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CONTENTS vii
CHAPTER 4: Market Failures: Public Appendix Summary 124

Goods and Externalities 95 Appendix Terms and Concepts 124
4.1 Market Failures in Competitive Markets 96 Appendix Discussion Questions 124
Demand-Side Market Failures 96
Appendix Review Questions 125
Supply-Side Market Failures 96
Appendix Problems 125
4.2 Efficiently Functioning Markets 96
Consumer Surplus 97 CHAPTER 5: Government’s Role and
Producer Surplus 98
Government Failure 126
Efficiency Revisited 100 5.1 Government’s Economic Role 126

Efficiency Losses (or Deadweight Losses) 102 Government’s Right to Coerce 127
4.3 Public Goods 103

Consider This—Market Failure and the
Need for Government 127
Private Good Characteristics 104
The Problem of Directing and Managing
Public Good Characteristics 104
Government 128
Consider This—Street Entertainers 105
Consider This—Does Big Government
Optimal Quantity of a Public Good 106 Equal Bad Government? 129
Demand for Public Goods 106
5.2 Government Failure 130
Comparing MB and MC 107
Representative Democracy and the
Consider This—Responding to Digital
Principal–Agent Problem 130
Free Riding 108
Clear Benefits, Hidden Costs 131
Cost–Benefit Analysis 108
Unfunded Liabilities 132
4.4 Externalities 110 Chronic Budget Deficits 132
Negative Externalties 111 Misdirection of Stabilization Policy 132
Positive Externalities 112 Limited and Bundled Choice 133
Government Intervention 112 Bureaucracy and Inefficiency 133
Consider This—The Fable of the Bees 113 Corruption 135
4.5 Society’s Optimal Amount of Externality Imperfect Institutions 136
Reduction 115 The Last Word—Singapore’s Efficient and
MC, MB, and Equilibrium Quantity 115 Effective Health Care System 137
Shifts in Locations of the Curves 116 Chapter Summary 138
Government’s Role in the Economy 116
Terms and Concepts 138
The Last Word—Carbon Dioxide Emissions,
Cap and Trade, and Carbon Taxes 117 Discussion Questions 138
Chapter Summary 118 Review Questions 139
Terms and Concepts 119 Problems 139
Discussion Questions 120 APPENDIX TO CHAPTER 5: PUBLIC CHOICE

Review Questions 120 THEORY AND VOTING PARADOXES 141
Problems 121 A5.1 Public Choice Theory 141
Revealing Preferences Through Majority Voting 141
APPENDIX TO CHAPTER 4 122 Inefficient Voting Outcomes 141
A4.1 Information Failures 122 Interest Groups and Logrolling 142
Inadequate Buyer Information About Sellers 122 Paradox of Voting 143
Inadequate Seller Information About Buyers 123 Median-Voter Model 144
Qualification 124 Consider This—Voter Failure 144
viii CONTENTS
Appendix Summary 145 A Monetary Measure 166

Appendix Terms and Concepts 145 Avoiding Multiple Counting 166
GDP Excludes Nonproduction Transactions 167
Appendix Discussion Questions 145
Two Ways of Calculating GDP: Expenditures
Appendix Review Questions 146 and Income 168
Appendix Problems 146 7.2 The Expenditures Approach 169
Personal Consumption Expenditures (C) 169
PART 3: GDP, Growth, and Fluctuations 147 Gross Investment (Ig) 169
Government Purchases (G) 171
CHAPTER 6: An Introduction to Net Exports (Xn) 171
Macroeconomics 147 Consider This—Stocks Versus Flows 172
6.1 Assessing the Health of the Economy: Putting It All Together: GDP = C + Ig + G + Xn 172
Performance and Policy 148
7.3 The Income Approach 173
6.2 The Miracle of Modern Economic Growth 150 Compensation of Employees 173
6.3 Saving, Investment, and Choosing Between Gross Operating Surplus 174
Present and Future Consumption 151 Gross Mixed Income 174
Consider This—Economic Versus Financial Taxes Less Subsidies on Production 174
Investment 152 Taxes Less Subsidies on Products and Imports 174
Banks and Other Financial Institutions 152 Adding Up Domestic Income 174
6.4 Uncertainty, Expectations, Shocks, and Statistical Discrepancy 175
Short-Run Fluctuations 153 7.4 Nominal GDP Versus Real GDP 175
The Importance of Expectations and Shocks 153 Adjustment Process in a One-Product Economy 176
Demand Shocks and Sticky Prices 153 An Alternative Method 177
Example: A Single Firm Dealing with Demand Real-World Considerations and Data 177
Shocks and Sticky Prices 154
7.5 Shortcomings of GDP 179
Consider This—The Great Recession 156
Measurement Shortcomings 179
Generalizing from a Single Firm to the Entire
Economy 157 Shortcomings of the Well-Being Measure 181
The Last Word—The Measurement Problem
6.5 How Sticky Are Prices? 157
in Calculating GDP in the Digital Age 182
6.6 Categorizing Macroeconomic Models
Chapter Summary 182
Using Price Stickiness 159
The Last Word—Debating the Great Recession 160
Discussion Questions 183
Chapter Summary 161
Review Questions 183
Problems 185
Review Questions 163 CHAPTER 8: Economic Growth 187
Problems 163 8.1 Economic Growth 188

Growth as a Goal 188
CHAPTER 7: Measuring the Economy’s
Arithmetic of Growth 188
Output 165
Growth in Canada 189
7.1 Measuring the Economy’s Performance: GDP 165
Gross Domestic Product 166
CONTENTS ix
8.2 Modern Economic Growth 190 Provincial Variations 212

The Uneven Distribution of Growth 191 Causation: A First Glance 212
Catching Up Is Possible 192 Cyclical Impact: Durables and Nondurables 213
Institutional Structures That Promote Modern 9.2 Unemployment 214
Economic Growth 193 Measurement of Unemployment 214
Consider This—Economic Growth Rates Types of Unemployment 215
Matter! 193
Consider This—Downwardly Sticky
Consider This—Patents and Innovation 194 Wages and Unemployment 216
8.3 Determinants of Growth 195 Definition of Full Employment 217
Supply Factors 195 Economic Costs of Unemployment 217
Demand Factor 196 Noneconomic Costs of Unemployment 220
Efficiency Factor 196 Regional Variations 220
Production Possibilities Analysis 196 International Comparisons 220
8.4 Accounting for Growth in Canada 198 9.3 Inflation 221
Inputs Versus Productivity 198 Meaning of Inflation 221
Quantity of Labour 199 Measurement of Inflation 222
Technological Advance 199 Facts of Inflation 222
Quantity of Capital 200 Types of Inflation 223
Education and Training 200 Complexities 224
Economies of Scale and Resource Allocation 200 Core Inflation 224
8.5 Recent Fluctuations in the Average Rate Consider This—Clipping Coins 225
of Productivity Growth 201 9.4 Redistribution Effects of Inflation 226
Reasons for the Rise in the Average Rate of Nominal Income and Real Income 226
Productivity Growth Between 1995 and 2010 201 Who Is Hurt by Inflation? 226
Implications of Economic Growth 203 Who Is Unaffected or Helped by Inflation? 227
Canada’s Recent Productivity Performance 203 Anticipated Inflation 227
8.6 Is Economic Growth Desirable and Negative Nominal Interest Rates 228
Sustainable? 204 Other Redistribution Issues 229
The Anti-Growth View 204 Consider This—The Spectre of Deflation 229
In Defence of Growth 205
9.5 Does Inflation Affect Output? 230
The Last Word—Can Economic Growth
Cost-Push Inflation and Real Output 230
Survive Population Decline? 206
Demand-Pull Inflation and Real Output 230
Chapter Summary 207 Hyperinflation 231
Terms and Concepts 208 The Last Word—Unemployment After the
Discussion Questions 208 Great Recession: Canada Versus the
United States 232
Chapter Summary 233
Problems 209
CHAPTER 9: Business Cycles, Unemployment,
and Inflation 210
9.1 The Business Cycle 210
Phases of the Business Cycle 211 Problems 236
x CONTENTS
PART 4: Macroeconomic Models and Fiscal CHAPTER 11: The Aggregate Expenditures
Policy 237 Model 262
11.1 The Aggregate Expenditures Model:
CHAPTER 10: Basic Macroeconomic
Consumption and Saving 263
Relationships 237
Assumptions and Simplifications 263
10.1 The Income–Consumption and Income–
11.2 Consumption and Investment Schedules 263
Saving Relationships 239
The Consumption Schedule 239 11.3 Equilibrium GDP: C + Ig = GDP 265
The Saving Schedule 241 11.4 Other Features of Equilibrium GDP 268
Average and Marginal Propensities 241 11.5 Changes in Equilibrium GDP and the
10.2 Non-income Determinants of Consumption Multiplier 269
and Saving 244 11.6 Adding International Trade 270
Other Important Considerations 245 Net Exports and Aggregate Expenditures 270
Consider This—The Great Recession and the The Determinants of Imports and Exports
Paradox of Thrift 246 and the Net Export Schedule 271
Imports and the Multiplier 271
10.3 The Interest Rate–Investment Relationship 247
Net Exports and Equilibrium GDP 272
Expected Rate of Return 247
International Economic Linkages 275
The Real Interest Rate 247
Consider This—The Transmission of the
Investment Demand Curve 248
Recession During the Global Economic
10.4 Shifts in the Investment Demand Curve 250 Downturn of 2008–2009 275
Acquisition, Maintenance, and Operating Costs 250 11.7 Adding the Public Sector 276
Business Taxes 250 Government Purchases and Equilibrium GDP 276
Technological Change 251 Taxation and Equilibrium GDP 277
Stock of Capital Goods on Hand 251
11.8 Equilibrium Versus Full-Employment GDP 280
Planned Inventory 251
Recessionary Expenditure Gap 281
Expectations 251
Inflationary Expenditure Gap 282
Consider This—The Great Recession and
Application: The Recession of 2008–2009 283
the Investment Riddle 252
The Last Word—Say’s Law, the Great
Fluctuations of Investment 252
Depression, and Keynes 284
10.5 The Multiplier Effect 254
Chapter Summary 285
Rationale 255
The Multiplier and the Marginal Propensities 256
How Large Is the Actual Multiplier Effect? 257 Discussion Questions 286
The Last Word—Toppling Dominoes 258 Review Questions 287
Chapter Summary 259 Problems 287

MATH APPENDIX TO CHAPTER 11 290
A11.1 The Math Behind the Aggregate
Review Questions 260 Expenditures Model 290
Problems 260 Aggregate Expenditures 290
CONTENTS xi
CHAPTER 12: Aggregate Demand and CHAPTER 13: Fiscal Policy, Deficits,
Aggregate Supply 292 Surpluses, and Debt 321
12.1 Aggregate Demand 293 13.1 Fiscal Policy and the AD–AS Model 321
Aggregate Demand Curve 293 Expansionary Fiscal Policy 322
12.2 Changes in Aggregate Demand 294 Contractionary Fiscal Policy 323
Policy Options: G or T ? 325
12.3 Aggregate Supply 297
Aggregate Supply in the Immediate 13.2 Built-In Stability 326
Short Run 297 Automatic or Built-In Stabilizers 326
Aggregate Supply in the Short Run 298 13.3 Evaluating How Expansionary or
Aggregate Supply in the Long Run 300 Contractionary Fiscal Policy Is Determined 327
Focusing on the Short Run 301 Cyclically Adjusted Budget 328
12.4 Changes in Aggregate Supply 301 13.4 Recent Canadian Fiscal Policy 329
12.5 Equilibrium in the AD–AS Model 304 13.5 Problems, Criticisms, and Complications
of Implementing Fiscal Policy 331
12.6 Changes in Equilibrium 306
Problems of Timing 331
Increases in AD: Demand-Pull Inflation 306
Political Considerations 331
Decreases in AD: Recession and Cyclical
Unemployment 307 Future Policy Reversals 332
Consider This—The Ratchet Effect 308 Offsetting Provincial and Municipal Finance 332
Decreases in AS: Cost-Push Inflation 309 Crowding-Out Effect 332
Increases in AS: Full Employment with Fiscal Policy in the Open Economy 332
Price-Level Stability 309 Current Thinking on Fiscal Policy 335
The Last Word—Stimulus and the Great 13.6 Deficits, Surpluses, and the Federal Debt 335
Recession in the American Versus the Unfounded Concerns 336
Canadian Economy 311
Consider This—The European Sovereign
Chapter Summary 312 Debt Crisis 338
Terms and Concepts 313 Substantive Issues 338
The Last Word—Federal and Provincial per
Capita Net Debt, 2016 341
Chapter Summary 341
Problems 315
APPENDIX TO CHAPTER 12 317 Discussion Questions 342
A12.1 The Relationship of the Aggregate Review Questions 343

Demand Curve to the Aggregate Problems 344
Expenditures Model 317
Derivation of the Aggregate Demand Curve PART 5: Money, Banking, and Monetary
from the Aggregate Expenditures Model 317 Policy 345
Aggregate Demand Shifts and the Aggregate
Expenditures Model 317 CHAPTER 14: Money, Banking, and Money
Creation 345
Appendix Summary 319
14.1 The Functions of Money 346
14.2 The Components of the Money Supply 347
Money Definition M1+ 347
Money Definition M2 349
xii CONTENTS
Money Definition M2+ and M2++ 349 CHAPTER 15: Interest Rates and Monetary
Consider This—Are Credit Cards Money? 350 Policy 376
14.3 What Backs the Money Supply? 351 15.1 The Market for Money and the Determination of
Money as Debt 351 Interest Rates 376
Value of Money 352 The Demand for Money 377
Money and Prices 352 The Equilibrium Interest Rate 379
14.4 The Canadian Financial System 354 Interest Rates and Bond Prices 379
Canada’s Chartered Banks 354 15.2 Functions of the Bank of Canada 380
Making Loans 354 Bank of Canada Independence 380
Other Financial Intermediaries 355 Consolidated Balance Sheet of the Bank
Cheque Clearing 355 of Canada 381
Assets 382
14.5 The Importance of a Properly Functioning
Financial System: The U.S. Financial Liabilities 382
Crisis of 2007–2008 356 15.3 Goals and Tools of Monetary Policy 382
The U.S. Mortgage Default Crisis 356 Tools of Monetary Policy 383
Securitization 357 Open-Market Operations 383
Consider This—Extend and Pretend 358 The Operating Band and the Overnight
Lending Rate 386
14.6 Chartered Banks and the Creation of Money 358
The Fractional Reserve System 358 15.4 Targeting the Overnight Lending Rate 387
Illustrating the Idea: The Goldsmiths 359 Expansionary Monetary Policy 388
Significant Characteristics of Fractional Reserve Restrictive Monetary Policy 389
Banking 359 Consider This—Expansionary Monetary Policy
After the Mortgage Debt Crisis in the U.S. 390
14.7 A Single Chartered Bank 360
The Taylor Rule 390
Formation of a Chartered Bank 360
Desired Cash Reserves 361 15.5 Monetary Policy, Real GDP, and Price Level 391
Cause–Effect Chain: The Transmission
14.8 Money-Creating Transactions of a
Mechanism 391
Chartered Bank 363
Effects of an Expansionary Monetary Policy 394
Profits, Liquidity, and the Overnight Lending
Rate 365
Effects of a Restrictive Monetary Policy 394
14.9 The Banking System: Multiple-Deposit 15.6 Monetary Policy: Evaluation and Issues 396
Expansion 365 Recent Monetary Policy in Canada 396
The Banking System’s Lending Potential 366 Problems and Complications 397
Inflation Targeting 398
14.10 The Monetary Multiplier 368
Reversibility: The Multiple Destruction 15.7 Monetary Policy and the International Economy 398
of Money 369 Net Export Effect 398
The Last Word—Banking, Leverage, Macroeconomic Stability and the Trade Balance 399
and Financial Instability in the U.S. The “Big Picture” 399
Compared to Canada 370 The Last Word—Less Than Zero 402
Chapter Summary 371 Chapter Summary 403
Terms and Concepts 372 Terms and Concepts 404
Discussion Questions 372 Discussion Questions 404
Review Questions 373 Review Questions 405
Problems 374 Problems 405
CONTENTS xiii
CHAPTER 15B: Financial Economics 1 Recession and the Long-Run AD–AS Model 413
15B.1 Financial Investment 2 Economic Growth with Ongoing Inflation 413
15B.2 Present Value 2 16.3 The Inflation–Unemployment Relationship 416

The Phillips Curve 416
Applications 5
Aggregate Supply Shocks and the Phillips Curve 418
15B.3 Some Popular Investments 6
16.4 The Long-Run Phillips Curve 420
Stocks 6
The Short-Run Phillips Curve 420
Bonds 6
Long-Run Vertical Phillips Curve 421
Mutual Funds 7
Disinflation 422
15B.4 Calculating Investment Returns 8
16.5 Taxation and Aggregate Supply 423
Percentage Rates of Return 8
Taxes and Incentives to Work 423
The Inverse Relationship Between Asset
Incentives to Save and Invest 423
Prices and Rates of Return 8
The Laffer Curve 423
Consider This—Corporate Ownership 9
Criticisms of the Laffer Curve 424
15B.5 Arbitrage 9
Consider This—Sherwood Forest 425
15B.6 Risk 10 Rebuttal and Evaluation 425
Diversification 10 The Last Word—Do Tax Increases Reduce
15B.7 Comparing Risky Investments 12 Real GDP? 426
Relationship of Risk and Average Expected Rates 13 Chapter Summary 427
15B.8 The Security Market Line 14 Terms and Concepts 428
Security Market Line: Applications 16
The Last Word—Index Funds Versus Actively
Managed Funds 18
Problems 429
Chapter Summary 19
Terms and Concepts 21 CHAPTER 16B: Current Issues in Macro
Theory and Policy 1
16B.1 What Causes Macro Instability? 1
Review Questions 22
Mainstream View 2
Problems 22
Monetarist View 2
Real-Business-Cycle View 4
PART 6: The Long-Run and Current Issues Coordination Failures 5
in Macro Theory and Policy 407 Consider This—Too Much Money 6
CHAPTER 16: Long-Run Macroeconomic 16B.2 Does the Economy Self-Correct? 6

Adjustments 407 New Classical View of Self-Correction 6
Mainstream View of Self-Correction 9
16.1 From the Short Run to the Long Run 408
Short-Run Aggregate Supply 408 16B.3 Rules or Discretion? 10
Long-Run Aggregate Supply 409 In Support of Policy Rules 10
Long-Run Equilibrium in the AD–AS Model 409 Consider This—On the Road Again 11
In Defence of Discretionary Stabilization
16.2 Applying the Long-Run AD–AS Model 410
Policy 13
Demand-Pull Inflation in the Long-Run AD–AS
Policy Successes 14
Model 410
Cost-Push Inflation in the Long-Run AD–AS 16B.4 Summary of Alternative Views 14
Model 411 The Last Word—Market Monetarism 15
xiv CONTENTS
Chapter Summary 16 Increased Domestic Employment Argument 455

Terms and Concepts 18 Cheap Foreign Labour Argument 456
Discussion Questions 18 17.6 Multilateral Trade Agreements and

Free-Trade Zones 457
Review Questions 18
General Agreement on Tariffs and Trade 457
Problems 19 World Trade Organization 457
The European Union (EU) 458
North American Free Trade Agreement
PART 7: International Economics 431
(NAFTA) 458
CHAPTER 17: International Trade 431 Recognizing Those Hurt by Free Trade 459
The Last Word—Petition of the Candlemakers,
17.1 Canada, International Linkages, and
1845 460
Globalization 432
Canada and World Trade 432 Chapter Summary 461
Rapid Trade Growth 435 Terms and Concepts 462

Participants in International Trade 435 Discussion Questions 462
17.2 The Economic Basis for Trade 436 Review Questions 463
Comparative Advantage 437 Problems 464
The Basic Principle 438
CHAPTER 18: The Balance of Payments
Two Isolated Nations 439
and Exchange Rates 465
Specialization Based on Comparative
Advantage 440 18.1 Financing International Trade 466
Terms of Trade 442 18.2 The Balance of International Payments 466
Gains from Trade 442 Current Account 468
Trade with Increasing Costs 445 Capital and Financial Account 469
Consider This—Misunderstanding the Official Settlement Account 469
Gains from Trade 445 Why the Balance? 470
The Case for Free Trade Restated 446 Official International Reserves, Payments
Deficits, and Payments Surpluses 470
17.3 Supply and Demand Analysis of Exports
and Imports 446 18.3 Foreign Exchange Markets: Flexible
Supply and Demand in Canada 446 Exchange Rates 471
Supply and Demand in the United States 448 Depreciation and Appreciation 473
Equilibrium World Price, Exports, and Imports 449 Determinants of Flexible Exchange Rates 474
Disadvantages of Flexible Exchange Rates 475
17.4 Trade Barriers and Export Subsidies 450
Consider This—Buy Canadian? 450 18.4 Fixed Exchange Rates 477
Economic Impact of Tariffs 451 Foreign Exchange Market Replaced by

Government Peg 477
Economic Impact of Quotas 453
Official International Reserves 478
Net Costs of Tariffs and Quotas 453
The Sizes of Currency Purchases and Sales 478
17.5 The Case for Protection: A Critical Review 454 Small and Alternating Changes in FX Reserves
Military Self-Sufficiency Argument 454 and the Domestic Money Supply 480
Diversification for Stability Argument 454 Large and Continuous Changes in FX Reserves
Infant Industry Argument 454 and the Domestic Money Supply 481
Protection Against Dumping Argument 455 Consider This—China’s Inflationary Peg 482
CONTENTS xv
18.5 The Current Exchange-Rate System: The 18B.2 Obstacles to Economic Development 4
Managed Float 484 Natural Resources 4
The Last Word—Are Common Currencies Human Resources 5
Common Sense? 486 Capital Accumulation 9
Chapter Summary 487 Technological Advance 10
Terms and Concepts 488 Sociocultural and Institutional Factors 11
Discussion Questions 488 18B.3 The Vicious Circle 12
Review Questions 489 18B.4 Role of Government 13

A Positive Role 13
Problems 490
Public-Sector Problems 14
APPENDIX TO CHAPTER 18 491 18B.5 Role of Advanced Nations 16
A18.1 Previous International Exchange-Rate Expanding Trade 16
Systems 491 Foreign Aid: Public Loans and Grants 16
The Gold Standard: Fixed Exchange Rates 491 Flows of Private Capital 19
The Bretton Woods System 492 The Last Word—Microfinance and Cash
Transfers 19
Appendix Summary 493
Chapter Summary 21
Appendix Terms and Concepts 493
Review Questions 22
Problems 23
CHAPTER 18B: The Economics of Developing
Countries 1 Math Appendices 1
18B.1 The Rich and the Poor 1 SEE THE MATH (available on Connect) 7
Classifications 2 WORKED PROBLEMS (available on Connect) 7
Comparisons 3
Growth, Decline, and Income Gaps 3
Glossary GL-1
The Human Realities of Poverty 3

Index IN-1
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Preface
Welcome to the Fifteenth Canadian Edition of Macroeconomics. Thousands of Canadian students

have studied economics from the Canadian editions of Macroeconomics and Microeconomics.
An estimated 15 million students worldwide have now used a version of the McConnell text-
books, making them the world’s best-selling economic principles textbooks.
Fundamental Objectives
We have three main goals for Macroeconomics:
∙ Help the beginning student master the principles essential for understanding economic prob-
lems, specific economic issues, and the policy alternatives
∙ Help the student understand and apply the economic perspective, and reason accurately and
objectively about economic matters
∙ Promote a lasting student interest in economics and the economy
What’s New and Improved?

One of the benefits of writing a successful text is the opportunity to revise—to delete the out-
dated and insert the new, to rewrite misleading or ambiguous statements, to introduce more rel-
mcc54877_ch02_033-056.indd Page 41 7/23/18 1:23 PM f-0021 /203/MHR00305/mcc54877_disk1of1/1259654877/mcc54877_pagefiles
evant illustrations, to improve the organizational structure, and to enhance the learning aids.
We trust you will agree that we have used this opportunity wisely and fully. Some of the more
significant changes include the following.
Modernized Presentation of Fixed Exchange

Rates and Currency Interventions
For this new edition, we have reorganized and rewritten large parts of Chapter 18 (The Balance of
Payments and Exchange Rates). The key revision has to do with our presentation of fixed exchange
rates. We now show with greater clarity that under a fixed exchange rate regime, changes in the
balance of payments generate automatic changes in both foreign exchange reserves and the domes-
tic money supply that then have to be dealt with by a nation’s central bank. Our new presentation
uses China as an example of these forces and how they often lead to “sterilization” actions on the
part of the central banks that are engaged in currency pegs. Our new presentation also clarifies the
relationship between trade deficits and foreign exchange reserves under a currency peg.
We have also inserted additional examples into our presentation of flexible exchange rates and
have introduced a new Last Word box on optimal currency areas to give students insight into some
of the European Monetary Union’s current problems and how they relate to the fact that a monetary
union is equivalent to simultaneous multilateral currency pegs.
For instructors who wish to give a larger historical perspective, CONSIDER THIS
we have created a brief appendix that covers the gold standard
McHits and McMisses
era as well as the Bretton Woods period. • Hulaburger (1962)—McMiss
• Filet-O-Fish (1963)—McHit
• Strawberry shortcake (1966)—McMiss
New “Consider This” and “Last Word” •

•
Big Mac (1968)—McHit
Hot apple pie (1968)—McHit
Pieces •
•
Egg McMuffin (1975)—McHit
Drive-thru (1975)—McHit
Our Consider This boxes are used to provide analogies, • Chicken McNuggets (1983)—McHit
• Arch Deluxe (1996)—McMiss
examples, or stories that help drive home central economic © McGraw-Hill Education/
John Flournoy, photographer
• McSalad Shaker (2000)—McMiss
•
ideas in a student-oriented, real-world manner. For instance, McDonald’s has introduced several new menu items over the •
McGriddle (2003)—McHit
Snack Wrap (2006)—McHit
a Consider This box titled “McHits and McMisses” illus- decades. Some have been profitable “hits,” while others
have been “misses.” In a market system, consumers ulti-
• Fish McBites (2012)—McMiss
trates consumer sovereignty through a listing of successful mately decide whether a menu item is profitable and there-
fore whether it stays on the McDonald’s menu.
Source: Adapted from Passikoff, Robert, “McDonald’s Fish McBites
Flounders,” Forbes, March 12, 2013, forbes.com; Machan, Dyan, “Polishing
the Golden Arches,” Forbes, June 15, 1998, pp. 42–43.
and unsuccessful products. How businesses exploit price
mcc54877_ch05_126-146.indd Page 137 7/23/18 11:40 AM f-0021 /203/MHR00305/mcc54877_disk1of1/1259654877/mcc54877_pagefiles
PREFACE xvii
The LAST WORD discrimination is driven home in a Consider This box that explains
Singapore’s Efficient and Effective Health Care System why ballparks charge different admission prices for adults and chil-
How does Singapore deliver some of the best health care in the world
while spending less per person than Canada?
dren but only one set of prices at their concession stands. These
brief vignettes, each accompanied by a photo, illustrate key points
in a lively, colourful, and easy-to-remember way. We have added
seven new Consider This boxes in this edition.
Our Last Word boxes are lengthier applications or case stud-
ies placed near the end of each chapter. For example, the one for
© Comstock Images/Picturequest Chapter 1 (Limits, Alternatives, and Choices) examines pitfalls
In every health-quality category monitored by the World sents about 92 percent of all non-government health care to sound economic reasoning, while the one for Chapter 4 (Mar-
Health Organization, the small island nation of Singapore is spending in Singapore, as against just less than 10 percent in
either number one in the world or near the top of the list.
Among other achievements, Singapore has the world’s lowest
Canada.
Having to pay for most medical spending out of pocket, how-
ket Failures: Public Goods and Externalities) examines cap-and-
rate of infant mortality and the world’s fourth-highest life
expectancy.
ever, means that Singapore’s citizens are faced with having to
pay for most of their health care themselves. How can this be
trade versus carbon taxes as policy responses to excessive carbon
One might expect that achieving these exceptional outcomes
would be extremely expensive. But Singapore is also number
done without bankrupting the average citizen? The answer is
mandatory health savings accounts. dioxide emissions. There are six new Last Words in this edition.
one in another category: It spends less per person on health Singapore’s citizens are required to save about 6 percent
care than any other developed nation. In 2010 Canada spent of their incomes into MediSave accounts. MediSave deposits If you are unfamiliar with Macroeconomics, we encourage you to
about 10 percent of its GDP on health care. Singapore spent just are private property so that people have an incentive to spend
3.8 percent.
How does Singapore deliver world-class health care while
the money in their accounts wisely. In addition, the citizens of
Singapore also know that they won’t be left helpless if the
thumb through the chapters to take a quick look at these highly visi-
spending less than any other developed nation? The answer is a
unique combination of government mandates to encourage
money in their MediSave accounts runs out. The government
subsidizes the health care of those who have exhausted their
ble features.
competition, high out-of-pocket costs for consumers, and laws MediSave accounts as well as the health care of the poor and
requiring people to save for future health expenditures. others who have not been able to accumulate much money in
Competition is encouraged by forcing hospitals to post their MediSave accounts.
prices for each of their services. Armed with this information, Given the present universal health care system in Canada,
patients can shop around for the best deal. The government
also publishes the track record of each hospital on each ser-
which according to most Canadians functions quite well, it is
unlikely that they would opt for a Singapore-style MediSave
New Discussions of Unconventional Monetary
vice so that consumers can make informed decisions about
quality as well as price. With consumers choosing on the basis
of cost and quality, local hospitals compete to reduce costs and
system.
Question
Policy and Interest-Rate Normalization
improve quality. What are the three major cost-reducing features of the
Singapore also insists upon high out-of-pocket costs in Our macroeconomics chapters on monetary policy have been rewrit-
Singapore health care system? Which one do you think has
order to avoid the overconsumption and high prices that the largest effect on holding down the price of medical care in
result when insurance policies pick up most of the price for ten in many places to reflect the historically unprecedented mone-
Singapore? How difficult do you think it would be to implement
medical procedures. Indeed, out-of-pocket spending repre- the missing elements in Canada? Explain.
tary policy regimes that have been instituted by central banks since
the Financial Crisis. Thus, for instance, we have included material that will allow students to
comprehend the negative interest rates now common in Europe. Also necessary was a revised
treatment of the U.S. federal funds rate to reflect the fact that monetary policy has been imple-
mented in recent years in the United States by means of open-market interventions aimed at quan-
titative easing rather than open-market interventions aimed at lowering the federal funds rate,
which has been stuck near the zero lower bound since the Great Recession.
Tested Content for Peer Instruction

While technology has made learning with Macroeconomics more efficient for the individual
student, we wanted to offer new methods to enhance the effectiveness of the classroom experi-
ence as well. We are consequently proud that we are now going to offer Peer Instruction materi-
als that are highly effective, comprehensive, and classroom-tested.
Peer Instruction was pioneered by Eric Mazur of Harvard University’s Physics Department. It
is a student-focused, interactive teaching method that has been shown to massively increase the
depth of student understanding across a wide variety of disciplines. It works by having students,
in groups, ponder and discuss questions about challenging scenarios before their instructor steps
in to clear up any lingering misconceptions. Along the way, students first answer each question
individually before voting as a team after a discussion. Those two answers—individual, then
group—provided the evidence for the effectiveness of Peer Instruction.
As explained by Harvard psychologist Stephen Pinker, the group discussions lead to a deeper
and more intuitive understanding of concepts and theories than can usually be achieved with
lecture-based instruction. That is the case because beginners are often better than experts at
explaining challenging ideas to other beginners. The problem with experts—that is, instructors
like you and me—is that the process of becoming an expert rewires the brain so that the expert
can no longer think like a beginner. Our own expertise makes it difficult to see where students
are getting confused and it is consequently very useful to unleash the power of Peer Instruction
to help beginners tackle new material.
The effectiveness of Peer Instruction depends, however, on the quality of the questions and
scenarios that students are asked to ponder. Developing good questions and effective scenarios is
highly time intensive and often a matter of experimentation; you just don’t know how well a
question or scenario will work until you try it. It is not a surprise, then, that today’s busy
xviii PREFACE
instructors often shy away from Peer Instruction because of the high start-up costs and the time
required to develop truly effective questions and scenarios.
Fortunately for you, we did all the work. Author Sean Flynn and Todd Fitch of the University
of San Francisco have field-tested hundreds of questions and scenarios for effectiveness. The
questions and scenarios have been adapted by Thomas Barbiero of Ryerson University and Jason
Dean of Wilfred Laurier. So with this 15th Canadian edition of McConnell, we are ready to offer
a fully supported set of Peer Instruction material tied directly to each of the learning objectives
in Macroeconomics. The questions and scenarios, as well as resources to help organize a Peer
Instruction classroom can be found in Connect.
If you have ever been in a situation in which more experienced students helped to teach newer
students, you have seen the power of Peer Instruction. Our new materials bring us back to that
paradigm. So while we are first once again with Peer Instruction in economics, credit belongs to
the pioneering work of dedicated teachers like Eric Mazur and Stephen Pinker for making this
method available across disciplines.
Full Support for Flipped Classroom Teaching Strategies

We have also designed our new Peer Instruction materials to facilitate flipped-classroom teach-
ing strategies, wherein students learn basic material at home, before lecture, before being chal-
lenged in class to reach higher levels of understanding. In K–12 math programs, for example,
students study short videos on new content at home before coming to class to work problems.
That sequence of learning activities assures that an instructor is present at the stage where stu-
dents encounter the most difficulties, namely, when they attempt to apply the material. By con-
trast, the traditional (non-flipped) method for teaching elementary math presents new content in
class before sending students home to work problems by themselves. That sequence leaves stu-
dents without expert help when they are most vulnerable to misunderstandings and errors.
We have designed our new Peer Instruction materials to facilitate the flipped-classroom
method by leveraging the adaptive learning materials that are already available in our Connect
online learning platform. In particular, students can be assigned new material before lecture via
SmartBook, which is an adaptive-learning technology that tutors students through the basic con-
cepts and skills presented in each section of the book.
Those pre-class activities will allow students to master the lower levels of Bloom’s Taxonomy
of learning objectives—things like remembering and understanding—before they come to class.
They will then be ready to attack the higher levels of Bloom’s Taxonomy—things like applying,
analyzing, and evaluating. That’s where our new Peer Instruction material comes in. Students
who have each already worked their way through the lower levels of Bloom’s Taxonomy come
together in class under the instruction of an expert—their teacher—to work in unison on the
higher levels of understanding that are the ultimate goal of economics instruction.
Current Discussions and Examples

The Fifteenth Canadian Edition of Macroeconomics refers to and discusses many current topics.
Examples are surpluses and shortages of tickets at the Olympics; the myriad impacts of ethanol
subsidies; creative destruction; oil and gasoline prices; consumption versus income inequality; the
impact of electronic medical records on health care costs; conditional and unconditional cash trans-
fers; the difficulty of targeting fiscal stimulus; the rapid rise in college tuition; the relatively slow
recovery from the Great Recession; federal budget deficits and public debt; the effect of rising
dependency ratios on economic growth; the zero interest rate policy and explicit inflation targets;
the jump in the size of the balance sheet of the U.S. central bank (the Fed); the effect of the zero
interest rate policy on savers; trade adjustment assistance; the European Union and the Euro Zone;
changes in exchange rates; and many others.
Chapter-by-Chapter Changes
Each chapter of Macroeconomics, Fifteenth Canadian Edition, contains updated data reflecting
the current economy, revised Learning Objectives, and reorganized and expanded end-of-chapter
content. Several chapters also contain one or more additional Quick Review boxes to help
PREFACE xix
students review and solidify content as they are reading along. In addition to these changes, each
chapter contains the following updates:
Chapter 1: Limits, Alternatives, and Choices features two refreshed Consider This pieces as
well as revised new examples and working improvements to clarify the main concepts.
Chapter 2: The Market System and the Circular Flow contains updated examples and a brief
new introduction to the concept of residual claimant.
Chapter 3: Demand, Supply, and Market Equilibrium includes a new Last Word on how
student lending raises college tuition, data updates, and example updates.
Chapter 4: Market Failures: Public Goods and Externalities features updated examples and
a new Key Word on Pigovian taxes.
Chapter 5: Government’s Role and Government Failure has a new Consider This on govern-
ment agencies violating government laws, several new examples, and wording revisions for
increased clarity.
Chapter 6: An Introduction to Macroeconomics incorporates data updates, wording improve-
ments, and several new examples.
Chapter 7: Measuring the Economy’s Output incorporates data updates, wording improve-
ments, and several new examples.
Chapter 8: Economic Growth contains data updates, new examples, and a new discussion of
the slowdown in productivity growth that has occurred since the Great Recession.
Chapter 9: Business Cycles, Unemployment, and Inflation features both a new Consider
This on deflationary spirals and an extended discussion of negative interest rates.
Chapter 10: Basic Macroeconomic Relationships features data updates and a new Last Word
that humorously illustrates the multiplier concept in the same parody style used in the Last
Word piece that this all-new story replaces.
Chapter 11: The Aggregate Expenditures Model contains data updates and minor wording
improvements.
Chapter 12: Aggregate Demand and Aggregate Supply incorporates updates to both data and
examples.
Chapter 13: Fiscal Policy, Deficits, Surpluses, and Debt uses data updates to reflect the cur-
rent Canadian fiscal situation and put it in an international context.
Chapter 14: Money, Banking, and Money Creation incorporates a few data updates as well
as a new section explaining the demise of the federal funds market after the financial crisis of
2007–2008.
Chapter 15: Interest Rates and Monetary Policy features new material on the unorthodox
monetary policy of the past ten years, and an in-depth explanation of the actions of the Fed-
eral Reserve in the U.S. during that period.
Chapter 15B: Financial Economics has extensive data updates and a new Consider This on how
increased institutional stock ownership may have exacerbated the principal–agent problem and
thereby engendered a greater amount of self-serving behaviour on the part of corporate managers.
Chapter 16: Long-Run Macroeconomic Adjustments incorporates data updates and new
material that updates our discussion of the empirical validity of the Phillips Curve by includ-
ing the most recent data on inflation and unemployment.
Chapter 16B: Current Issues in Macro Theory and Policy contains a new section explaining the
Federal Reserve’s 2 percent inflation target and a new Last Word describing market monetarism.
Chapter 17: International Trade contains new examples and data updates.
xx PREFACE
Chapter 18: The Balance of Payments and Exchange Rates is heavily revised for this edition.
There is an entirely new presentation of fixed exchange rates and how the balance of payments
under a fixed exchange rate determines the direction of change of both foreign exchange
reserves and the domestic money supply. This presentation is illustrated with a new Consider
This on China’s currency peg as well as a new Last Word on whether common currencies
(which are implicit pegs) are a good idea. This chapter also has a new appendix that includes
the material on previous (pre–Bretton Woods) exchange rate systems.
Chapter 18B: The Economics of Developing Countries has an updated discussion on China’s
recently terminated one-child policy and a new Last Word that reviews the poverty-fighting
effectiveness of microcredit, conditional cash transfers, and unconditional cash transfers.
Integrated Text and Website

We continue to integrate the eBook with our extensive supplementary learning offerings.
WORKED PROBLEM 2.1 Least-Cost Production
Worked Problems are hyperlinked within the eBook and provide students with a step-by-step
illustration of how to solve a problem. These pieces consist of side-by-side computational ques-
tions and the computational procedures used to derive the answers. In essence, they extend the
textbook’s explanations involving computations—for example, of real GDP, real GDP per capita,
the unemployment rate, the inflation rate, per-unit production costs, and more. At relevant points
in the text, the Worked Problem hyperlink directs the student to an online appendix for this
additional support.
MATH 4.1 The Optimal Amount of a Public Good
For those students who want to explore the mathematical details of the theoretical concepts
covered in the text, Math indicators direct the students to See the Math exercises in the online
appendix.
To help students understand graphing concepts used in the text, Connect offers a Graphing
Tool Introduction and assignable graphing exercises called Graphing Extras.
Bonus Chapters
Bonus chapters are available online. They are 15B, Financial Economics; 16B, Current Issues in
Macro Theory and Policy; and 18B, The Economics of Developing Countries.
Distinguishing Features
∙ Comprehensive Explanations at an Appropriate Level Macroeconomics is comprehensive,
analytical, and challenging, yet fully accessible to a wide range of students. Its thoroughness
and accessibility enable instructors to select topics for special classroom emphasis with con-
fidence that students can independently read and comprehend other assigned material in the
book. Where needed, an extra sentence of explanation is provided. Brevity at the expense of
clarity is false economy.
∙ Fundamentals of the Market System Many economies throughout the world are making dif-
ficult transitions from planning systems to market systems. Our detailed description of the
institutions and operation of the market system in Chapter 2 (The Market System and the
Circular Flow) is even more relevant than before. We pay particular attention to property
rights, entrepreneurship, freedom of enterprise and choice, competition, and the role of prof-
its, because these concepts are often misunderstood by beginning students.
Exploring the Variety of Random
Documents with Different Content
CHAPTER XII
THE CRIMEA, 1854–1856
On receiving the order to prepare for active

service the regiment was formed into four service 1854
and two depôt troops of the following strength:—
Service Depôt Total
Field Officers. 2 2
Captains. 4 1 5
Subalterns. 8 4 12
Staff. 6 6
Sergeants. 18 7 25
Trumpeters. 5 2 7
Farriers. 4 2 6
Corporals. 13 5 18
Privates. 254 51 305
HORSES. Officers. 48 8 56
R. & F. 249 34 283
After the whole had been inspected by the Duke April

of Cambridge, the depôt troops marched to
Brighton on the 10th May, where they formed part of the
consolidated cavalry depôt under Colonel Bonham.
Headquarters and the service troops embarked at Portsmouth on
the 18th, 23rd, 24th, and 25th April in five sailing ships, thus:—
Headquarters, under Colonel Lawrenson, in the ship Eveline.
One troop, under Major Willett, in the Pride of the Ocean.
One troop in the Ganges.
One troop in the Blundell.
Remainder in the Edmundsbury.
G. Salisbury, 1832
OFFICERS, 1829
After passages varying from twenty-three days
to five weeks, the whole arrived at Constantinople 1854. May.
toward the end of May. Men and officers were all
well, but twenty-six horses had perished on the voyage. The
regiment was disembarked at Kulali, on the Asiatic side of the
Bosporus, and on the 30th of May was inspected by the Sultan in
person at Scutari.
On the 2nd June the regiment re-embarked on the same vessel,
and sailed to Varna, where, on disembarkation, it
was made part of the Light Brigade under the 4th June.
command of Lord Cardigan. Leaving Varna on the
8th it marched to Devna, some eighteen miles to the north-west, and
remained encamped at a short distance from the village until the
28th July, on which day it marched for Yeni-bazar,
halting at Kutlubi, Yasytepe, and Sazego on the 28th July.
way, and finally encamped at Yeni-bazar on the 1st
August. So far the army had done nothing, but had been condemned
to inactivity, losing many men by cholera meanwhile. The retreat of
the Russians from the Danube after their failure before Silistria, and
defeat at Giurgevo in July, had virtually secured the only object of the
expedition, namely, that Russia should abandon the invasion of
Turkey. But at the end of June the British Government decided to
direct the expedition against Sebastopol, and to destroy Russia’s
great stronghold in the Black Sea. Accordingly, on
the 25th of August the Seventeenth started to 25th Aug.
march back from Yeni-bazar to Varna. Cholera had
been at work with them, as with the rest of the army, in August, and
they left twelve men buried at Yeni-bazar. Arriving
at Varna on the 28th, the regiment embarked once 28th Aug.
more on four transports on 2nd and 3rd September,
and sailed for the Crimea. A fortnight later the
headquarters, under Colonel Lawrenson, landed at 17th Sept.
Kalamita Bay, the spot chosen by Lord Raglan for
the disembarkation of the army. The Seventeenth lost two more men
by cholera in the passage, and showed a serious falling-off in
strength on landing.
Field Officers. 2
Captains. 4 1854.
Subalterns. 7
Staff. 6
Sergeants. 16
Trumpeters. 5
Farriers. 4
Corporals. 11
Privates. 192
Totals--All ranks 247
HORSES. Officers. 21
Troops 216
Two days later the army began its advance; the 19th Sept.
infantry divisions massed in close column, and the
cavalry on its skirts—the Seventeenth being in rear of the left flank of
the infantry. Early in the afternoon the four squadrons of the
advanced guard came upon 2000 of the enemy’s cavalry, a little way
on the other side of the Bulganak River. Both parties threw out
skirmishers, who fired some ineffectual carbine shots without
dismounting, as was the fashion of the day; and then the
Seventeenth and 8th Hussars were ordered up in haste to reinforce
the advanced squadrons. The Russians, although in overwhelming
force, did not attack, and the advanced squadrons then retired by
alternate wings. A few artillery shots were exchanged, and with that
the first encounter with the Russians was over. The troops
bivouacked that night in order of battle, and on the
following day attacked and carried the Russian 20th Sept.
entrenched position on the heights of the Alma.
Details of the action of the Alma, wherein the cavalry, from the
nature of the case, was little if at all engaged, would be out of place
here. It is, however, worth while to remark that the first infantry
division and the cavalry division, which occupied the left of the
English line, were both under the command of former colonels of the
Seventeenth, the Duke of Cambridge and Lord Lucan. During the
infantry attack the cavalry, which was on the extreme left, remained
perforce inactive; but when the Highland Brigade, which was next to
the cavalry, had carried the heights before them, one squadron of
the Seventeenth, which was presently joined by the other, moved off
without orders from any general officer, and began to ascend the
heights. On their way they contrived in some way
to cross part of the front of the Highlanders, and 1854.
were soundly rated by Sir Colin Campbell for their
pains. When, finally, on reaching the summit they began to capture
Russian prisoners, the pursuit was checked by Lord Raglan’s order;
and in consequence little was done. Shortly after the action Colonel
Lawrenson went home invalided, leaving to Major Willett the
command of the regiment.
For two days after the battle of the Alma the army remained
halted, and then on the 23rd slowly resumed the
march on Sebastopol. Lord Raglan’s wish had 23rd Sept.
been to push on immediately after the victory, but
to this the French commander would not consent. On the 24th the
cavalry, under Lord Lucan, was sent on to the river Belbec, a day’s
march ahead of the main army, but encountered no opposition. Next
day, Lord Raglan having been obliged, in deference to the French, to
abandon his plan of attacking Sebastopol from the north, the army
executed the flank march which brought it round from the north to
the south side of the city. The march lay through difficult wooded
ground; and the cavalry, which had been pushed forward to cover
the advance, was misguided by a staff-officer. The result was that
Lord Raglan and his escort were the first to come upon the rear-
guard of the Russian army, which was likewise, though unknown to
the English, executing a flank march across the British front. The
cavalry soon came up, and captured some waggons as well as a few
prisoners. After this trifling and rather ludicrous affair with the
Russian rear-guard at Mackenzie’s Farm, the march was continued,
and the army bivouacked that night on the Tchernaya River. On the
following day Balaclava was taken; and after three
nights more bivouac on the Balaclava plains, the 29th Sept.
Seventeenth received some tents. They, like the
rest of the army, had landed without tents or kits.
The main business of the cavalry now consisted in patrolling east
and northward towards the Tchemaya, where, as early as the 5th
October, it began to encounter Russian patrols. In a sense the
cavalry was isolated from the rest of the army. The
plain of Balaclava lies about a mile from 1854.
Sebastopol, and extends on an average to a length
of about three miles from east to west, and a breadth of two miles
from north to south. It is enclosed on all sides by heights: on the
north by the Fedioukine Hills, on the south by the Kamara Hills, on
the east by Mount Hasport, and on the west by the Chersonese,
where the bulk of the army was encamped. The plain is cut in two
from east to west by a line of hills called the Causeway heights,
which run almost to the Chersonese; and it was at the foot of these
hills, on the south side of them, that the camp of the Light Brigade
was situated. Just about due south of the camp, at a distance of
about a mile, stands the village of Kadikoi, at the entrance to the
gorge that leads down to Balaclava harbour.
Balaclava was now the British base of operations. Its defence was
entrusted to Sir Colin Campbell, with the 93rd Highlanders, some
marines, and a certain number of Turks; the cavalry being at hand to
help him in the plain. But the better to secure the base with so small
a force, an inner line of field-works was constructed from Kadikoi on
the north, along the heights on the east of Balaclava to the sea, and
an outer line of six redoubts on the Causeway heights. It has already
been said that the English and Russian patrols had clashed on the
Tchernaya; and as General Liprandi, with a Russian army, had fixed
his headquarters at Tchorgoun, less than a mile beyond the
Tchernaya to the north-east, this was hardly surprising. Shortly after
the middle of October Captain White of the Seventeenth, while on
outlying picquet on the Kamara Hills, had observed a large force of
Russian cavalry and duly reported it. Knowing the Russians to be in
considerable force, neither Sir Colin Campbell nor Lord Lucan were
at their ease as to the safety of Balaclava, from the weakness of
their defending force and its isolation from the rest of the army.
On the 23rd October Major Willett died, and the command of the
regiment once more changed hands. The senior officer, Captain
Morris, was employed on the staff; and it became a question whether
he would remain where he was, leaving the command to Captain
White, or whether he would return to the regiment.
On the 24th Lord Lucan received intelligence that 1854.
Balaclava would be attacked on the morrow by a
Russian force of 25,000 men. He at once despatched an aide-de-
camp to Lord Raglan, who said “Very well.” That evening Captain
Morris decided that he would take command of the Seventeenth.
Next day the cavalry turned out as usual an hour
before daybreak, and were standing to their 25th Oct.
horses, when Lord Lucan rode off slowly to the
easternmost redoubt on the Causeway heights. The coming of the
dawn showed him a signal on the flagstaff of the redoubt, which told
him that his information was correct, and that the Russians were
advancing in force. Lord George Paget of the 4th Light Dragoons at
once galloped back and ordered the Light Brigade to mount. The
men were just about to be dismissed to their breakfasts when they
were moved off toward the threatened quarter.
Meanwhile the Russians, with 11,000 men and 38 guns, attacked
the easternmost redoubt; and in spite of a gallant resistance from the
five or six hundred Turks that held it, carried it by storm. The Turks
then abandoned the three next redoubts; and thus the line of the
Causeway heights fell into the hands of the Russians.
Simultaneously two more Russian columns had advanced and
occupied the Fedioukine heights, and filled the valley between the
Fedioukine and Causeway heights with 3500 cavalry and a battery of
twelve guns. Lord Lucan, seeing that his 1500 men of the Light and
Heavy Cavalry Brigades could not check the advance of 11,000
Russians, fell back to a position on the southern slopes of the
Causeway heights, which would enable him to fall on the flank of any
force that might cross the South Valley towards Balaclava. From this
position he was ordered by Lord Raglan to retire. The result was that
the Russians immediately detached four squadrons to attack the
weak force of infantry that held the mouth of the gorge leading to
Balaclava. So serious did Sir Colin Campbell judge this attack to be
that he warned the 93rd, as the Russian cavalry came down on
them, that they must die where they stood.
Fortunately the Russian attack was not pushed 1854—25th Oct.
home, and the four squadrons were utterly
defeated by the unshaken firmness of the 93rd. Convinced as to the
soundness of his dispositions, Lord Lucan shortly after moved the
Light Brigade forward to its original station; while, in obedience to
Raglan’s order, he despatched the Heavy Brigade across the valley
to reinforce the defending troops at Kadikoi.
Just as the Heavy Brigade was moving off, the Russian cavalry
came up in great force over the Causeway heights, full on the flank
of the Heavies, but lending their own flank to the Light Brigade.
Brigadier Scarlett thereupon wheeled the Heavies into line, and
delivered the brilliant attack known as the charge of the Heavy
Brigade. Every one, including Lord Lucan, expected to see the Light
Brigade fall down on the Russian flank, and smash it completely. But
Lord Cardigan judged that his instructions forbade him to attack, and
refused to move. Every man in the Brigade was waiting for the order
to charge, and Lord Cardigan himself cursed loudly at his own
inaction. Captain Morris, doing duty with his regiment for the first
time since it had landed in the Crimea, begged and prayed his
Brigadier to let loose, if not the whole Brigade, at any rate the
Seventeenth Lancers; but Lord Cardigan would not hear of it. Thus
for the second time the Seventeenth (and for that matter the Light
Brigade), was baulked of the successful attack which its old Colonel
had prepared for it.
Then came an order from Lord Raglan to Lord Lucan to “advance
and recover the heights,” i.e. the Causeway heights; presently
supplemented by a further order—“Lord Raglan wishes the cavalry
to advance rapidly to the front and recover the guns,” meaning the
guns captured by the Russians in the redoubts on the Causeway
heights. This last order was brought by Captain Nolan, an excitable
man, and at that particular moment in a highly excited state. “Guns,”
said Lord Lucan to him, “what guns?” Nolan waved his hand vaguely,
it would seem, in the direction of the Russian battery at the head of
the North Valley and said, by no means too respectfully: “There, my
Lord, is your enemy, there are your guns.” Lord
Lucan was a quick-tempered man, and probably 1854—25th Oct.
not in his most amiable mood at that instant. He
was one of those officers, rare enough in those days, who had taken
particular pains to study his profession, and was on all hands
acknowledged to possess more than ordinary ability. His warnings of
the previous day had been neglected at headquarters; his perfectly
correct dispositions, carefully concerted with Sir Colin Campbell, had
been twice upset by superior order, with results that must almost
certainly have been fatal, if the Russian cavalry had known its work;
and now had come a fresh staff-officer with an order which, not in
itself too clear, had been further obscured by that staff-officer’s
excitability. Over hastily he accepted what he believed to be the true
meaning of the order, and directed Lord Cardigan to attack the
Russian battery at the head of the North Valley with the Light
Brigade.
That Brigade, after its various movements, had been finally drawn
up facing directly up the South Valley, and had stood dismounted
there for more than three-quarters of an hour, when Lord Cardigan
gave the order which showed that its time had come. In the
Seventeenth that morning there were 139 men in the ranks,
increased at the last moment by the arrival of Private Veigh, the
regimental butcher, who, hearing that the regiment was about to be
engaged, rode up fresh from the shambles to join it. He was dressed
in a blood-stained canvas smock, over which he had buckled the belt
and accoutrements of one of the Heavy Dragoons who had been
killed in the charge; and, having accommodated himself also with the
dead dragoon’s horse, he now rode up with his poleaxe[12] at the
slope. The rest of the regiment was in marching order—full-dress
jackets and lance-caps cased—with the exception of Captain Morris,
the commanding officer, who wore a forage cap. The first squadron
was led by Captain White, the troop leaders being Captain Hon.
Godfrey Morgan and Lieutenant Thomson; the
second squadron was led by Captain Winter, with 1854—25th Oct.
Captain Webb in command of the right, and
Lieutenant Sir William Gordon in command of the left troop.
Lieutenant Hartopp, Lieutenant Chadwick (the Adjutant) and Cornet
Cleveland were the other officers with the regiment, Cornet
Wombwell being with Lord Cardigan as aide-de-camp. The two
squadrons of the Seventeenth formed the centre of the first line of
the Brigade, having the 11th Hussars to their left, and the 13th
Hussars to their right; while the 4th and 8th Hussars composed the
second line.
In this formation the Light Brigade moved off to the attack; its duty
being to advance over a mile and a half of ground, flanked by
Russian batteries and riflemen on the Fedioukine heights to the right,
Russian batteries and riflemen on the Causeway heights to the left,
and fall upon a battery of twelve guns to their front, which guns were
backed by the mass of the Russian Cavalry. The first line began the
advance at a trot, and was presently reduced to the Seventeenth
and 13th only; the 11th being ordered back to the second line by
Lord Lucan. The formation of the Brigade was thus altered from two
lines to three. The Seventeenth was now therefore on the left of the
first line, though Captain White’s squadron still remained the
squadron of direction.
Presently, without sound of trumpet, but conforming to the pace of
the Brigadier, the first line broke into the gallop. It had barely started
when Captain Nolan rode across the front from left to right, shouting
and waving his sword. “No, no, Nolan,” shouted Captain Morris, “that
won’t do, we have a long way to go and must be steady.” As he
spoke a fragment of a shell struck Nolan to the heart. His horse
swerved and trotted back through the squadron interval with his rider
still firm in the saddle, and then with an unearthly cry the body of
Nolan dropped to the ground. This was the first shell that fell into the
Light Brigade.
Meanwhile the handful of squadrons, with the Seventeenth and
13th at their head, rode on with perfect steadiness, and in beautiful
order, into the ring of the Russian fire. Then men
and horses began to drop fast in the first line. The 1854—25th Oct.
survivors closed up and rode on. The trumpet
sounded no charge; the officers uttered no stirring word; the men
gave no cheer; for this was no headlong rush of reckless cavaliers,
but an orderly advance of disciplined men. Throughout this ride
down the valley there was but one word continually repeated, “Close
up”; and the men closed in to their centre, and with an ever-
diminishing front rode on. Those who watched the advance from the
heights a mile away saw the line expand as the stricken men and
horses floundered down, and contract once more like some perfect
machinery as the survivors took up their dressing and rode on. But at
last the gaps became so frequent and so wide that men could close
up no more; and then the whole of the first line sat down and raced
for the guns. The Russians were ready for them and met them at
about eighty yards distance with a simultaneous discharge of every
gun in the front battery. How many men fell under this salvo we shall
never know. By this time two-thirds of the first line must have fallen:
the remaining third rode on. In a few seconds they had plunged into
the smoke and were among the Russian guns.
On the extreme left a handful of the Seventeenth had outflanked
the battery, and of these—all that he could see of his regiment—
Captain Morris, who was still unharmed, retained command.
Pressing on past the battery through the smoke, he was aware of a
large body of Russian cavalry, part of an overwhelming force, that
stood halted before him in rear of the guns. Steadying his men for a
moment, he led them without thought of hesitation straight at the
Russians, and drove his sword to the hilt through the body of their
leader. His men were hard at his heels. They broke through the
Russian Hussars, they swept all that were covered by their narrow
front before them, and galloped on in pursuit. Meanwhile Captain
Morris had fallen. Unable to withdraw his sword from the body of the
Russian officer, he was tethered by his sword-arm to the corpse, and
while thus disabled received two sabre cuts and a lance wound.
Utterly defenceless against the lances of the
Cossacks, who had closed like water upon the 1854—25th Oct.
small gap made by the Seventeenth, he was forced
to surrender. Lieutenant Chadwick, who was wounded by a lance
thrust in the neck, was also made prisoner at the same time.
Another fragment of the first line, backed by men of various
regiments, was rallied by Corporal Morley, and by him led back
through the Russian cavalry to the North Valley.
Yet another little remnant of the Seventeenth, to the right of
Morris, had entered the battery, where Sergeant O’Hara took
command of them, and directed their efforts against the Russian
gunners, who were attempting to carry off their guns. These were
presently rallied by Lord Cardigan’s Brigade-Major, Major Mayow;
but a portion of them having missed him in the smoke went on with
O’Hara to their left, where they met their comrades, the survivors of
Captain Morris’s party. These last, after chasing the Russian
Hussars back upon their supports, had been forced back by
immensely superior numbers, and were now menaced in their turn
both in flank and rear. The two little parties joined together, and
fighting their way back through the Russians made good their retreat
down the valley.
Meanwhile Major Mayow, with about a dozen men of the
Seventeenth, like Captain Morris, charged a body of Russian horse,
which was halted in rear of the battery, drove it back, and pursued it
for some distance upon the main body. Then Mayow halted, and
seeing the remains of a squadron of the 8th Hussars approaching to
his right rear, he formed his handful of Lancers on the left flank of the
8th. The Russian cavalry in rear of the guns was now panic-stricken,
and in full retreat; but there still remained some Russian squadrons
which had been left on the Causeway heights; and of these three
now menaced Colonel Shewell’s rear. Shewell gave his mixed
squadron the word “Right about wheel,” and charged them. As usual
the Russians received the charge at the halt and were utterly routed.
Then, seeing no troops coming to his support, Colonel Shewell
retreated. Once more the British came under the
fire of the guns on the Causeway heights. The 1854—25th Oct.
French had silenced those on the Fedioukine side,
the Light Brigade had silenced those in the valley, but those on the
Causeway heights still remained untaken. Fortunately some Russian
Lancers still hovered about the retreating English, and the Russian
gunners ceased to fire lest they should kill their own men. Thus the
Seventeenth and the rest of the Brigade returned in small knots well-
nigh to the spot from which they had started but five-and-twenty
minutes before. Six hundred and seventy-eight of all ranks had
started; one hundred and ninety-five came back.
Of the Seventeenth Lancers Captain Winter, Lieutenant Thomson,
twenty-two men, and ninety-nine horses were killed. Captain Morris,
desperately wounded, finding himself deserted by the Russian officer
to whom he had surrendered and left to the tender mercies of the
Cossacks, contrived to catch a loose horse, and, when this had been
killed under him, made shift to stagger back to the place where
Captain Nolan had fallen. There he dropped, but was tended under
fire by Surgeon Mouat and by Sergeant Wooden of the Seventeenth,
both of whom received the Victoria Cross for the service. Captain
Robert White was badly wounded before reaching the battery, and
Captain Webb wounded to the death. Sir William Gordon, who had
passed through the battery unharmed, came back from pursuing the
Russian cavalry with five sabre wounds in the head. So terribly had
he been hacked that the doctors said that on the 25th October he
was “their only patient with his head off.” Hardly able to keep himself
in the saddle he lay on his horse’s neck, trying to keep the blood out
of his eyes, and rode back down the valley at a walk. Being
intercepted by a body of Russian cavalry he made for the squadron
interval, followed by two or three men, and when the Russians, in
their endeavour to bar his passage, left an opening in the squadron,
he managed to canter through it and in spite of pursuit to finally
complete his escape. His horse, which was shot through the
shoulders, managed to carry him out of action, but died, poor gallant
beast, very soon after. Thirty-three men and almost
every surviving horse were also wounded; 1854—25th Oct.
Trumpeter Brittain, who had acted as Lord
Cardigan’s trumpeter on that day, dying of his hurts in hospital.
Lieutenant Chadwick, and thirteen more men, all of them wounded,
were taken prisoners. Lieutenant Wombwell, being like Captain
Morris abandoned by his captors to the Cossacks, escaped, after
having two horses killed under him.
So ended the work of the Seventeenth on the 25th October 1854.
It is customary to look upon the attack of the Light Brigade as a mere
desperate ride into the Russian battery. It was far more than this.
The advance down the valley through the murderous fire from front
and both flanks was but the prelude to a brilliant attack. Discipline
never failed even among the scattered fragments of the first line.
Where their own officers were still alive with them, the men of the
Seventeenth, however trifling in numbers, rallied, as under Captain
Morris, and followed them to the attack on the Russian cavalry.
Where an officer of another corps rallied them, they followed him
with the same devotion and intrepidity. The little knot with Major
Mayow, under his leadership attacked ten or fifteen times their
number of Russians, defeated them, pursued them, halted, rallied on
the 8th Hussars, attacked with them successfully once more, and
stood ready to renew the attack yet again if supports should come.
Where, again, no officer was present, the non-commissioned
officers, true to regimental tradition, readily took command; and
Sergeant O’Hara and Corporal Morley proved themselves worthy
successors of Tucker and Stephenson.
Had the attack of the Light Brigade been supported there is
reason to suppose that it would have been brilliantly successful; for
the Russian cavalry had been thoroughly scared, and even the
infantry had been formed into squares to resist the onslaught of the
few score of men who had passed the battery. Lord Lucan had
indeed every intention of supporting it with the Heavy Brigade, and
actually brought that brigade within destructive fire;
but seeing from his advanced position up the valley 1854.
the frightful losses of the Light Brigade, he could
not bring himself to sacrifice the Heavies also. Pulling up under the
cross-fire of the batteries, his horse wounded in two places, and his
own thigh injured by a musket ball, he took his resolution and
ordered the Heavy Brigade to retire. What his feelings may have
been when he saw the wreck of his old regiment return to him we
can only guess. Yet this was not the first occasion on which the
Seventeenth had charged ten times their number of cavalry; they
had done it once before at Cowpens against a far more dangerous
and resolute enemy.
After Balaclava the Seventeenth, like the other four regiments of
the Light Brigade, had almost ceased to exist in the Crimea, from the
extent of its loss both in men and horses. A supply of remounts was,
however, obtained by the capture of about 100 Russian troop-horses
which stampeded into the British camp on the night of the 26th
October.
The next great action of the war was the battle of
Inkermann on the 5th November. In this 5th Nov.
engagement the brunt of the work fell, from the
nature of the case, upon the infantry. The Light Brigade was,
however, brought under fire late in the day in support of some
French reinforcements; Lord George Paget, who was in command
that day, having received instructions, and also a particularly urgent
request from the Commander-in-Chief of the French, to keep his
men, a bare 200 all told, within supporting distance of the French
cavalry. The losses of the Light Brigade amounted to an officer and
five men killed, and five men wounded, of whom the officer and
another of the killed and one of the wounded belonged to the
Seventeenth. Cornet Cleveland, who had escaped at Balaclava
where so many fell, was the only English cavalry officer who was
touched at Inkermann. His death reduced the number of unwounded
officers of the regiment to three.
Three weeks later the establishment of the
Seventeenth was raised to eight troops—a curious 25th Nov.
reflection for the handful of men who represented it
in the Crimea. Some months were yet to pass
before the Seventeenth at Sebastopol could make 1854.
any show as a regiment, and those months were
those of the Crimean winter. So much has been written of that
terrible time that it would be out of place to say much of it here.
Suffice it that between bad luck and bad management both men and
horses suffered very severely. Probably there never was a time
excepting the winter of 1854 when the troop-horses of a British
cavalry division were almost without exception hog-maned and rat-
tailed, the poor creatures having eaten each other’s hair in the
extremity of hunger. As to the men of the Seventeenth, it is enough
to say that they shared the misery and hardship which was borne by
the rest of the army, which was cruel enough. But hard as was the
Crimean winter, it must not be treated, simply because a British war-
correspondent was present and a British Parliament was busy, as an
unique trial of endurance. A regiment which had fought through the
Carolina campaigns and the deadly war in the West Indies had little
new to learn of misery, sickness, and death.
In the months of April and June of the following
year the regiment received large drafts from 1855.
England, and by the 21st July was enabled to
detach a squadron of 100 men and horses, under the command of
Captain Learmonth, to join a force of British cavalry which was
employed in collecting forage and supporting the French in the
Baidar Valley. This squadron rejoined headquarters on the 19th
August, in time to be present together with the rest of the regiment at
the battle of the Tchernaya. > Three weeks later
Sebastopol was evacuated, and the war was 20th Aug.
practically over.
8th Sept.
G. Salisbury.
PRIVATE, Review Order. OFFICER, Marching Order. PRIVATE,
Marching Order.
1829–1832.
About the middle of November the regiment embarked at

Balaclava for Ismid, where it landed on the 15th. Its strength on
embarkation was 15 officers and 291 non-commissioned officers and
men, with 224 horses; and the whole of it was carried in two
transports, the Candia and Etna. A corporal and five men were left
behind to do orderly work in the Crimea. At Ismid
the Seventeenth was brigaded with the 8th and 1856.
10th Hussars, under Brigadier Shewell, and there
remained until after the proclamation of peace.
30th Mar.
On the 27th of April a sergeant’s party of seventeen men and
sixteen horses was embarked in the transport Oneida, and two days
later the bulk of the regiment, 18 officers and 442 men, with 171
horses, embarked in the Candia, homeward bound. The whole
arrived at Queenstown on the 14th May, having suffered no casualty
but the loss of a single horse on the passage.
On landing, the regiment was quartered at Cahir barracks (where
it was joined by the depôt squadron from Brighton), with
detachments at Clogheen, Clonmel, Fethard, and Limerick. It had
not been at home two months before it was employed at Nenagh in
aid of the civil power. In September the regiment
was moved up to Portobello Barracks in Dublin, 12th Sept.
and two months later was reduced to six troops
once more, with an establishment of 28 officers, 10th Nov.
442 non-commissioned officers and men, with 300
troop-horses. Early in the following year it moved to
Island Bridge Barracks, where all the elaborate 1857. 7th Mar.
arrangements for quarters and reduction of
establishment were upset by the outbreak of the Indian Mutiny.
CHAPTER XIII
CENTRAL INDIA, 1858–1859
For the better understanding of the share taken

by the Seventeenth Lancers in the suppression of 1857.
the Indian Mutiny, it may be well to set down as
briefly as possible the principal events that had taken place before
their arrival—
First outbreak at Meerut 10th May 1857.
Outbreak at Lucknow 30th „ „
„ „ Cawnpore 7th June „
Siege of Delhi opened 8th „ „
Cawnpore massacre 26th „ „
Capture of Cawnpore by Havelock 18th July „
Fall of Delhi 20th Sept. „
First relief of Lucknow 25th „ „
Second „ „ 17th Nov. „
In those days, when there was neither submarine cable nor Suez
Canal, news from India took some time to reach England.
Reinforcements destined for China were intercepted and sent to
India on their way, and thus arrived early; but it was October 1857
before the reinforcements from England began fairly to pour into
Calcutta. The Seventeenth was not of these first reinforcements; and
did not receive its orders for embarkation before 2nd September. On
the 7th of that month its establishment was raised from six to ten
troops; and volunteers, to the number of 132, were received from
other regiments, namely the 3rd, 4th, and 13th Light Dragoons, the
11th Hussars, and the 16th Lancers. It will be noticed at once that
this list includes three regiments out of the five which had composed
the Light Brigade in the Crimea. The other regiment of that Brigade,
the 8th Hussars, sailed with the Seventeenth to India.
On the 1st October the depôt was formed, and
on the 6th the regiment moved by rail from Dublin 1857.
to Cork and embarked on board the steamship
Great Britain, wherein the 8th Hussars had already been embarked
on the previous day. The strength of the Seventeenth was as follows:
—
Field Officers. 3
Captains. 4
Subalterns. 9
Staff. 5
Sergeants. 37
Trumpeters. 6
Farriers. 8
Corporals. 23
Privates. 409
We may note among the officers the names of Captains White

and Sir W. Gordon, whom we knew at Balaclava, and of Captain
Drury Lowe and Lieutenant Evelyn Wood, whom we are in future to
know better.
On the 8th October the Great Britain sailed, and after touching at
the Cape de Verdes and the Cape of Good Hope to coal, reached
Bombay on the 17th December. A single casualty, the death of a
private from heart disease, alone occurred on the seventy days’
voyage. The Colonel, who with one captain, the riding-master, the
veterinary surgeon, and four rough-riders, had been sent out by the
overland route, of course reached India earlier than the rest of the
regiment. The Seventeenth disembarked in two divisions on the 19th
and 21st December, and on landing were moved up first to
Campoolee, at the foot of the Bhore Ghauts, and thence to Kirkee
cantonments, where it arrived on the 24th and 26th.
Then came a weary period of waiting until
horses could be procured from the remount 1858.
establishment in Bombay. Meanwhile, on the 6th
January 1858, Sir Hugh Rose opened the extraordinary campaign
wherein he marched from Indore, and fought his way without a check
to the Jumna. But when he had closed this campaign, first at Calpee
on the 24th May, and finally at Gwalior on the 20th June, the most
strenuous of his enemies were still at large, and, as the event
proved, not to be captured for another nine months. These were

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CHAPTER 4: Market Failures: Public Appendix Summary 124

Efficiency Revisited 100 5.1 Government’s Economic Role 126

4.3 Public Goods 103

Chapter Summary 118 Review Questions 139

Terms and Concepts 119 Problems 139

Discussion Questions 120 APPENDIX TO CHAPTER 5: PUBLIC CHOICE

Appendix Summary 145 A Monetary Measure 166

Problems 163 8.1 Economic Growth 188

8.2 Modern Economic Growth 190 Provincial Variations 212

The Last Word—Toppling Dominoes 258 Review Questions 287

Chapter Summary 259 Problems 287

Terms and Concepts 259

APPENDIX TO CHAPTER 12 317 Discussion Questions 342

A12.1 The Relationship of the Aggregate Review Questions 343

15B.1 Financial Investment 2 Economic Growth with Ongoing Inflation 413

15B.2 Present Value 2 16.3 The Inflation–Unemployment Relationship 416

CHAPTER 16: Long-Run Macroeconomic 16B.2 Does the Economy Self-Correct? 6

Chapter Summary 16 Increased Domestic Employment Argument 455

Discussion Questions 18 17.6 Multilateral Trade Agreements and

Rapid Trade Growth 435 Terms and Concepts 462

Economic Impact of Tariffs 451 Foreign Exchange Market Replaced by

Discussion Questions 488 18B.3 The Vicious Circle 12

Review Questions 489 18B.4 Role of Government 13

The Human Realities of Poverty 3

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WORKED PROBLEM 2.1 Least-Cost Production

MATH 4.1 The Optimal Amount of a Public Good

On receiving the order to prepare for active

After the whole had been inspected by the Duke April

About the middle of November the regiment embarked at

For the better understanding of the share taken

We may note among the officers the names of Captains White

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