VI. Extensions
1. The Rest of the World
The Tour of the World presented in this chapter focuses attention on the United States, Europe, and Japan. Economic events in the rest of Asia, Latin America, Africa, and Central and Eastern Europe are discussed only briefly. Current economic events in some of these regions are discussed at various places throughout the text. However, instructors may wish to devote more time to these regions at the outset, especially if the course will consider the open economy. China, in particular, offers rich possibilities, given its size, rate of growth, substantial trade surplus, and fixed exchange rate regime (an issue of contention between China and the United States as the Instructor’s Manual goes to press.)
2. Positive and Normative Economics, Policy Disagreements among Economists, and Economic Methodology
Instructors may wish to distinguish between positive and normative economics and to discuss how normative perspectives can lead economists to different policy prescriptions even when they agree on the facts. Instructors may also wish to remind students of the difficulties that economists and other social scientists face because of the inability to conduct controlled experiments. A discussion of this sort was presented in Chapter 1 of the first edition of the text.
3. Distribution of Economic Benefits
The second edition of the text included a discussion about wage inequality in the section on the U.S. economy. Instructors may wish to raise this issue in their introduction to macroeconomics. In particular, it may be interesting to examine which groups suffered most with respect to unemployment or wage growth during and after the recession of 2001.
4. The Liqudity Trap in Japan
The text alludes to the liquidity trap in Japan, but does not discuss the issue in detail. Chapter 22 examines the issue more explicitly. Instructors may wish to raise the issue of a zero nominal bound on interest rates. There is also a question about the effectiveness of the Japanese policy response to the slump. Did the Bank of Japan wait too long to reduce interest rates?