open-ended explanation, but we will update the text annually to address further changes.

The revision of Principles of Macroeconomics was undertaken by Steven Greenlaw (University of Mary Washington) and David Shapiro (Pennsylvania State University), with significant input by lead reviewer Daniel MacDonald (California State University, San Bernardino).

Pedagogical foundation

Throughout Principles of Macroeconomics 2e, you will find features that engage the students in economic inquiry and support their learning. Our features include:

  • Bring It Home: This added feature is a brief case study, specific to each chapter, which connects the chapter’s main topic to the real word. It is broken up into two parts: the first at the beginning of the chapter (in the intro module) and the second at chapter’s end, when students have learned what’s necessary to understand the case and “bring home” the chapter’s core concepts.
  • Work It Out: This added feature asks students to work through a generally analytical or computational problem, and guides them step by step to find out how its solution is derived.
  • Clear It Up: This boxed feature, which includes pre-existing features from Taylor’s text, addresses common student misconceptions about the content. Clear It Ups are usually deeper explanations of something in the main body of the text. Each CIU starts with a question. The rest of the feature explains the answer.
  • Link It Up: This added feature is a very brief introduction to a website that is pertinent to students’ understanding and enjoyment of the topic at hand.

Questions for each level of learning

Principles of Macroeconomics 2e offers four types of end-of-module questions for students:

  • Self-Checks are analytical self-assessment questions that appear at the end of each module. They “click to reveal” an answer in the web view so students can check their understanding before moving on to the next module. Self-Check questions are not simple look-up questions. They push the student to think beyond what is said in the text. Self-Check questions are designed for formative (rather than summative) assessment. The questions and answers are explained so that students feel like they are being walked through the problem.
  • Review Questions have been retained from Taylor’s version, and are simple recall questions from the chapter in open-response format (not multiple choice or true/false). The answers can be looked up in the text.
  • Critical Thinking Questions are new higher-level, conceptual questions that ask students to demonstrate their understanding by applying what they have learned in different contexts. They ask for outside-the-box thinking, for reasoning about the concepts. They push the student to places they wouldn’t have thought of going themselves.
  • Problems are exercises that give students additional practice working with the analytic and computational concepts in the module.

Updated art

Principles of Macroeconomics 2e includes an updated art program to better inform today’s student, providing the latest data on covered topics.

sample image
Cost Curves at the Clip Joint
sample image
Banks as Financial Intermediaries
sample image
Unemployment Rate by Demographic Group

Additional resources

Student and instructor resources

We’ve compiled additional resources for both students and instructors, including Getting Started Guides, an instructor solution manual, test bank, and PowerPoint slides. Instructor resources require a verified instructor account, which you can apply for when you log in or create your account on Take advantage of these resources to supplement your OpenStax book.

Community Hubs

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To reach the Community Hubs, visit

Technology partners

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About the authors

Special thanks to Christian Potter from University of Mary Washington, who thoroughly researched and applied many of the data updates and provided the foundation for many new and revised illustrations.

Development editor

Thomas Sigel


Bryan Aguiar, Northwest Arkansas Community College
Basil Al Hashimi, Mesa Community College
Emil Berendt, Mount St. Mary's University
Zena Buser, Adams State University
Douglas Campbell, The University of Memphis
Sanjukta Chaudhuri, University of Wisconsin-Eau Claire
Xueyu Cheng, Alabama State University
Robert Cunningham, Alma College
Rosa Lea Danielson, College of DuPage
Steven Deloach, Elon University
Michael Enz, Framingham State University
Debbie Evercloud, University of Colorado Denver
Reza Ghorashi, Richard Stockton College of New Jersey
Robert Gillette, University of Kentucky
Shaomin Huang, Lewis-Clark State College
George Jones, University of Wisconsin-Rock County
Charles Kroncke, College of Mount St. Joseph
Teresa Laughlin, Palomar Community College
Carlos Liard-Muriente, Central Connecticut State University
Heather Luea, Kansas State University
Steven Lugauer, University of Notre Dame
William Mosher, Nashua Community College
Michael Netta, Hudson County Community College
Nick Noble, Miami University
Joe Nowakowski, Muskingum University
Shawn Osell, University of Wisconsin-Superior
Mark Owens, Middle Tennessee State University
Sonia Pereira, Barnard College
Jennifer Platania, Elon University
Robert Rycroft, University of Mary Washington
Adrienne Sachse, Florida State College at Jacksonville
Hans Schumann, Texas A&M University
Gina Shamshak, Goucher College
Chris Warburton, John Jay College of Criminal Justice, CUNY
Mark Witte, Northwestern University

Contributing authors

Eric Dodge, Hanover College
Cynthia Gamez, University of Texas at El Paso
Andres Jauregui, Columbus State University
Diane Keenan, Cerritos College
Dan MacDonald, California State University, San Bernardino
Amyaz Moledina, The College of Wooster
Craig Richardson, Winston-Salem State University
David Shapiro, Pennsylvania State University
Ralph Sonenshine, American University

Senior contributing authors

Steven A. Greenlaw, University of Mary Washington
Steven Greenlaw has been teaching principles of economics for more than 30 years. In 1999, he received the Grellet C. Simpson Award for Excellence in Undergraduate Teaching at the University of Mary Washington. He is the author of Doing Economics: A Guide to Doing and Understanding Economic Research, as well as a variety of articles on economics pedagogy and instructional technology, published in the Journal of Economic Education, the International Review of Economic Education, and other outlets. He wrote the module on Quantitative Writing for Starting Point: Teaching and Learning Economics, the web portal on best practices in teaching economics. Steven Greenlaw lives in Alexandria, Virginia with his wife Kathy and their three children.

David Shapiro, Pennsylvania State University
David Shapiro is Professor Emeritus of Economics, Demography, and Women’s, Gender, and Sexuality Studies at the Pennsylvania State University. He received a BA in economics and political science from the University of Michigan, and an MA as well as a PhD in economics from Princeton University. He began his academic career at Ohio State University in 1971, and moved to Penn State in 1980. His early research focused on women and youth in the United States labor market. Following a 1978-79 stint as a Fulbright professor at the University of Kinshasa in the Democratic Republic of the Congo, his research shifted focus to fertility in Kinshasa and more broadly, in sub-Saharan Africa. He has also received the top prize for teaching at both Ohio State and Penn State.

Timothy Taylor, Macalester College
Timothy Taylor has been writing and teaching about economics for 30 years, and is the Managing Editor of the Journal of Economic Perspectives, a post he’s held since 1986. He has been a lecturer for The Teaching Company, the University of Minnesota, and the Hubert H. Humphrey Institute of Public Affairs, where students voted him Teacher of the Year in 1997. His writings include numerous pieces for journals such as the Milken Institute Review and The Public Interest, and he has been an editor on many projects, most notably for the Brookings Institution and the World Bank, where he was Chief Outside Editor for the World Development Report 1999/2000, Entering the 21st Century: The Changing Development Landscape. He also blogs four to five times per week at Timothy Taylor lives near Minneapolis with his wife Kimberley and their three children.