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To Erin, Tessa, Jack, Abby, and Sophie
About the Authors

Robin Bade was an undergraduate at the University of Queensland,

Australia, where she earned degrees in mathematics and economics. After a spell
teaching high school math and physics, she enrolled in the Ph.D. program at
the Australian National University, from which she graduated in 1970. She has
held faculty appointments at the University of Edinburgh in Scotland, at Bond
University in Australia, and at the Universities of Manitoba, Toronto, and West-
ern Ontario in Canada. Her research on international capital flows appears in the
International Economic Review and the Economic Record.
Robin first taught the principles of economics course in 1970 and has taught
it (alongside intermediate macroeconomics and international trade and finance)
most years since then. She developed many of the ideas found in this text while
conducting tutorials with her students at the University of Western Ontario.

Michael Parkin studied economics in England and began his

university teaching career immediately after graduating with a B.A. from the
University of Leicester. He learned the subject on the job at the University of
Essex, England’s most exciting new university of the 1960s, and at the age of
30 became one of the youngest full professors. He is a past president of the
Canadian Economics Association and has served on the editorial boards of the
American Economic Review and the Journal of Monetary Economics. His research on
macroeconomics, monetary economics, and international economics has resulted
in more than 160 publications in journals and edited volumes, including the
American Economic Review, the Journal of Political Economy, the Review of Economic
Studies, the Journal of Monetary Economics, and the Journal of Money, Credit, and
Banking. He is author of the best-selling textbook, Economics (Pearson), now in its
Twelfth Edition.

Robin and Michael are a wife-and-husband team. Their most notable joint
research created the Bade-Parkin Index of central bank independence and
spawned a vast amount of research on that topic. They don’t claim credit for
the independence of the new European Central Bank, but its constitution and
the movement toward greater independence of central banks around the world
were aided by their pioneering work. Their joint textbooks include Macroeconom-
ics (Prentice-Hall), Modern Macroeconomics (Pearson Education Canada), and
Economics: Canada in the Global Environment, the Canadian adaptation of Parkin,
Economics (Addison-Wesley). They are dedicated to the challenge of explaining
economics ever more clearly to a growing body of students.
Music, the theater, art, walking on the beach, and five grandchildren
provides their relaxation and fun.

8
MACROECONOMICS Brief Contents

PART 1 INTRODUCTION
1 Getting Started 39
2 The U.S. and Global Economies 71
3 The Economic Problem 97
4 Demand and Supply 121

PART 2 MONITORING THE MACROECONOMY

5 GDP: A Measure of Total Production and
Income 151
6 Jobs and Unemployment 181
7 The CPI and the Cost of Living 203

PART 3 THE REAL ECONOMY

8 Potential GDP and the Natural Unemployment
Rate 227
9 Economic Growth 251
10 Finance, Saving, and Investment 279

PART 4 THE MONEY ECONOMY

11 The Monetary System 305
12 Money, Interest, and Inflation 335

PART 5 ECONOMIC FLUCTUATIONS

13 Aggregate Supply and Aggregate Demand 363
14 Aggregate Expenditure Multiplier 389
15 The Short-Run Policy Tradeoff 415

PART 6 MACROECONOMIC POLICY

16 Fiscal Policy 437
17 Monetary Policy 463
18 International Trade Policy 491
19 International Finance 515

Glossary G-1
Index I-1
Credits C-1
9
This page intentionally left blank
 11

Contents

PA R T 1 I N T RO DU C T ION

CHAPTER 1 ■ EYE on YOUR LIFE

Your Time Allocation 55
Getting Started 39 ■ EYE on the PAST
CHAPTER CHECKLIST 39 Adam Smith and the Birth of Economics as a Social
Science 56
1.1 Definition and Questions 40
Scarcity 40
Economics Defined 40
What, How, and For Whom? 41
CHAPTER 2
Can the Pursuit of Self-Interest Be in the Social Interest? 42 The U.S. and Global Economies 71
CHECKPOINT 1.1 45 CHAPTER CHECKLIST 71

1.2 The Economic Way of Thinking 46 2.1 What, How, and for Whom? 72
A Choice Is a Tradeoff 46 What Do We Produce? 72
Cost: What You Must Give Up 46 How Do We Produce? 74
Benefit: What You Gain 47 For Whom Do We Produce? 77
Rational Choice 47
CHECKPOINT 2.1 78
How Much? Choosing at the Margin 48
Choices Respond to Incentives 49 2.2 The Global Economy 79
CHECKPOINT 1.2 51 The People 79
The Economies 79
1.3 Economics as a Life Skill 52 What in the Global Economy 80
Economics as a Decision Tool 52 How in the Global Economy 82
Economics as a Social Science 52 For Whom in the Global Economy 82
Economics as an Aid to Critical Thinking 54
CHECKPOINT 2.2 85
CHECKPOINT 1.3 56
2.3 The Circular Flows 86
CHAPTER SUMMARY 57 Households and Firms 86
CHAPTER CHECKPOINT 58 Markets 86
Real Flows and Money Flows 86
Governments 88
Appendix: Making and Using Graphs 61 Governments in the Circular Flow 89
Basic Idea 61 Circular Flows in the Global Economy 90
Interpreting Data Graphs 62
CHECKPOINT 2.3 92
Interpreting Graphs Used in Economic Models 64
The Slope of a Relationship 67 CHAPTER SUMMARY 93
Relationships Among More Than Two Variables 68
CHAPTER CHECKPOINT 94
APPENDIX CHECKPOINT 70
■ EYE on the BENEFIT AND COST OF SCHOOL ■ EYE on the U.S. ECONOMY
Did You Make the Right Decision? 50 What We Produce 73

11
12 CONTENTS

■ EYE on the PAST ■ EYE on the ENVIRONMENT

Changes in What We Produce 74 Is Wind Power Free? 106
■ EYE on the U.S. ECONOMY ■ EYE on the U.S. ECONOMY
Changes in How We Produce in the Information Expanding Our Production Possibilities 109
Economy 76 ■ EYE on the GLOBAL ECONOMY
■ EYE on the DREAMLINER Hong Kong’s Rapid Economic Growth 110
Who Makes the Dreamliner? 81 ■ EYE on the U.S. ECONOMY
■ EYE on the GLOBAL ECONOMY No One Knows How to Make a Pencil 111
Differences in How We Produce 83 ■ EYE on YOUR LIFE
■ EYE on YOUR LIFE Your Comparative Advantage 115
The U.S. and Global Economies in Your Life 85
■ EYE on the PAST
Growing Government 90
■ EYE on the GLOBAL ECONOMY
CHAPTER 4
The Ups and Downs in International Trade 92
Demand and Supply 121
CHAPTER CHECKLIST 121

CHAPTER 3 Competitive Markets 122

The Economic Problem 97 4.1 Demand 123
CHAPTER CHECKLIST 97 The Law of Demand 123
Demand Schedule and Demand Curve 123
3.1 Production Possibilities 98 Individual Demand and Market Demand 125
Production Possibilities Frontier 98 Changes in Demand 126
How the PPF Illustrates Scarcity and Its Changes in Quality Demand Versus Change in
Consequences 99 Demand 128
CHECKPOINT 3.1 103 CHECKPOINT 4.1 129
3.2 Opportunity Cost 104 4.2 Supply 130
The Opportunity Cost of a Smartphone 104 The Law of Supply 130
Opportunity Cost and the Slope of the PPF 105 Supply Schedule and Supply Curve 130
Opportunity Cost Is a Ratio 105 Individual Supply and Market Supply 132
Increasing Opportunity Costs Are Everywhere 106 Changes in Supply 133
Your Increasing Opportunity Cost 106 Change in Quality Supplied Versus Change in
CHECKPOINT 3.2 107 Supply 135
3.3 Economic Growth 108 CHECKPOINT 4.2 137
CHECKPOINT 3.3 110
4.3 Market Equilibrium 138
3.4 Specialization and Trade 111 Price: A Market’s Automatic Regulator 138
Absolute Advantage and Comparative Advantage 111 Predicting Price Changes: Three Questions 139
Comparative Advantage: A Model 112 Effects of Changes in Demand 140
Achieving Gains from Trade 114 Effects of Changes in Supply 142
The Economy’s Production Possibilities Frontier 115 Effects of Changes in Both Demand and
CHECKPOINT 3.4 116 Supply 144
CHAPTER SUMMARY 117 CHECKPOINT 4.3 146
CHAPTER CHECKPOINT 118 CHAPTER SUMMARY 147
■ EYE on YOUR LIFE CHAPTER CHECKPOINT 148
Your Production Possibilities Frontier 102
 CONTENTS 13

■ EYE on YOUR LIFE ■ EYE on the PRICE OF COFFEE

Understanding and Using Demand and Supply 136 Why Did the Price of Coffee Rise in 2014? 143
■ EYE on the GLOBAL ECONOMY
The Markets for Cocoa and Chocolate 141

PAR T 2 MONITORING THE MACROECONOMY

CHAPTER 5 ■ EYE on YOUR LIFE
GDP: A Measure of Total Production Making GDP Personal 170

and Income 151 ■ EYE on the GLOBAL ECONOMY

Which Country Has the Highest Standard of
CHAPTER CHECKLIST 151
Living? 171

5.1 GDP, Income, and Expenditure 152

GDP Defined 152
Circular Flows in the U.S. Economy 153
CHAPTER 6
Expenditure Equals Income 154 Jobs and Unemployment 181
CHECKPOINT 5.1 156 CHAPTER CHECKLIST 181

5.2 Measuring U.S. GDP 157 6.1 Labor Market Indicators 182
The Expenditure Approach 157 Current Population Survey 182
The Income Approach 159 Population Survey Criteria 182
GDP and Related Measures of Production and Three Labor Market Indicators 183
Income 161 Alternative Measures of Unemployment 184
Real GDP and Nominal GDP 162
CHECKPOINT 6.1 186
Calculating Real GDP 162
Using the Real GDP Numbers 163 6.2 Labor Market Trends and Fluctuations 187
CHECKPOINT 5.2 164 Unemployment Rate 187
The Participation Rate 188
5.3 The Uses and Limitations of Real GDP 165 Alternative Measures of Unemployment 190
The Standard of Living Over Time 165
CHECKPOINT 6.2 191
Tracking the Course of the Business Cycle 166
The Standard of Living Among Countries 168 6.3 Unemployment and Full Employment 192
Goods and Services Omitted from GDP 169 Frictional Unemployment 192
Other Influences on the Standard of Living 170 Structural Unemployment 192
CHECKPOINT 5.3 172 Cyclical Unemployment 193
“Natural” Unemployment 193
CHAPTER SUMMARY 173 Unemployment and Real GDP 195
CHAPTER CHECKPOINT 174 CHECKPOINT 6.3 198

Appendix: Measuring Real GDP 177 CHAPTER SUMMARY 199

The Problem With Base Year Prices 177 CHAPTER CHECKPOINT 200
Value Production in the Prices of Adjacent Years 177
APPENDIX CHECKPOINT 180 ■ EYE on the U.S. ECONOMY
■ EYE on the U.S. ECONOMY The Current Population Survey 185
Is a Computer Program an Intermediate Good or a ■ EYE on the GLOBAL ECONOMY
Final Good? 158 Unemployment and Labor Force Participation 189
■ EYE on BOOMS AND BUSTS ■ EYE on the U.S. ECONOMY
How Do We Track Economic Booms and Busts? 168 How Long Does it Take to Find a Job? 193
14 CONTENTS

■ EYE on FULL EMPLOYMENT 7.3 Nominal and Real Values 216

Are We Back at Full Employment? 194 Dollars and Cents at Different Dates 216
■ EYE on YOUR LIFE Nominal and Real Values in Macroeconomics 217
Your Labor Market Status and Activity 197 Nominal GDP and Real GDP 217
Nominal Wage Rate and Real Wage Rate 218
Nominal Interest Rate and Real Interest Rate 220

CHAPTER 7 CHECKPOINT 7.3 222

The CPI and the Cost of Living 203 CHAPTER SUMMARY 223
CHAPTER CHECKLIST 203 CHAPTER CHECKPOINT 224

7.1 The Consumer Price Index 204 ■ EYE on the PAST

Reading the CPI Numbers 204 700 Years of Inflation and Deflation 208
Constructing the CPI 204 ■ EYE on the U.S. ECONOMY
The CPI Market Basket 204 Measuring and Forecasting Inflation: The Sticky-Price
The Monthly Price Survey 205 CPI 214
Calculating the CPI 206 ■ EYE on the U.S. ECONOMY
Measuring Inflation and Deflation 207 Deflating the GDP Balloon 217
The Price Level, Inflation, and Deflation in the United
■ EYE on the PAST
States 207
The Nominal and Real Wage Rates of Presidents of the
CHECKPOINT 7.1 209 United States 219
7.2 The CPI and Other Price Level Measures 210 ■ EYE on BOX OFFICE HITS
Sources of Bias in the CPI 210 Which Movie Really Was the Biggest Box Office Hit? 220
The Magnitude of the Bias 211 ■ EYE on YOUR LIFE
Two Consequences of the CPI Bias 212 A Student’s CPI 221
Alternative Consumer Price Indexes 212
CHECKPOINT 7.2 215

PA R T 3 THE RE AL E CO NOM Y
CHAPTER 8 CHAPTER SUMMARY 247
Potential GDP and the Natural CHAPTER CHECKPOINT 248
Unemployment Rate 227
■ EYE on the U.S. ECONOMY
CHAPTER CHECKLIST 227
The Lucas Wedge and the Okun Gap 230
Macroeconomic Approaches and ■ EYE on the GLOBAL ECONOMY
Pathways 228 Potential GDP in the United States and the European
The Three Main Schools of Thought 228 Union 231
Today’s Consensus 229
■ EYE on POTENTIAL GDP
The Road Ahead 230
Why Do Americans Earn More and Produce
8.1 Potential GDP 231 More Than Europeans? 238
The Production Function 232 ■ EYE on the PAST
The Labor Market 233 The Natural Unemployment Rate Over Seven
CHECKPOINT 8.1 239 Decades 240
8.2 The Natural Unemployment Rate 240 ■ EYE on the GLOBAL ECONOMY
Job Search 241 Unemployment Benefits and the Natural
Job Rationing 242 Unemployment Rate 242
CHECKPOINT 8.2 246
 CONTENTS 15

■ EYE on the U.S. ECONOMY ■ EYE on YOUR LIFE

The Federal Minimum Wage 245 How You Influence and Are Influenced by Economic
■ EYE on YOUR LIFE Growth 268
Natural Unemployment 245 ■ EYE on RICH AND POOR NATIONS
Why Are Some Nations Rich and Others Poor? 273

CHAPTER 9
Economic Growth 251 CHAPTER 10
CHAPTER CHECKLIST 251 Finance, Saving, and
Investment 279
9.1 The Basics of Economic Growth 252 CHAPTER CHECKLIST 279
Calculating Growth Rates 252
The Magic of Sustained Growth 254 10.1 Financial Institutions and Financial
CHECKPOINT 9.1 255 Markets 280
Some Finance Definitions 280
9.2 Labor Productivity Growth 256
Markets for Financial Capital 281
Labor Productivity 256
Financial Institutions 283
Saving and Investment in Physical Capital 256
Insolvency and Illiquidity 284
Expansion of Human Capital and Discovery
Interest Rates and Asset Prices 284
of New Technologies 258
Combined Influences Bring Labor Productivity CHECKPOINT 10.1 285
Growth 260 10.2 The Loanable Funds Market 286
CHECKPOINT 9.2 263 Flows in the Loanable Funds Market 286
The Demand for Loanable Funds 286
9.3 Causes and Effects of Economic
The Supply of Loanable Funds 289
Growth 264
Equilibrium in the Loanable Funds
Old Growth Theory 264
Market 292
New Growth Theory 264
Changes in Demand and Supply 293
Economic Growth and the Distribution
of Income 266 CHECKPOINT 10.2 295
CHECKPOINT 9.3 269 10.3 Government in Loanable Funds
9.4 Achieving Faster Growth 270 Market 296
A Government Budget Surplus 296
Preconditions for Economic Growth 270
A Government Budget Deficit 297
Policies to Achieve Faster Growth 271
How Much Difference Can Policy Make? 272 CHECKPOINT 10.3 300
CHECKPOINT 9.4 274 CHAPTER SUMMARY 301
CHAPTER SUMMARY 275 CHAPTER CHECKPOINT 302
CHAPTER CHECKPOINT 276 ■ EYE on the U.S. ECONOMY
Interest Rate Patterns 282
■ EYE on the PAST
How Fast Has Real GDP per Person Grown? 253 ■ EYE on the U.S. ECONOMY
The Loanable Funds Market in a Financial
■ EYE on the U.S. ECONOMY
Crisis 294
U.S. Growth Is Slowing 254
■ EYE on YOUR LIFE
■ EYE on the U.S. ECONOMY
Your Participation in the Loanable Funds
U.S. Labor Productivity Growth Since 1960 262
Market 298
■ EYE on the U.S. ECONOMY
■ EYE on FINANCIAL MARKETS
The Changing Shares in the Gains from Economic
Why Have Interest Rates Been So Low? 299
Growth 267
16 CONTENTS

PA R T 4 THE M O N E Y E CONOM Y
CHAPTER 11 CHAPTER 12
The Monetary System 305 Money, Interest, and Inflation 335
CHAPTER CHECKLIST 305
CHAPTER CHECKLIST 335

11.1 What is Money? 306

Where We are and Where We’re
Definition of Money 306
Heading 336
The Functions of Money 306
The Real Economy 336
Money Today 308
The Money Economy 336
Official Measures of Money: M1
Real and Money Interactions and Policy 336
and M2 308
Checks, Credit Cards, Debit Cards, 12.1 Money and the Interest Rate 337
and Mobile Wallets 309 The Demand for Money 337
An Embryonic New Money: E-Cash 310 Changes in the Demand for Money 339
CHECKPOINT 11.1 311 The Supply of Money 340
The Nominal Interest Rate 340
11.2 The Banking System 312 Changing the Interest Rate 342
Commercial Banks 312
CHECKPOINT 12.1 344
Thrift Institutions 315
Money Market Funds 315 12.2 Money, the Price Level, and Inflation 345
CHECKPOINT 11.2 316 The Money Market in the Long Run 345
A Change in the Quantity of Money 347
11.3 The Federal Reserve System 317 The Price Level in a Baby-Sitting Club 348
The Structure of the Federal Reserve 317 The Quantity Theory of Money 348
The Fed’s Policy Tools 318 Inflation and the Quantity Theory of Money 350
How the Fed’s Policy Tools Work 319 Hyperinflation 353
CHECKPOINT 11.3 320 CHECKPOINT 12.2 354
11.4 Regulating the Quantity of Money 321 12.3 The Cost of Inflation 355
Creating Deposits by Making Loans 321 Tax Costs 355
How Open Market Operations Change the Monetary Shoe-Leather Costs 356
Base 323 Confusion Costs 356
The Multiplier Effect of an Open Market Uncertainty Costs 357
Operation 326 How Big Is the Cost of Inflation? 357
The Money Multiplier 327
CHECKPOINT 12.3 358
CHECKPOINT 11.4 330
CHAPTER SUMMARY 359
CHAPTER SUMMARY 331
CHAPTER CHECKPOINT 360
CHAPTER CHECKPOINT 332
■ EYE on the U.S. ECONOMY
■ EYE on the PAST Credit Cards and Money 342
The “Invention” of Banking 313
■ EYE on YOUR LIFE
■ EYE on the U.S. ECONOMY Money Holding and Fed Watching 343
Commercial Banks Under Stress in the Financial
■ EYE on INFLATION
Crisis 315
What Causes Inflation? 352
■ EYE on YOUR LIFE
■ EYE on the PAST
Money and Your Role in Its Creation 321
Hyperinflation in Germany in the 1920s 353
■ EYE on CREATING MONEY
How Does the Fed Create Money and Regulate Its
Quantity? 328
 CONTENTS 17

PA R T 5 E CO NO M I C FLUCTUATI ON S
CHAPTER 13 14.2 Equilibrium Expenditure 396
Aggregate Supply and Aggregate Induced Expenditure and Autonomous
Expenditure 396
Demand 363 Aggregate Planned Expenditure and Real GDP 396
CHAPTER CHECKLIST 363 Equilibrium Expenditure 398
Convergence to Equilibrium 399
13.1 Aggregate Supply 364 CHECKPOINT 14.2 401
Aggregate Supply Basics 364
Changes in Aggregate Supply 367 14.3 Expenditure Multipliers 402
CHECKPOINT 13.1 369 The Basic Idea of the Multiplier 402
The Size of the Multiplier 403
13.2 Aggregate Demand 370 The Multiplier and the MPC 403
Aggregate Demand Basics 370 The Multiplier, Imports, and Income Taxes 404
Changes in Aggregate Demand 372 Business-Cycle Turning Points 406
The Aggregate Demand Multiplier 374
CHECKPOINT 14.3 407
CHECKPOINT 13.2 375
14.4 The AD Curve and Equilibrium
13.3 Explaining Economic Trends and Expenditure 408
Fluctuations 376 Deriving the AD Curve from Equilibrium
Macroeconomic Equilibrium 376 Expenditure 408
Three Types of Macroeconomic Equilibrium 377
CHECKPOINT 14.4 410
Economic Growth and Inflation Trends 378
The Business Cycle 379 CHAPTER SUMMARY 411
Inflation Cycles 380
CHAPTER CHECKPOINT 412
Deflation and the Great Depression 382
CHECKPOINT 13.3 384 ■ EYE on the U.S. ECONOMY
The U.S. Consumption Function 394
CHAPTER SUMMARY 385
■ EYE on the PAST
CHAPTER CHECKPOINT 386 Say’s Law and Keynes’ Principle of Effective
Demand 400
■ EYE on the U.S. ECONOMY
U.S. Economic Growth, Inflation, and the Business ■ EYE on YOUR LIFE
Cycle 378 Looking for Multipliers 405

■ EYE on YOUR LIFE ■ EYE on the MULTIPLIER

Using the AS-AD Model 382 How Big Is the Government Expenditure
Multiplier? 406
■ EYE on the BUSINESS CYCLE
Why Did the U.S. Economy Go into Recession
in 2008? 383
CHAPTER 15
The Short-Run Policy Tradeoff 415
CHAPTER 14 CHAPTER CHECKLIST 415
Aggregate Expenditure
15.1 The Short-Run Phillips Curve 416
Multiplier 389 Aggregate Supply and the Short-Run Phillips
CHAPTER CHECKLIST 389 Curve 417
Aggregate Demand Fluctuations 419
14.1 Expenditure Plans and Real GDP 390 Why Bother with the Phillips Curve? 420
The Consumption Function 390
CHECKPOINT 15.1 421
Imports and Real GDP 394
CHECKPOINT 14.1 395
18 CONTENTS

15.2 Short-Run and Long-Run Phillips Curves 422 ■ EYE on the GLOBAL ECONOMY
The Long-Run Phillips Curve 422 Inflation and Unemployment 419
Expected Inflation 423 ■ EYE on the PAST
The Natural Rate Hypothesis 424 The U.S. Phillips Curve 420
Changes in the Natural Unemployment Rate 425
■ EYE on the PAST
Have Changes in the Natural Unemployment Rate
A Live Test of the Natural Rate Hypothesis 425
Changed the Tradeoff? 426
■ EYE on the TRADEOFF
CHECKPOINT 15.2 428
Can We Have Low Unemployment and Low
15.3 Influencing Inflation and Inflation? 427
Unemployment 429 ■ EYE on YOUR LIFE
Influencing the Expected Inflation Rate 429 The Short-Run Tradeoff in Your Life 431
Targeting the Unemployment Rate 430
CHECKPOINT 15.3 432

CHAPTER SUMMARY 433

CHAPTER CHECKPOINT 434

PA R T 6 M AC RO E CO NO M I C POLI CY
CHAPTER 16 CHAPTER SUMMARY 459
Fiscal Policy 437 CHAPTER CHECKPOINT 460
CHAPTER CHECKLIST 437
■ EYE on the GLOBAL ECONOMY
16.1 The Federal Budget 438 The U.S. Budget in Global Perspective 440
The Institutions and Laws 438 ■ EYE on the PAST
Budget Balance and Debt 438 Federal Tax Revenues, Outlays, Deficits, and Debt 441
The Federal Budget in Fiscal 2017 439 ■ EYE on the U.S. ECONOMY
A Fiscal Policy Challenge 442 Fiscal and Generational Imbalances 443
Generational Accounting 442
■ EYE on the U.S. ECONOMY
CHECKPOINT 16.1 444 The U.S. Structural and Cyclical Budget Balances 446
16.2 Fiscal Stimulus 445 ■ EYE on FISCAL STIMULUS
Fiscal Policy and Aggregate Demand 445 Can Fiscal Stimulus End a Recession? 449
Automatic Fiscal Policy 445 ■ EYE on the GLOBAL ECONOMY
Cyclical and Structural Budget Balances 446 Some Real-World Tax Wedges 453
Discretionary Fiscal Policy 447
■ EYE on YOUR LIFE
A Successful Fiscal Stimulus 448
Your Views on Fiscal Policy and How Fiscal Policy
Limitations of Discretionary Fiscal Policy 450
Affects You 457
CHECKPOINT 16.2 451

16.3 The Supply Side: Potential GDP and

Growth 452
CHAPTER 17
Full Employment and Potential GDP 452 Monetary Policy 463
Fiscal Policy, Employment, and Potential GDP 452 CHAPTER CHECKLIST 463
Fiscal Policy and Potential GDP: A Graphical
Analysis 454 17.1 How The Fed Conducts Monetary Policy 464
Taxes, Deficits, and Economic Growth 455 Monetary Policy Objectives 464
The Supply-Side Debate 456 Operational “Maximum Employment” Goal 465
Long-Run Fiscal Policy Effects 457 Operational “Stable Prices” Goal 465
CHECKPOINT 16.3 458 Responsibility for Monetary Policy 466
 CONTENTS 19

Policy Instrument 466 18.2 International Trade Restrictions 499

Hitting the Federal Funds Rate Target 468 Tariffs 499
Restoring Financial Stability in a Financial Crisis 469 Import Quotas 502
CHECKPOINT 17.1 471 Other Import Barriers 503
CHECKPOINT 18.2 504
17.2 Monetary Policy Transmission 472
Quick Overview 472 18.3 The Case Against Protection 505
Interest Rate Changes 472 Three Traditional Arguments for Protection 505
Exchange Rate Changes 474 Four Newer Arguments for Protection 507
Money and Bank Loans 474 Why Is International Trade Restricted? 508
The Long-Term Real Interest Rate 475
CHECKPOINT 18.3 510
Expenditure Plans 475
The Fed Fights Recession 476 CHAPTER SUMMARY 511
The Fed Fights Inflation 478
CHAPTER CHECKPOINT 512
Loose Links and Long and Variable Lags 480
A Final Reality Check 480 ■ EYE on the U.S. ECONOMY
CHECKPOINT 17.2 481 U.S. Exports and Imports 493
17.3 Alternative Monetary Policy Strategies 482 ■ EYE on GLOBALIZATION
An Interest Rate Rule 482 Who Wins and Who Loses from Globalization? 497
A Monetary Base Rule 482 ■ EYE on the PAST
Inflation Targeting 483 The History of U.S. Tariffs 499
Money Targeting Rule 485
■ EYE on YOUR LIFE
CHECKPOINT 17.3 486 International Trade 509
CHAPTER SUMMARY 487

CHAPTER CHECKPOINT 488

CHAPTER 19
■ EYE on the FED IN A CRISIS International Finance 515
Did the Fed Save Us From Another Great CHAPTER CHECKLIST 515
Depression? 470
■ EYE on the U.S. ECONOMY 19.1 Financing International Trade 516
The Fed’s Decisions Versus Two Rules 483 Balance of Payments Accounts 516
■ EYE on the GLOBAL ECONOMY Borrowers and Lenders, Debtors and Creditors 518
Inflation Targeting Around the World 484 Current Account Balance 519
■ EYE on YOUR LIFE CHECKPOINT 19.1 522
Your Views on Monetary Policy and How Monetary
19.2 The Exchange Rate 523
Policy Affects You 485
Demand in the Foreign Exchange Market 524
The Law of Demand for Foreign Exchange 524

CHAPTER 18 Changes in the Demand for Dollars 525

Supply in the Foreign Exchange Market 527
International Trade Policy 491 The Law of Supply of Foreign Exchange 527
CHAPTER CHECKLIST 491 Changes in the Supply of Dollars 528
Market Equilibrium 530
18.1 How Global Markets Work 492 Exchange Rate Expectations 532
International Trade Today 492 Purchasing Power Parity 532
What Drives International Trade? 492 Monetary Policy and the Exchange Rate 534
Why the United States Imports T-Shirts 494 Pegging the Exchange Rate 534
Why the United States Exports Airplanes 495 The People’s Bank of China in the Foreign Exchange
Winners, Losers, and Net Gains From Trade 496 Market 535
CHECKPOINT 18.1 498 CHECKPOINT 19.2 538
20 CONTENTS

CHAPTER SUMMARY 539 ■ EYE on the GLOBAL ECONOMY

Purchasing Power Parity 533
CHAPTER CHECKPOINT 540
■ EYE on the GLOBAL ECONOMY
■ EYE on the U.S. ECONOMY The Managed Yuan 537
The U.S. Balance of Payments 517 ■ EYE on YOUR LIFE
■ EYE on the GLOBAL ECONOMY Your Foreign Exchange Transactions 537
Current Account Balances Around the World 521
■ EYE on the DOLLAR Glossary G-1
Why Does Our Dollar Fluctuate? 531 Index I-1
Credits C-1
 Preface

Students know that throughout their lives they will make

economic decisions and be influenced by economic forces. They
want to understand the economic principles that can help them
navigate these forces and guide their decisions. Foundations of
Macroeconomics is our attempt to satisfy this want.
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tells us that most of you agree with our view that the principles course must do
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The Foundations icon with its four blocks (on the cover and throughout
the book) symbolizes this four-point approach that has guided all our choices
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exciting interactive experience for the student on all platforms and devices.

Fine-Tuning the Content

The content of this revision is driven by the drama of the extraordinary period
of economic history in which we are living and its rich display of events and
forces through which students can be motivated to discover the economic way of
thinking. Persistent slow economic growth; increasing concentration of wealth;
headwinds from Europe’s stagnant economy and the UK decision to leave the
economic union (Brexit); ongoing tensions arising from the loss of American jobs
to offshore outsourcing and the political popularity of trade protection; a slowing
pace of China’s expansion; enhanced concern about carbon emission and climate
change; relentless pressure on the federal budget from the demands of an aging
21
22 PREFACE

population and a sometimes dysfunctional Congress with its associated rising

government debt; the dilemma posed by slow, almost decade-long recovery
from the global financial crisis and recession and the related question of when
and how fast to exit an era of extreme monetary stimulus. These are just a few
of these interest-arousing events. All of them feature at the appropriate points in
our new edition.
Every chapter contains many small changes, all designed to enhance clarity
and currency, and the text and examples are all thoroughly updated to reflect the
most recently available data and events.
Because the previous edition’s revision was so extensive and well-received,
we have limited our interventions and changes in this Eighth Edition to address-
ing the small number of issues raised by our reviewers and users, ensuring that
we are thoroughly up-to-date, and focusing on the new digital tools that we’ve just
described. Nonetheless, some changes that we now summarize are worth noting.

Notable Content Changes

In Chapter 1, Getting Started, we have added a new section, Economics as a Life
Skill, which explains how economics is used as a decision tool, the scientific
method the subject employs, and economics as an aid to critical thinking. A new
Eye on Your Life looks at the BLS data on student time allocation (which contains
some surprises).
In Chapter 3, The Economic Problem, we show explicitly how the outward-
bowed production possibilities frontier arises from exploiting comparative
advantage.
Chapter 6, Jobs and Unemployment, is motivated by the question of whether
we are back at full employment. In seeking an answer, the chapter adds to the
standard list of job market indicators the new Z-Pop measure of the percentage
of the population that is fully occupied.
Chapter 7, The CPI and the Cost of Living, explains and presents data on
the new “Sticky Price CPI” and its related “Flexible Price CPI” as an attempt to
measure the underlying inflation rate.
In Chapter 9, Economic Growth, we have added an account of who gets the
benefits of economic growth with a dramatic demonstration of the gains by the
top one percent compared with the gains of the other 99 percent.
Chapter 16, Fiscal Policy, has a new and expanded explanation of the con-
cepts of fiscal imbalance and generational imbalance and the magnitudes of these
imbalances in the United States today.
Chapter 17, Monetary Policy, has a new discussion of the rules versus discre-
tion dichotomy and a description of both the Taylor interest rate rule and the
McCallum monetary base growth rate rule.

Outcome-Driven Teaching and Learning

An overarching revision message is that this text, its customized MyLab Economics,
and classroom resources are built to support an outcome-driven teaching and learn-
ing program in which the principles of economics course strengthens
• Problem solving
• Critical thinking
• Decision making
• Citizenship
Problem solving is central to the Foundations story. A Checkpoint at
the end of each topic, typically three per chapter, provides a pause and
 PREFACE 23

opportunity to check understanding with problems, one of which is driven

by a recent news clip, and worked solutions. A series of MyLab Economics
Solutions Videos then give the student an alternative way of reviewing the
solutions to these problems.
Critical thinking is encouraged and supported through a series of interactive
exercises in MyLab Economics. In each chapter, there is one exercise that is based
on the question or issue that opens and motivates the chapter, and a second that
builds from an Economics in Your Life feature.

Pearson eText
The new Pearson eText gives students access to their textbook anytime, anywhere.
In addition to note-taking, highlighting, and bookmarking, the Pearson eText
offers interactive and sharing features. Students actively read and learn through
practice, real-time data-graphs, animations, author videos, and more. Instructors
can share comments or highlights, and students can add their own, for a tight
community of learners in any class.
The new eText includes:
• A Big Picture Video that motivates and summarizes each chapter and
provides an outline answer to the chapter’s motivating question.
• A series of Concept Videos that illustrate and explain the key ideas in
each section of a chapter. These videos also contain animations and ex-
planations of each figure, which can be played separately.
• A series of Solutions Videos that walk the student through the solutions
to the Practice Problems and In the News exercises in each Checkpoint.
• Interactive data graphs that display real-time data from the St. Louis
Federal Reserve data base, FRED.
• Study Plan links that provide opportunities for more practice with
problems similar to those in the text, some with real-time FRED data,
that give targeted feedback to guide the student in answering the
exercises.
• Key Terms Quiz links that provide opportunities for students to check
their knowledge of the definitions and uses of the key terms.

THE FOUNDATIONS VISION

Focus on Core Concepts

Each chapter of Foundations concentrates on a manageable number of main ideas
(most commonly three or four) and reinforces each idea several times throughout
the chapter. This patient, confidence-building approach guides students through
unfamiliar terrain and helps them to focus their efforts on the most important
tools and concepts of our discipline.

Many Learning Tools for Many Learning Styles

Foundations’ integrated print and electronic package builds on the basic fact that
students have a variety of learning styles. Students have powerful tools at their
fingertips: Within the eText, they can get an immediate sense of the content of a
chapter by playing the Big Picture video; learn the key ideas by playing the Con-
cept videos; and get a quick walkthrough of the Checkpoint Practice Problems
and In the News exercises with the Solutions videos.
24 PREFACE

In MyLab Economics, students can complete all Checkpoint problems and In

the News exercises online and get instant feedback; work with interactive graphs
and real-time data graphs; assess their skills by taking Practice Tests; receive a
personalized Study Plan; and step-by-step help through the learning aid called
“Help Me Solve This.”

Diagrams That Tell the Whole Story

We developed the style of our diagrams with extensive feedback from fac-
ulty focus-group participants and student reviewers. All of our figures make
consistent use of color to show the direction of shifts and contain detailed,
numbered captions designed to direct students’ attention step-by-step through
the action.
Because beginning students of economics are often apprehensive about
working with graphs, we have made a special effort to present material in as
many as three ways—with graphs, words, and tables—in the same figure. In an
innovation that seems necessary, but is to our knowledge unmatched, nearly all
of the information supporting a figure appears on the same page as the figure
itself. No more flipping pages back and forth!

Real-World Connections That Bring Theory to Life

Students learn best when they can see the purpose of what they are studying,
apply it to illuminate the world around them, and use it in their lives.
Eye On boxes offer fresh new examples to help students see that eco-
nomics is everywhere. Current and recent events appear in Eye on the U.S.
Economy boxes; we place current U.S. economic events in global and historical
perspectives in our Eye on the Global Economy and Eye on the Past boxes; and
we show how students can use economics in day-to-day decisions in Eye on
Your Life boxes.
Each chapter-opening question is answered in an Eye On box that helps
students see the economics behind a key issue facing the world and highlights a
major aspect of the chapter's story.

ORGANIZATION
We have organized the sequence of material and chapters in what we think
is the most natural order in which to cover the material. But we recognize
that there are alternative views on the best order. We have kept this fact and
the need for flexibility firmly in mind throughout the text. Many alternative
sequences work, and the Flexibility Chart on p. 32 explains the alternative path-
ways through the chapters. In using the flexibility information, keep in mind
that the best sequence is the one in which we present the material. And even
chapters that the flexibility charts identify as strictly optional are better covered
than omitted.

PEARSON MYLAB ECONOMICS MyLab Economics

MyLab Economics has been designed and refined with a single purpose in
mind: to create those moments of understanding that transform the difficult
into the clear and obvious. With comprehensive homework, quiz, test, activity,
Another random document with
no related content on Scribd:
 By the marriage of Ann Mortimer, sister of the Earl of March, with
Richard de Conysburgh, Earl of Cambridge, the manor fell to the
house of York, for their son, Richard Plantagenet, Duke of York,
succeeded them; and in 11 Henry VI., the King granted to Richard,
Duke of York, livery of Weymouth, and all the castles, manors, lands,
etc., which Ann, late wife of Edmund, Comes Marchiæ, held in dower
of the inheritance of the Duke.
The town is mentioned by Leland (1538), Coker (1630 circa), and
Camden. The first-named writes:
The Tounlet of Waymouth lyith strait agayn Milton
(Melcombe) on the other side of the haven, and at this
place, the Trajectus is by a bote and a rope, bent over the
haven, so that yn the fery-bote they use no ores.
In another part of the Itinerary we read:
Waiymouth Town rite agen Milton, on the other side of
the Haven yt is bigger than Miltoun ys now. The Est South
Est point of the Haven of Waymouth ys caulid St. Aldelm’s
point, being a litl foreland. Ther ys a Chapelle by on the
Hille. The Paroch Chirch ys a mile of—a Kay for shippes in
the town—the Haven Mouth almost at hand. Half a mile
and more to the New Castelle—an open Barbecane to the
Castelle. Weimouth is counted 20 miles from Pole.
Camden states that in the reign of Edward III., the King got
together a powerful army and fleet for the purpose of invading
France, and the town provided twenty ships and 264 mariners for the
siege of Calais; but these figures are disputed by Hackluit, who says
there were but fifteen ships and 263 mariners. In March, 1347, the
bailiffs of Weymouth seized all the goods, chattels, jewels, and
armour of Geoffry, Earl of Harcautly, who had joined the army of the
French King. In 1377 the town suffered considerably from the fleet of
Charles V., when great portions of the ports of Dartmouth, Plymouth,
Portsmouth, Hastings, and Weymouth were destroyed.
 The next event of importance was the landing here, on April 14th,
1471, of Margaret of Anjou, the consort of Henry VI., on her return
from France with her son, Prince Edward.
So the tide of history swept on, with periodical ravages from
pirates and enemies, until the appearance off the harbour of a large
foreign fleet of eighty sail, which had voyaged from Middleburg on
January 10th, 1505, to escort Philip and Johanna to their Kingdom of
Castile; but a violent hurricane caused the ships to run to Weymouth
for shelter. The inhabitants, being unaware of the quality of their
visitors, and alarmed at so formidable an array of vessels, speedily
armed themselves, and sent word to Sir Thomas Trenchard, at
Wolfeton, who, with Sir John Carew, marched into the town at the
head of some hastily improvised troops. On the rank of the visitors
becoming known, Sir Thomas invited them to his house at Wolfeton
until he could advise the King, Henry VII., of the fortuitous
circumstance. As soon as Henry had notice of the arrival of these
royal visitors, he despatched the Earl of Arundel with a troop of 300
horse, carrying torches, to escort them to London.
There is much in the minor history of the town that one would fain
linger over, but we must confine ourselves to those larger and more
far-reaching historical events with which the old life of Weymouth
was so closely bound up.
In 1544 the bailiffs of Weymouth received the following letter from
the King, Henry VIII.:—
(By the King.)
Henr. R.
Trustie and well beloved, we greate you well. And
whereas betweene us and the Emperor upon provocation
of manyfolde injuries committed by the Frenche Kyng unto
us both particularlie; And for his confederation wyth the
Turke, against ye whole commonwealthe of
Christendome. It ys agreede that eche of us aparte, in
person, with his puissant Armie in several parties this
 soommer, shall invade the Realme of Fraunce; and beyng
not yet furneyshed as to our honour appertayneth:—
We have appoynted you to send us the nombre of xv
hable fotemen, well furneyshed for the warres as
appertayneth, whereof iii to bee archers, every oone
furneyshed with a goode bowe in a cace, with xxiii goode
arrows in a cace, a goode sworde, and a dagger, and the
rest to be billmen, havyng besydes theyre bill, a goode
sworde, and a dagger, to be levyed of your owne servants
and tenants.
And that you put the saide nombre in such a redyness,
furnished with coats and hosen of such colours as is
appointed for the battel of our Armey.
As they faile not within oone houres warnyng to march
forward to such place as shall be appoynted accordinglie:
—
Yeven under our Sygnete at our palace of Westmr., the
vth daie of June, the xxxv yere of our reigne.
Henr. R.
Weymouth had been created a borough in the reign of Edward II.,
at the time that his nephew, Gilbert of Clare, Earl of Gloucester, was
lord of the manor (one of whose sisters had married Piers Gaveston,
and the other sister was the wife of Hugh le Despencer); and
although the town is styled a “burg” in several documents relating to
previous reigns, it was not until the nineteenth year of the reign of
Edward II. that it returned a representative to Parliament.
The borough of Weymouth and the adjoining one of Melcombe
(which together now make up modern Weymouth) had long viewed
each other with jealous eyes; and so many complaints being made
through their respective members, the Parliament prepared a
charter, at the suggestion of Cecil, it is said, which was approved by
Queen Elizabeth in the thirteenth year of her reign, which united
these two discordant elements into one borough.
The merchants of the town, like all those of our southern ports,
played a zealous and active part in fitting out ships to fight the
Armada; and from a MS. in the Cottonian Library we learn that the
following vessels set out from Weymouth in 1588, with instructions to
guard the coast and seek out the Invincible Armada:—
Name. Tonnage. Master. Men.
The Gallion 100 Richard Miller 50
The Catherine 60 30
The Heath Hen 60 30
The Golden Lion 120 60
The Sutton 70 Hugh Preston 40
The Expedition 70 50
 Sidney Heath

A Relic of the Armada.

Notwithstanding that their largest vessel was only of 120 tons, the
Weymouth contingent captured two of the galleons and brought
them as prizes into the harbour. The only other vessels sent by the
county on this occasion were two from Lyme Regis—The Revenge,
of 60 tons, and The Jacob, of 90 tons—and four from Poole. In the
Guildhall there is a memorial of the event in the shape of a massive
iron-bound chest (see illustration), believed to have been brought
from one of the captured galleons; and many other relics are
scattered over the county, as at Bingham’s Melcombe, where there is
a magnificent oval dining-table, of massive form and marvellous
workmanship, with the crest of a Spanish grandee in the centre, the
whole mounted on a sea-chest in lieu of legs. Many Spanish coins
have been washed ashore on the Chesil Bank, and it is possible that
others of the ill-fated ships sank in the vicinity of Portland, or that the
dons threw their money and valuables overboard rather than let
them fall into the hands of their captors.
Little is recorded during the next fifty years, save the building of a
wooden bridge of seventeen arches to unite the two towns, in 1594;
and thirteen years later the town was visited by one of those great
plagues which periodically swept over mediæval England.
The outbreak of the Civil War in 1642 found the county fairly
evenly divided in support of the rival parties, and Corfe Castle
became the headquarters of the Royalist, and Bingham’s Melcombe
that of the Parliamentary forces. In 1643 the Earl of Carnarvon
seized and held for the King, Weymouth, Melcombe, and Portland,
and left them in charge of Prince Maurice, whose troops are said to
have pillaged and ravaged the district. The following year the Earl of
Essex defeated the Royalist troops, and took the town for the
Parliament, when he was assisted by a fleet under the Lord High
Admiral, the Earl of Warwick. The towns proved a rich prize for the
captors, as, in addition to much ammunition, etc., no less than sixty
ships fell into their hands. The troubles of the inhabitants, however,
were far from over, as in 1645 Sir Lewis Dyves received orders from
the King to make an attempt to re-capture Weymouth, which, with
the help of Sir W. Hastings, the Governor of Portland, he succeeded
in doing, and drove the defenders across the harbour into
Melcombe. On June 15th, 1644, the town surrendered to the
Parliamentary Commander, Sir William Balfour, the final overthrow
being largely due to the Earl of Warwick, who appeared off the
harbour with a large fleet, originally mobilised for the relief of Lyme
Regis. The spoils of war which fell into the hands of the captors
included 100 pieces of ordnance, 2,000 muskets, 150 cases of
pistols, 200 barrels of powder, and 1,000 swords, in addition to sixty
ships of various tonnage lying in the harbour. The losses sustained
by the combined towns in the Civil War amounted to £20,000, as a
certificate from the Justices, in the Parliamentary Roll, testifies. The
town to-day shows no trace of the fierce bombardments it
underwent, but a house in Maiden Street has a “bogus” memento in
the shape of a cannon ball foolishly inserted in the masonry some
decades since.

Sidney Heath

Sandsfoot Castle

In 1649 the inhabitants petitioned Parliament for a grant of £3,000,

to enable them to enlarge Melcombe Church, build a new bridge,
and free the harbour from rubbish.
 Doorway Sandsfoot Castle

The “Old Castle,” otherwise Sandsfoot Castle, situated about half

a mile from Weymouth proper, is to-day nothing but a mere shell of
the former stronghold. It was built by Henry VIII., about 1539, and
was part of his scheme for the fortification of various parts of the
coast, particularly Portsmouth, Portland, and Weymouth, against a
possible invasion on the part of Papal Europe on his throwing off the
Roman yoke in 1540. Leland calls it “a right goodlie and warlyke
castel, havyng one open barbicane.” The existing masonry shows its
form to have been a parallelogram, and from its commanding
position it, no doubt, was a fortress of considerable strength. It is
difficult to identify, from its crumbling remains, the various portions of
the castle, but that portion to the north, from its vaulted character,
appears to have been the Governor’s apartment; while fronting south
was the gun platform, as the embrasure shows. This platform would
also flank its east and west sides, which were also pierced for big
guns, while almost level with the ground was the barbican, with two
tiers of loop-holes for small arms.
On a tombstone at Whitchurch Canonicorum is the following
inscription:—
Here lyeth Iohn Wadham of Catherstone, Esquyer, who
deceased a.d. 1584, who was dewring his life time
Captayne of the Queene’s Maties castell called
Sandesfote, besides Waymouth in the countye of Dorset.
Among its other Governors were George Bamfield, 1631; Sir
Anthony Ashley Cooper, 1643; Colonel Ashburnham and Colonel
William Sydenham, 1644; and Humphrey Weld, of Lulworth, 1685. It
is a matter for regret that this old building should have been so
neglected, as each year sees large masses of its masonry falling
over the cliff. As a writer as long ago as 1829 said:
Its remains even now attract many an inquisitive enquiry
as to why it has been so neglected, as where the neighing
of hostile steeds, and the busy clang of arms once
sounded to the battle’s din, the humble grass now grows,
its walls are the dormitories of the birds of the air, and its
rooms afford pasturage to the cattle; a change certainly
more gratifying to us as a nation; but still its bold towering
 appearance, as seen ascending the hill, or viewing it from
the hill, reminds us of some bygone tale.
In addition to the castle, the town was further protected by several
forts. Probably none of these were in the nature of permanent
fortifications, except the Blockhouse, which stood near the east end
of Blockhouse Lane. The New Fort, or Jetty Fort, was erected at the
entrance of the harbour, at the end of the old pier, and was
dismantled in 1661, although in Hutchins’ time three guns were
placed in position on the same site. Then there was Dock Fort, under
the hill, west of the Jetty Pier, St. Nicholas’ Chapel converted into a
fort by the Parliamentary troops, and a small fort called the Nothe
Fort.
Few events seem to have occurred during the Protectorate that
need recording beyond the great naval victory gained by Blake over
Van Tromp, off Portland; and, as some compensation for the
damage done to their property during the reign of his father, Charles
II. granted the town in 1660 an annuity of £100 a year for ten years
from the Customs’ dues. It was during this reign that tradesmen
coined small money or tokens for the convenience of those wishing
to buy small quantities of goods, as but little small money was coined
by authority. In 1594 the Mayor of Bristol was granted permission to
coin a token, and the benefit to the community proved so great that
the custom spread to other towns. Weymouth coined many of these
tokens (see illustration), which were made of copper, brass, or lead,
and decorated as fancy dictated. Every person and tradesman in the
town was obliged to take them, and they undoubtedly answered the
purpose of providing the people with small money. In 1672, however,
Charles II. ordered to be coined a sufficient number of half-pence
and farthings for the exigencies of the State, and these numorum
famuli were prohibited as being an infringement of the King’s
prerogative.
The grant of armorial bearings to Weymouth and Melcombe Regis
bears the date of May 1st, 1592. The seals of the town were eight in
number, a description of which is recorded in Ellis’s History of
Weymouth.
 When the ill-starred Duke of Monmouth
landed at Lyme Regis in 1685, no
Weymouthians seem to have flocked to his
standard. Upon the failure of the rebellion the
participants of the neighbourhood were quickly
disposed of by Judge Jeffreys, who opened his
Bloody Assize at Dorchester, and ordered them
to be hanged at Greenhill, and their bodies to
be dismembered and exhibited throughout the
county as a warning to rebels.
So we come down to the close of the
seventeenth century with little to record save
devastating fires, plagues, and storms. A
general period of poverty and depression
seems then to have overtaken the two towns.
The causes leading to this change, which had
begun to show itself in the reign of Elizabeth,
were many and various, and may be briefly
ascribed to the concrete result of the vicious
rule of the Stuarts, the removal of the wool
trade to Poole, the loss of the Newfoundland Some Weymouth
Tokens
trade, and the injury received during the Civil The Town Token
War. Ellis tells us that, at the beginning of the Thomas Hyde
Bartholomew Beer
eighteenth century, “scarcely any idea can be James Stanley
formed of the general devastation and James Budd
depression that everywhere prevailed. Houses
were of little value ... the population had dwindled to a mere nothing
... old tenements fell down ... the inhabitants consisted chiefly of
smugglers and fishermen.”
Before we turn to the brighter days which set in towards the middle
of the reign of George III., a short account must be given of the
larger memorials of the town—e.g., the old bridge, the priory, and the
parish church, although it must be confessed that of important
antiquities dating before the Georgian era the town has little to show
beyond a few remnants of Jacobean houses, part of one solitary
pillar of the chapel, and possibly a few old doorways; and in later and
 minor
memorial
s the
town is
little
better off.
There is,
in the
Guildhall,
the fine
iron-
bound
chest
Arms of Weymouth before
mentione
d, and another, said to be of similar origin, bequeathed by the late Sir
Richard Howard. There is also an ancient chair with a cardinal’s hat
carved on the back, and the old stocks and whipping-post; but for the
most part nothing has survived save the truly Georgian, such as
round windows, picturesque doorways, and part of the old
Gloucester Lodge, now an hotel—an altogether disappointing record
in comparison with the long and varied history of the place.
 Sidney Heath>

Old House on North Quay. Weymouth

Of the old chapel,[52] the one remaining stone is preserved in the

wall of a school. The chapel was a chapel of ease to Wyke Regis,
the mother-church of Weymouth, and was dedicated to St. Nicholas.
It stood on the summit of a hill overlooking the old town of
Weymouth, and its site is commemorated in the name “Chapelhaye,”
by which the district is known. There are several documents extant
relating to this chapel, and among extracts from the Liceirce is the
following:—
None shall fail at the setting forth of the procession of
Corpus Christi day, on pain of forfeiting one pound of wax,
and each brother shall pay six pennies to the procession,
and pay yearly.
 Old Chair at Weymouth.

This relates to the fraternity or guild in the Chapel of St. Nicholas,

which was founded by a patent granted in 20 Henry VIII. to Adam
Moleyns, Dean of Sarum, and certain parishioners of Wyke Regis,
and known as “The Fraternity or Guild of St. George in Weymouth.”
Before the building of a bridge across the harbour the means of
direct communication between the two towns was, so Leland says in
1530, by means of a boat, drawn over by a rope affixed to two posts,
erected on either side of the harbour, a contrivance which was in use
at Portland Ferry as late as 1839. In 1594 this primitive method of
crossing gave way on the erection of the wooden bridge before
referred to, erected at the expense of several wealthy merchants of
London, who appear to have had trading interests here. This, in its
turn, was so seriously injured during the Civil Wars, that it fell to
pieces, and was rebuilt in 12 Anne by Thomas Hardy, Knt., William
Harvey, James Littleton, and Reginald Marriott, the towns’
Parliamentary representatives, and it continued in use until 1741,
when a bridge sixty yards long, with a draw-bridge in the centre, took
its place. The celebrated Bubb Dodington, the first and only Lord
Melcombe, contributed largely to its cost. In 1770 another bridge was
erected some seventy yards westward, thus increasing the length of
the harbour; but as the inhabitants were forced to make a
considerable detour to reach it, they petitioned against the proposed
alteration, but to no purpose. In 1820 it was determined to erect the
first bridge of stone,[53] which is still in use, and only calls for
mention here from the fact that on pulling down some adjacent
houses an urn filled with silver coins of Elizabeth, James I., and
Charles I. was found; and it is said that some of the inhabitants had
a fine haul of “treasure trove” on this occasion. More interesting,
perhaps, was the discovery of a gilt brass crucifix, four inches long;
and on the wall of one of the demolished houses was painted the
following verse:—

God saue our Queene Elizabethe,

God send hir happie dayes;
God graunt her grace to
Persevir in his most holie wayes.
A. Dom. 1577.
 The old priory, or, as it was more commonly called, the “Friary,”
stood in Maiden Street. It was a house of the Dominican Friars,
dedicated in the name of St. Winifred, although Speed gives Dominic
as the dedicatory saint. Leland writes of it as “a fayre house of
Freres in the est part of the town.” The ancient chair now in the
Guildhall came from this priory, and it was said to possess
miraculous powers of healing the sick, and otherwise blessing the
devout who were privileged to sit upon it. The priory shared the fate
of the other monastic foundations at the Dissolution.
Of churches which can be rightly considered as memorials,
Weymouth has no example, as the oldest is that of St. Mary, the
parish church. The foundation-stone was laid on October 4th, 1815;
this church was erected partly on the site of a former church. It is a
large, simple, and unpretentious building, of which some hard things
have been said and written, but it is at least well built and free from
sham, although of its architecture the less said the better. It is,
however, somewhat redeemed by an excellently designed cupola
containing one bell. Inside, an altar-piece by Sir James Thornhill, a
native of the town, whose daughter married his pupil Hogarth, claims
attention; as also does the following curious inscription, in which the
artist, by contracting the word “worthiest,” has conveyed the very
opposite estimate of the deceased’s character to that intended:—
UNDERth LIES Ye BODY OF
CHRISr. BROOKS ESQ. OF JAMAICA
WHO DEPARd. THIS LIFE 4 SEPr. 1769
AGED 38 YEARS, ONE OF Ye WORst. OF MEN
FRIEND TO Ye DISTRESd.
TRULY AFFECTd. & KIND HUSBAND
TENDER PARt. & A SINCr. FRIEND.
An old chalice belonging to the former church which stood on this
site was in the possession of Mr. Ellis. It was made of pewter,
weighed (without the lid, which was missing) 4½ lbs., and held four
pints. On the front was engraved:
 HOLINESS UNTO THE LORD,
ZACH. XIV., VER. 20.
JOHN STARR,
CHURCHWARDEN,
1633.
About the middle of the eighteenth century a gentleman of Bath,
Ralph Allen (the original of Fielding’s “Squire Allworthy”), having
been recommended sea-bathing for his health, found the shore of
Melcombe so suitable for his purpose that he spoke of it to the Duke
of Gloucester. His Royal Highness came, sampled the salt water,
and built Gloucester Lodge, to which house he shortly afterwards
invited the King, George III., who spent eleven weeks here, with his
Queen and family, in the summer of 1789. The result of this and
subsequent visits was that His Majesty purchased the house and
converted it into a royal residence. A great stimulus was thus given
to the town, which entered upon a period of prosperity; for here
George III. held court, and heard the news of some of Nelson’s and
Wellington’s victories. Very gay, indeed, was the life of those days,
with music, feasting, and dancing, which took place in what is now
called “the Old Rooms” (formerly an inn), across the harbour. It was
at Gloucester Lodge that His Majesty received his ministers, and
from whence he and Queen Charlotte used to walk to the little
theatre in Augusta Place to witness the performances of Mrs.
Siddons and her contemporaries. Queen Charlotte’s second keeper
of robes was Fanny Burney (Madame D’Arblay), the chronicler of
George III., and the author of Evelina and Camilla, for which last she
received 3,000 guineas, with which sum she built Camilla Cottage, at
Mickleham, near Dorking.
At Weymouth, in 1785, was born Thomas Love Peacock, the
author of The Monks of St. Mark, and other works. He was Under-
Secretary to Sir Home Popham, and afterwards Chief Examiner and
Clerk to the East India Company, from which post he retired in 1856
with a pension of £1,333 per annum. He was a friend of Shelley,
whom he had met on a walking tour in Wales in 1812. He died in
1866, aged eighty years.
 In the long list of eminent men who have represented the towns in
Parliament we find the names of Francis Bacon (Lord Verulam), Sir
Christopher Wren, and the celebrated political adventurer, Bubb
Dodington.
One of the most interesting studies for the topographer lies in
tracing the origin of the names of the streets of a town; and the
names of the principal streets of Weymouth are distinctly traceable
to their origin. St. Nicholas’ Street derives its name from the patron-
saint of maritime towns; Francis Street comes probably from
Franchise; Boot Lane (formerly Buckler’s), from an inn called “The
Boot”; Helen Lane, from Queen Eleanor, who held the manor of
Melcombe; Maiden Street, from Queen Elizabeth, who united the
boroughs; and St. Edmund’s Street, St. Thomas’ Street, and St.
Mary’s Street, possibly from chapels dedicated in honour of these
saints.

The Old Stocks, Weymouth.

 THE ISLE OF PORTLAND
By Mrs. King Warry
O the stranger of antiquarian or geological tastes
Portland must ever be of interest; but the casual visitor
—seeing it for the first time in the glare of the noonday
sun, amidst eddying clouds of stone-dust tossed hither
and thither by blustering winds, or when the over-
charged atmosphere settles like a misty cap on the Verne Heights—
is apt, if he have formed expectations, to be woefully disappointed.
The fact is that nowhere, perhaps, is the Spirit of Place more coy
and difficult of access than in modern Portland, having retreated
before barracks, fortifications, and prison, before traction-engines
and signs of commercial prosperity. But, properly wooed, it can still
be won, and once found, how well it repays the trouble of seeking! A
mere cycle run or drive through the island is emphatically not the
way to see Portland Isle, especially the Portland of the past. The
visitor needs to walk, saunter, and lounge idly for at least a few days,
and then, if he have a well-stored mind and fail to experience the
subtle, indefinable sensation called “charm,” he must be strangely
lacking in that spiritual perception which alone makes man feel at
one with the universe and with God.
The convict establishment and Government quarries have
displaced much which lent an interest to the island; the barracks and
harbour works have displaced still more—but fortunately we retain a
few records which, scanty though they be, reveal a something of the
past. Gone is the barrow of that king whose very name is lost; and
this supposed last resting-place of a mighty chieftain, swept through
long centuries by pure sea-laden breezes, is now desecrated by
quarrying operations: the barrow of Celtic Bran is but an empty
name, though Mound Owl still remains in part, a silent witness of