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Brief Contents
Part 1 Introduction and Key Principles 11 The Income-Expenditure Model 218
1 Introduction: What Is Economics? 1 12 Investment and Financial Markets 249
2 The Key Principles of Economics 26 Part 5 Money, Banking, and Monetary Policy
3 Exchange and Markets 45
13 Money and the Banking System 268
4 Demand, Supply, and Market
Equilibrium 60 14 The Federal Reserve and Monetary
Policy 288
Part 2 The Basic Concepts in Macroeconomics
Part 6 Inflation, Unemployment, and Economic
5 Measuring a Nation’s Production Policy
and Income 89
15 Modern Macroeconomics: From the
6 Unemployment and Inflation 112 Short Run to the Long Run 307
Part 3 The Economy in the Long Run 16 The Dynamics of Inflation and
Unemployment 325
7 The Economy at Full Employment 132 17 Macroeconomic Policy Debates 344
8 Why Do Economies Grow? 152
Part 7 The International Economy
Part 4 Economic Fluctuations and Fiscal Policy
18 International Trade and Public
9 Aggregate Demand and Aggregate Policy 360
Supply 180
19 The World of International
10 Fiscal Policy 200 Finance 380
vii
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Contents
Preface xix Using Macroeconomics to Make Informed
Business Decisions 11
Part 1 Preview of Coming Attractions:

Introduction and Key Principles Microeconomics 11
Using Microeconomics to Understand Markets
and Predict Changes 11
1 Introduction: What Is Economics? 1
Using Microeconomics to Make Personal and
What Is Economics? 2 Managerial Decisions 11
Positive versus Normative Analysis 3 Using Microeconomics to Evaluate Public

Policies 12
The Three Key Economic Questions: What, How,
* Summary 12 * Key Terms 12
and Who? 4
* Exercises 13
Economic Models 4
Appendix: Using Graphs and Percentages 14
Economic Analysis and Modern Problems 5 Using Graphs 14
Economic View of Traffic Congestion 5 Computing Percentage Changes and Using

Equations 22
Economic View of Poverty in Africa 5
Application 3 The Perils of Percentages 23
Economic View of the Current World Recession 6
The Economic Way of Thinking 6 2 The Key Principles of

Use Assumptions to Simplify 7 Economics 26
Isolate Variables—Ceteris Paribus 7
The Principle of Opportunity Cost 27
Think at the Margin 7
The Cost of College 27
Rational People Respond to Incentives 8
The Cost of Military Spending 28
Application 1 Incentives to Buy Hybrid Vehicles 8 Opportunity Cost and the Production Possibilities
Example: London Addresses Its Congestion Curve 28
Problem 9
Application 1 Don’t Forget the Costs of Time
Application 2 Housing Prices in Cuba 9 and Invested Funds 30
Preview of Coming Attractions: The Marginal Principle 31

Macroeconomics 10 How Many Movie Sequels? 31
Using Macroeconomics to Understand Why Renting College Facilities 32
Economies Grow 10
Automobile Emissions Standards 33
Using Macroeconomics to Understand Economic
Fluctuations 10 Driving Speed and Safety 33
ix
x
Application 2 How Fast to Sail? 34 Market Failure and the Role of Government 54
The Principle of Voluntary Exchange 34 Government Enforces the Rules of Exchange 54
Exchange and Markets 34 Government Can Reduce Economic

Uncertainty 55
Online Games and Market Exchange 35
Application 3 Property Rights and Urban
Application 3 Rory McIlroy and Weed- Slums 56
Wacking 35
The Principle of Diminishing Returns 36 * Exercises 57
Application 4 Fertilizer and Crop Yields 37

4 Demand, Supply, and Market
The Real-Nominal Principle 37
Equilibrium 60
The Design of Public Programs 38
The Value of the Minimum Wage 38

The Demand Curve 61
The Individual Demand Curve and the Law
Application 5 Repaying Student Loans 39 of Demand 61
* Summary 39 * Key Terms 40 From Individual Demand to Market Demand 63
* Exercises 40
Application 1 The Law of Demand for Young
* Economic Experiment 44
Smokers 64
The Supply Curve 64

3 Exchange and Markets 45
The Individual Supply Curve and the Law
of Supply 65
Comparative Advantage and Exchange 46
Why Is the Individual Supply Curve Positively
Specialization and the Gains from Trade 46
Sloped? 66
Comparative Advantage versus Absolute
From Individual Supply to Market Supply 67
Advantage 48
Why Is the Market Supply Curve Positively
The Division of Labor and Exchange 48
Sloped? 68
Comparative Advantage and International
Trade 49 Application 2 Law of Supply and Woolympics 69
Outsourcing 49 Market Equilibrium: Bringing Demand

and Supply Together 69
Application 1 Absolute Disadvantage
and Comparative Advantage in Latvia 50 Excess Demand Causes the Price to Rise 69
Markets 51 Excess Supply Causes the Price to Drop 70
Virtues of Markets 51 Application 3 Shrinking Wine Lakes 71
The Role of Entrepreneurs 52 Market Effects of Changes in Demand 71

Example of the Emergence of Markets: POW Change in Quantity Demanded versus Change in
Camps 53 Demand 71
Application 2 The Market for Meteorites 53 Increases in Demand Shift the Demand Curve 72
xi
Decreases in Demand Shift the Demand Curve 74 The Components of GDP 94
A Decrease in Demand Decreases the Equilibrium Putting It All Together: The GDP Equation 97
Price 75
Application 2 Comparing Recoveries From
Application 4 Chinese Demand and Pecan Recessions 98
Prices 75
The Income Approach: Measuring a Nation’s
Market Effects of Changes in Supply 76 Macroeconomic Activity Using National
Income 98
Change in Quantity Supplied versus Change in
Supply 76 Measuring National Income 98
Increases in Supply Shift the Supply Curve 76 Measuring National Income through Value
Added 99
An Increase in Supply Decreases the Equilibrium
Price 78 An Expanded Circular Flow 100
Decreases in Supply Shift the Supply Curve 79 Application 3 The Links Between Self-Reported
Happiness and GDP 101
A Decrease in Supply Increases the Equilibrium
Price 79 A Closer Examination of Nominal and Real
Simultaneous Changes in Demand and Supply 80 GDP 101
Measuring Real versus Nominal GDP 102
Application 5 The Harmattan and the Price
of Chocolate 82 How to Use the GDP Def lator 103
Predicting and Explaining Market Changes 82 Fluctuations in GDP 104
Application 6 Why Lower Drug Prices? 83 GDP as a Measure of Welfare 106

* Summary 83 * Key Terms 84 Shortcomings of GDP as a Measure of Welfare 106
* Exercises 84
* Economic Experiment 88 * Exercises 108
6 Unemployment and Inflation 112

Part 2
The Basic Concepts in Macroeconomics Examining Unemployment 113
How Is Unemployment Defined and
5 Measuring a Nation’s Production Measured? 113
and Income 89 Alternative Measures of Unemployment and Why
They Are Important 115
The “Flip” Sides of Macroeconomic Activity:
Who Are the Unemployed? 116
Production and Income 90
The Circular Flow of Production and Income 91 Application 1 Declining Labor Force
Participation 117
Application 1 Using Value Added to Measure the
True Size of Walmart 92 Categories of Unemployment 118
Types of Unemployment: Cyclical, Frictional,
The Production Approach: Measuring a
and Structural 118
Nation’s Macroeconomic Activity Using
Gross Domestic Product 92 The Natural Rate of Unemployment 119
xii
Application 2 Less Unemployment Insurance, Labor Market Equilibrium and Full

More Employment? 120 Employment 139
The Costs of Unemployment 120 Using the Full-Employment Model 140

Taxes and Potential Output 140
Application 3 Social Norms, Unemployment,
And Perceived Happiness 121 Real Business Cycle Theory 141
The Consumer Price Index and the Cost Application 2 Do European Soccer Stars Change
of Living 122 Clubs to Reduce Their Taxes? 143
The CPI versus the Chain Index for GDP 123 Application 3 Government Policies and Savings
Rates 144
Application 4 The Introduction of Cell Phones
and the Bias in the Cpi 124 Dividing Output among Competing Demands
Problems in Measuring Changes in Prices 124
for GDP at Full Employment 144
International Comparisons 145
Inflation 124
Crowding Out in a Closed Economy 145
Historical U.S. Inf lation Rates 125
Crowding Out in an Open Economy 147
The Perils of Def lation 126
Crowding In 147
The Costs of Inflation 127 * Summary 148 * Key Terms 148
* Exercises 148
Anticipated Inf lation 127
Unanticipated Inf lation 127

8 Why Do Economies Grow? 152
* Exercises 129
Economic Growth Rates 153
Measuring Economic Growth 154
Part 3 Comparing the Growth Rates of Various
The Economy in the Long Run Countries 155
Are Poor Countries Catching Up? 156

7 The Economy at Full Application 1 Global Warming, Rich Countries,
Employment 132 and Poor Countries 157
Wage and Price Flexibility and Full Application 2 Behavioral Incentives in

Employment 133 Development 158
The Production Function 133 Capital Deepening 158

Saving and Investment 159
Wages and the Demand and Supply for
Labor 136 How Do Population Growth, Government,
and Trade Affect Capital Deepening? 160
Labor Market Equilibrium 137
Changes in Demand and Supply 137 The Key Role of Technological Progress 162
How Do We Measure Technological Progress? 162
Application 1 The Black Death and Living
Standards in Old England 138 Using Growth Accounting 163
xiii
Application 3 Sources of Growth in China and Understanding Aggregate Demand 183

India 164
What Is the Aggregate Demand Curve? 183
Application 4 The End of Growth? 165
The Components of Aggregate Demand 184
What Causes Technological Progress? 165 Why the Aggregate Demand Curve Slopes
Research and Development Funding 165 Downward 184
Monopolies That Spur Innovation 166 Shifts in the Aggregate Demand Curve 185
The Scale of the Market 166 How the Multiplier Makes the Shift Bigger 186
Induced Innovations 167 Application 2 Two Approaches to Determining the

Causes of Recessions 190
Education, Human Capital, and the Accumulation
of Knowledge 167 Understanding Aggregate Supply 190
New Growth Theory 168 The Long-Run Aggregate Supply Curve 190
Application 5 The Role of Political Factors in The Short-Run Aggregate Supply Curve 192
Economic Growth 168
Supply Shocks 193
Application 6 Culture, Evolution, and Economic
Growth 169 Application 3 Oil Price Declines and the U.S.
Economy 194
A Key Governmental Role: Providing
the Correct Incentives and Property From the Short Run to the Long Run 195
Rights 169
Application 7 Lack of Property Rights Hinders * Exercises 197
Growth In Peru 170

* Exercises 172
10 Fiscal Policy 200
Appendix: A Model of Capital Deepening 175
The Role of Fiscal Policy 201
Fiscal Policy and Aggregate Demand 201
Part 4
The Fiscal Multiplier 202
Economic Fluctuations and Fiscal Policy
The Limits to Stabilization Policy 203
9 Aggregate Demand and Aggregate Application 1 Increasing Life Expectancy and

Aging Populations Spur Costs of Entitlement
Supply 180 Programs 205
Sticky Prices and Their Macroeconomic The Federal Budget 206

Consequences 181
Federal Spending 206
Flexible and Sticky Prices 181
Federal Revenues 207
How Demand Determines Output in the Short
Run 182 The Federal Deficit and Fiscal Policy 209
Automatic Stabilizers 209

Application 1 Measuring Price Stickiness in
Consumer Markets 183 Are Deficits Bad? 210
xiv
Application 2 The Confucius Curve? 211 Exports and Imports 236
Fiscal Policy in U.S. History 211 Application 4 The Locomotive Effect: How Foreign
Demand Affects a Country’s Output 238
The Depression Era 211
The Kennedy Administration 211 The Income-Expenditure Model and the

Aggregate Demand Curve 239
The Vietnam War Era 212
The Reagan Administration 213
* Exercises 241
The Clinton and George W. Bush
Administrations 213 * Economic Experiment 244
Appendix: Formulas for Equilibrium Income and the

Application 3 How Effective was the 2009
Multiplier 245
Stimulus? 214

* Exercises 216
12 Investment and Financial
Markets 249
11 The Income-Expenditure Model 218
An Investment: A Plunge into the
A Simple Income-Expenditure Model 219 Unknown 250
Equilibrium Output 219 Application 1 Energy Price Uncertainty Reduces

Investment Spending 251
Adjusting to Equilibrium Output 220
The Consumption Function 222 Evaluating the Future 252
Consumer Spending and Income 222 Understanding Present Value 252
Changes in the Consumption Function 223 Real and Nominal Interest Rates 254
Application 1 Falling Home Prices, the Wealth Application 2 The Value of an Annuity 255
Effect, and Decreased Consumer Spending 224
Understanding Investment Decisions 256
Equilibrium Output and the Consumption
Function 225 Investment and the Stock Market 257
Saving and Investment 226 Application 3 Underwater Homeowners and Debt

Forgiveness 259
Understanding the Multiplier 227
Application 2 Multipliers in Good Times and How Financial Intermediaries Facilitate

Bad 229 Investment 259
When Financial Intermediaries
Government Spending and Taxation 229 Malfunction 262
Fiscal Multipliers 229
Application 4 Securitization: The Good, The Bad,
Using Fiscal Multipliers 231 and The Ugly 263
Understanding Automatic Stabilizers 233 * Summary 264 * Key Terms 264|
* Exercises 265
Application 3 The Broken Window Fallacy
and Keynesian Economics 234 * Economic Experiment 266
xv
Application 1 Quantitative Easing and the Fed’s

Part 5 Balance Sheet 291
Money, Banking, and Monetary Policy
How the Federal Reserve Can Change the
Money Supply 292
13 Money and the Banking System 268
Open Market Operations 292
What Is Money? 269 Other Tools of the Fed 293
Three Properties of Money 269
Application 2 Did Fed Policy Cause the
Measuring Money in the U.S. Economy 271 Commodity Boom? 294
Application 1 Cash as a Sign of Trust 272 How Interest Rates Are Determined: Combining
the Demand and Supply of Money 295
How Banks Create Money 273
A Bank’s Balance Sheet: Where the Money Comes Interest Rates and Bond Prices 296
from and Where It Goes 273
Application 3 The Effectiveness of
How Banks Create Money 274 Committees 298
How the Money Multiplier Works 274
Interest Rates and How They Change
How the Money Multiplier Works in Reverse 276 Investment and Output (GDP) 298
Application 2 The Growth In Excess Reserves 277 Monetary Policy and International Trade 300
A Banker’s Bank: The Federal Reserve 278 Monetary Policy Challenges for the Fed 302
Functions of the Federal Reserve 278 Lags in Monetary Policy 302
The Structure of the Federal Reserve 278
Inf luencing Market Expectations: From the
The Independence of the Federal Reserve 280 Federal Funds Rate to Interest Rates on Long-
Term Bonds 303
What the Federal Reserve Does during a
Financial Crisis 280 * Summary 304 * Key Terms 304
* Exercises 305
Application 3 Stress Tests for the Financial
System 281
Application 4 Coping with the Financial Chaos

Caused by the Mortgage Crisis 281
Part 6
Inflation, Unemployment,
and Economic Policy
* Exercises 283

15 Modern Macroeconomics: From the
Appendix: Formula For Deposit Creation 287 Short Run to the Long Run 307
14 The Federal Reserve and Monetary Linking the Short Run and the Long Run 308
Policy 288 The Difference between the Short and Long
Run 308
The Money Market 289
Wages and Prices and Their Adjustment over
The Demand for Money 289 Time 308
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xvi
Application 1 Secular Stagnation? 309 Understanding the Expectations Phillips

Curve: The Relationship between
How Wage and Price Changes Move Unemployment and Inflation 329
the Economy Naturally Back to Full
Employment 310 Are the Public’s Expectations about Inf lation
Rational? 329
Returning to Full Employment
from a Recession 310 U.S. Inf lation and Unemployment in the
1980s 330
Returning to Full Employment
from a Boom 311 Shifts in the Natural Rate of Unemployment
in the 1990s 332
Economic Policy and the Speed of
Adjustment 312 Application 2 Estimating the Natural Real Interest
Liquidity Traps or Zero Lower Bound 313 Rate 333
Political Business Cycles 314 How the Credibility of a Nation’s Central Bank
Affects Inflation 333
Application 2 Elections, Political Parties, and Voter
Expectations 314 Application 3 The Ends of Hyperinflations 335
The Economics Behind the Adjustment Inflation and the Velocity of Money 336
Process 315
The Long-Run Neutrality of Money 316 Hyperinflation 338
Crowding Out in the Long Run 318 How Budget Deficits Lead to
Hyperinf lation 339
Application 3 Increasing Health-Care
Expenditures and Crowding Out 319
* Exercises 341
Classical Economics in Historical
Perspective 320
Say’s Law 320
17 Macroeconomic Policy
Keynesian and Classical Debates 321
Debates 344
* Exercises 322 Should We Balance the Federal
Budget? 345
The Budget in Recent Decades 345
16 The Dynamics of Inflation
and Unemployment 325 Five Debates about Deficits 347
Money Growth, Inflation, and Interest Application 1 Creating The U.S. Federal Fiscal
Rates 326 System Through Debt Policy 351
Inf lation in a Steady State 326 Should the Fed Target Both Inflation
and Employment? 351
How Changes in the Growth Rate of Money
Affect the Steady State 327 Two Debates about Targeting 352
Application 1 Shifts in the Natural Rate Application 2 Would a Policy Rule have Prevented
of Unemployment 328 the Housing Boom? 354
xvii
Should We Tax Consumption Rather than A Brief History of International Tariff and Trade
Income? 354 Agreements 370
Two Debates about Consumption Taxation 355 Recent Policy Debates and Trade
Agreements 371
Application 3 Is A Vat in Our Future? 357
Are Foreign Producers Dumping Their
Products? 371
* Exercises 358
Application 3 Does Losing in the Wto Really
Matter? 372
Part 7 Do Trade Laws Inhibit Environmental
The International Economy Protection? 373
Application 4 How American are American

Cars? 374
18 International Trade and Public
Policy 360 Do Outsourcing and Trade Cause Income
Inequality? 375
Benefits from Specialization and Trade 361
Why Do People Protest Free Trade? 376
Production Possibilities Curve 361
Comparative Advantage and the Terms * Exercises 377
of Trade 363
The Consumption Possibilities Curve 363 19 The World of International

How Free Trade Affects Employment 364 Finance 380
Protectionist Policies 365 How Exchange Rates Are

Determined 381
Import Bans 365
What Are Exchange Rates? 381
Quotas and Voluntary Export Restraints 366
How Demand and Supply Determine Exchange
Responses to Protectionist Policies 367 Rates 382
Application 1 The Impact of Tariffs on the Changes in Demand or Supply 383

Poor 368
Real Exchange Rates and Purchasing Power
What Are the Rationales for Protectionist Parity 385
Policies? 368
Application 1 Big Macs in Switzerland 387
To Shield Workers from Foreign
Competition 369 The Current Account, the Financial Account,
and the Capital Account 388
To Nurture Infant Industries until They
Mature 369 Rules for Calculating the Current, Financial,
and Capital Accounts 388
To Help Domestic Firms Establish Monopolies
in World Markets 369 Application 2 Tax Havens and Global
Imbalances 391
Application 2 Chinese Imports and Local
Economies 370 Fixed and Flexible Exchange Rates 391
xviii
Fixing the Exchange Rate 392 Application 4 The Argentine Financial Crisis 398
Fixed versus Flexible Exchange Rates 393 * Summary 398 * Key Terms 399
* Exercises 399
The U.S. Experience with Fixed and Flexible
Exchange Rates 394 * Economic Experiment 401
Exchange Rate Systems Today 395 Glossary 402
Managing Financial Crises 395 Photo Credits 409
Application 3 A Troubled Euro 396 Index 410

Preface
In preparing this ninth edition, we had three primary goals. • We discuss in Chapter 13 the rationale and application
First, we wanted to incorporate the sweeping changes in of “stress tests” as a new tool for financial regulation.
the United States and world economies we have all wit- • We introduce Janet Yellen, the new Chair of the
nessed in the last several years, and the difficulties that the Federal Reserve, in Chapter 14, and discuss her prior
world economics have continued to experience in recover- experience before she assumed her current role
ing from the severe economic downturn. Second, we strived
• We revised and expanded our discussion of the euro
to update this edition to reflect the latest exciting develop-
in Chapter 19, reflecting the serious challenges now
ments in economic thinking and make these accessible to
facing the European Monetary Union, particularly
new students of economics. Finally, we wanted to stay true
with the experience of Greece.
to the philosophy of the textbook—using basic concepts of
economics to explain a wide variety of timely and interesting • We also incorporated a total of 27 exciting new Appli
economic applications. cations into this edition. In addition, we incorporated a
total of eight new chapter-opening stories. These fresh
c What’s New To This Edition applications and chapter openers show the widespread
relevance of economic analysis.
In addition to updating all the figures and data, we made a
number of other key changes in this edition. They include • In the opening chapters, the new applications include
the following: housing prices in Cuba (Chapter 1), property rights in
urban slums (Chapter 3), and the effects of winds from
• At the beginning of each chapter, we carefully refined the Sahara Desert on the price of chocolate (Chapter 4).
our Learning Objectives to match the contents of the • In the core macroeconomics chapters, the new applica-
chapter closely. These give the students a preview of tions include understanding the links between unem-
what they will learn in each section of the chapter, ployment and unemployment insurance (Chapter 6),
facilitating their learning. how the government promotes high levels of savings
• We discuss in Chapter 6 whether the recent major reces- in Singapore (Chapter 7), how Greek citizens hoarded
sion permanently affected labor force participation. euros as the talk of crisis grew (Chapter 13), new
research on “ underwater” homeowners (Chapter 12),
• We discuss in Chapter 8 the position of the pessimists the debate on secular stagnation (Chapter 15), and how
who think that technological progress has slowed down. accounting for “missing” international financial flows
• We also introduce in Chapter 8 the idea of controlled changes our thinking of global investment patterns
experiments in economic policy, as these experiments (Chapter 19).
have been very influential in recent policy developments.
xix
xx
c Applying The Concepts

This is an Applications-driven textbook. We carefully selected over 70 real-world Applications that help students develop
and master essential economic concepts. Here is an example of our approach from Chapter 4, “Demand, Supply, and Market
Equilibrium.”
64 part 1
Application 1
the laW Of DeManD fOr yOUng SMOkerS

APPLying the COnCePts #1: What is the law of demand?
that increases in state cigarette taxes between 1990 and 2005
Each chapter includes three to five thought-provoking

resulted in less participation (fewer smokers) and lower fre-
quency (fewer cigarettes per smoker).
A change in cigarette taxes in Canada illustrates the sec-
ond effect, the new-smoker effect. In 1994, several provinces
in eastern Canada cut their cigarette taxes in response to the
Applying the Concepts questions that convey impor-
smuggling of cigarettes from the United States (where taxes are
lower), and the price of cigarettes in the provinces decreased tant economic concepts, paired with and illustrated by
by roughly 50 percent. Researchers tracked the choices of 591
youths from the Waterloo Smoking Prevention Program and
concluded that the lower price increased the smoking rate by
an Application that discusses the concept and conveys its
real-world use.
As price decreases and we move downward along the market roughly 17 percent. Related to Exercises 1.6 and 1.8.
demand for cigarettes, the quantity of cigarettes demanded
increases for two reasons. First, people who smoked cigarettes
at the original price respond to the lower price by smoking more. SOURCES: (1) Anindya Sen and Tony Wirjanto, “Estimating the Impacts of Cigarette
Second, some people start smoking. Taxes on Youth Smoking Participation, Initiation, and Persistence: Empirical Evi-
In the United States, cigarette taxes vary across states, dence from Canada,” Health Economics 19 (2010), pp. 1264–1280. (2) Christopher
Carpentera and Philip J. Cook, “Cigarette Taxes and Youth Smoking: New Evi-
and studies of cigarette consumption patterns show that higher
dence from National, State, and Local Youth Risk Behavior Surveys,” Journal of
taxes mean less cigarette consumption by youths. Using data
Health Economics 27 (2008), pp. 287–299.
from the Youth Risk Behavior Surveys (YSBS), one study shows
The market demand is negatively sloped, reflecting the law of demand. This is
sensible, because if each consumer obeys the law of demand, consumers as a group
will too. When the price increases from $4 to $8, there is a change in quantity
demanded as we move along the demand curve from point f to point c. The move-
ment along the demand curve occurs if the price of pizza is the only variable that has
For each Application and Applying the Concepts changed.
question, we provide end-of-chapter

The Supply
Learning Objective 4.2 Curve exercises KeY TermS
that test students’ understanding

Describe and explain the law of supply.
offirmsthe
On the supply side of a market, concepts.
sell their products to consumers. Suppose you
ask the manager of a firm, “How much of your product are you willing to produce
expectations of inflation, p. 326
expectations phillips curve, p. 329
monetarists, p. 340
money illusion, p. 326
rational expectations, p. 330
real wages, p. 326
and sell?” The answer is likely to be “it depends.” The manager’s decision about how growth version of the quantity nominal wages, p. 326 seignorage, p. 339
much to produce depends on many variables, including the following, using pizza as equation, p. 337 quantity equation, p. 336 velocity of money, p. 336
an example:
hyperinflation, p. 338
• The price of the product (e.g., the price per pizza)
• The wage paid to workers
• The price of materials (e.g., the price of dough and cheese) exerCISeS all problems are assignable in MyEconLab exercises that update with real-time data are marked with .
• The cost of capital (e.g., the cost of a pizza oven)
• The state of production technology (e.g., the knowledge used in making pizza) Money Growth, Inflation, and Interest Rates Understanding the Expectations Phillips Curve: The
5.6 Using Open-Economy Multipliers. In an open
• Producers’ econ- about
expectations A leftward
6.4 future pricesshift in the aggregate demand curve cor- Describe how an economy at full employment with inflation Relationship between Unemployment and Inflation
omy, the marginal propensity to consume is 0.9, and responds to a(n) _________ in equilibrium income. differs from one without inflation. Explain the relationship between inflation and unemployment
• Taxes paid to the government or subsidies (payments from the government to
the marginal propensity to import is 0.3. How much of 6.5 Using Multipliers to Determine the Shift of the in the short run and long run.
firms to produce a product)
an increase in investment would be necessary to raise Aggregate Demand Curve. 1.1 The expected real rate of interest is the nominal interest
GDP by 200? What wouldTogether,
quantity supplied be your answer
theseifvariables
this was determine
a how much ofthe
a. Suppose a product
MPC is firms
equalare to
willing to pro-
0.8. Government rate plus the expected inflation rate. _________ (True/ 2.1 If inflation increases less than expected, the actual
The amount ofclosed
a product economy?
that firms are duce and sell, the quantity supplied. We start our
spending discussion
increases of market
by $20 billion.supply
How farwith
does the False) unemployment rate will be _________ (above/below)
willing and
5.7ableExport-Led
to sell. the relationship
Growth Strategies. Manybetween
countriesthe price of a good and the
aggregate quantity
demand curveofshift
that to
good
the supplied,
right? the natural rate.
1.2 Countries with lower rates of money growth have
believe that they need to increase exports in order to b. Now suppose that the MPC is 0.8 and the marginal _________ interest rates. 2.2 James Tobin explained business cycles with rational
grow. Some of this belief is based on long-run consid- propensity to import is 0.2. How far to the right expectations. _________ (True/False)
1.3 If the growth rate of money increases from 3 to
erations, as competing in export markets may induce will the $20 billion in government spending shift 5 percent, initially interest rates will _________. 2.3 The increase in the fraction of young people in the
their firms to innovate. But some countries also focus the aggregate demand curve?
on the short-run benefits. What are these benefits? 1.4 A firm that expects higher profits from higher prices labor force that occurred when the baby-boom genera-
6.6 Falling Exports and Aggregate Demand. Suppose but does not recognize its costs are increasing is suf- tion came of working age tended to _________ (raise/
(Related to Application 4 on page 238.)
M04_OSUL8847_09_SE_C04.indd 64
foreign countries grow less rapidly than anticipated and
26/10/15 5:35 pm fering from _________. lower) the natural rate of unemployment.
U.S. exports also fall.
1.5 Nominal and Real Interest Rates. In Japan in the 2.4 In the late 1980s, as unemployment fell below the natu-
The Income-Expenditure Model and the Aggregate a. Using the income-expenditure model, first show 1990s interest rates were near zero on government ral rate, inflation _________.
Demand Curve how the decrease in exports will decrease U.S. GDP. bonds. Some economists said that it was still possible to 2.5 Targeting the Natural Rate of Unemployment?
Explain how the aggregate demand curve is related to the b. Using your results in part (a), explain how the stimulate investment by creating negative real interest
income-expenditure model. Because the natural rate of unemployment is the
aggregate demand curve shifts with the decrease in rates. If nominal rates could not fall below zero, explain economists’ notion of what constitutes “full employ-
exports. how real interest rates could be made negative. (Hint: ment,” it might seem logical for the Fed to use mon-
6.1 An increase in the price level will _________ GDP and 6.7 The Size of the Wealth Effect and the Slope of Think about inflation.) etary policy to move unemployment toward its natural
thereby move the economy _________ the aggregate the Aggregate Demand Curve. Suppose the wealth 1.6 Money Neutrality, Long-Run Inflation, and the rate. However, many economists believe such a policy
demand curve. effect is very small; that is, a large fall in prices will not Natural Rate. Explain carefully the relationship would be unwise because the natural rate may shift
6.2 At any price level, the income-expenditure model increase consumption by very much. Explain carefully between the concept of monetary neutrality and the over time and policymakers may misjudge the cor-
determines the level of equilibrium output and the cor- why this will imply that the aggregate demand curve idea that the natural rate is independent of the longrun rect rate. What would happen if the Fed targeted a
responding point on the _________ curve. will have a steep slope. inflation rate. 5 percent unemployment rate but the true natural rate
6.3 An increase in the price level will not shift the aggre- 1.7 Taxes, Inflation, and Interest Rates. If a business were 6 percent?
gate demand curve. _________ (True/False) borrows funds at 10 percent per year, the business has 2.6 Hysteresis and the Labor Force Participation Rate.
a 40 percent tax rate, and the annual inflation rate is In economics the term “hysteresis” means that the his-
5 percent, what are the real after-tax costs of funds to tory of the economy has a lingering effect on current
the business? Similarly, if an investor receives a nomi- economic performance. During the U.S. recession
nal return of 8 percent on a savings deposit, the tax rate starting in 2007, the labor force participation rate con-
ECOnOMIC ExpErIMEnT is 30 percent, and the inflation rate is 6 percent, what tinued to remain below the levels that prevailed before
is the after-tax rate of return? the recession. Could this be an example of hysteresis?
ESTIMaTInG ThE MarGInal prOpEnSITy 1.8 Examples of Money Illusion. What do the following Can you suggest any other explanations?
Monthly $1,250 $1,500 $1,750 $2,000
TO COnSUME two quotes have in common?
Disposable 2.7 Oil Price Changes, Vacancies, and the Natural
Income a. “My wages are going up 5 percent a year. If only
For this experiment, each class member is asked to fill out the Rate. During the mid-1970s, changes in oil prices
Expenditures inflation weren’t 5 percent a year, I would be rich.” required products to be produced by different types of
following table. Given a certain monthly income, how would
you spend it and how much would you save? The top row of and savings b. “My bank is paying 10 percent a year, but the firms in different locations. This raised the number of
each column gives you the monthly disposable income. How Food 8 percent inflation rate is just eating up all my real vacancies relative to the unemployment rate. Accord-
would you allocate it each month among the various catego- housing investment gains.” ing to the theory of William Dickens, how did this
ries of spending in the table and savings? Complete each Transportation 341
column in the table. The sum of your entries should equal Medical
your disposable income at the top of each column. After you
Entertainment
have filled out the chart, compute the changes in your savings
Other expenses
and total consumption as your income goes up. What is your
marginal propensity to save (MPS)? What is your marginal Savings
propensity to consume (MPC) over your total expenditures? M16_OSUL8847_09_SE_C16.indd 341 26/10/15 6:10 pm
Graph your consumption function.
MyEconLab
For additional economic experiments, please visit
In addition, some chapters contain an Economic
www.myeconlab.com.
Experiment section that gives students the opportu-
nity to do their own economic analysis.
244
M11_OSUL8847_09_SE_C11.indd 244 26/10/15 6:06 pm

xxi
c Why Five Key Principles? of Economics,” introduces the five principles we return to
throughout the book. Chapter 3, “Exchange and Markets,”
In Chapter 2, “The Key Principles of Economics,” we intro-
is devoted entirely to exchange and trade. We discuss the
duce the following five key principles and then apply them
fundamental rationale for exchange and introduce some
throughout the book:
of the institutions modern societies developed to facilitate
trade.
1. The Principle of Opportunity Cost. The opportunity
Students need to have a solid understanding of demand
cost of something is what you sacrifice to get it.
and supply to be successful in the course. Many students
2. The Marginal Principle. Increase the level of an activ- have difficulty understanding movement along a curve ver-
ity as long as its marginal benefit exceeds its marginal sus shifts of a curve. To address this difficulty, we developed
cost. Choose the level at which the marginal benefit an innovative way to organize topics in Chapter 4, “Demand,
equals the marginal cost. Supply, and Market Equilibrium.” We examine the law of
3. The Principle of Voluntary Exchange. A voluntary demand and changes in quantity demanded, the law of sup-
exchange between two people makes both people bet- ply and changes in quantity supplied, and then the notion
ter off. of market equilibrium. After students have a firm grasp of
4. The Principle of Diminishing Returns. If we increase equilibrium concepts, we explore the effects of changes in
one input while holding the other inputs fixed, output demand and supply on equilibrium prices and quantities.
will increase, but at a decreasing rate. Summary of the Macroeconomics Chapters
5. The Real-Nominal Principle. What matters to people Part 2, “The Basic Concepts of Macroeconomics” (Chapters
is the real value of money or income—its purchasing 5 and 6), introduces students to the key concepts—GDP,
power—not the face value of money or income. inflation, unemployment—that are used throughout the text
and in everyday economic discussion. The two chapters in
This approach of repeating five key principles gives students this section provide the building blocks for the rest of the
the big picture—the framework of economic reasoning. We book. Part 3, “The Economy in the Long Run” (Chapters 7
make the key concepts unforgettable by using them repeat- and 8), analyzes how the economy operates at full employ-
edly, illustrating them with intriguing examples, and giv- ment and explores the causes and consequences of economic
ing students many opportunities to practice what they’ve growth.
learned. Throughout the text, economic concepts are con- Next we turn to the short run. We begin the discussion
nected to the five key principles when the following callout of business cycles, economic fluctuations, and the role of gov-
is provided for each principle: ernment in Part 4, “Economic Fluctuations and Fiscal Policy”
(Chapters 9 through 12). We devote an entire chapter to the
structure of government spending and revenues and the role
P RINCI P LE OF O P P ORTUNITY COST
The opportunity cost of something is what you sacrifice to get it.
of fiscal policy. In Part 5, “Money, Banking, and Monetary
Policy” (Chapters 13 and 14), we introduce the key elements
of both monetary theory and policy into our economic mod-
els. Part 6, “Inflation, Unemployment, and Economic Policy”
c How Is The Book Organized? (Chapters 15 through 17), brings the important questions of
Chapter 1, “Introduction: What Is Economics?” uses the dynamics of inflation and unemployment into our analy-
three current policy issues—traffic congestion, poverty in sis. Finally, the last two chapters in Part 7, “The International
Africa, and Japan’s prolonged recession—to explain the Economy” (Chapter 18 and 19), provide an in-depth analysis
economic way of thinking. Chapter 2, “The Key Principles of both international trade and finance.
xxii
A Few Features of Our Macroeconomics standards are determined and why some countries
Chapters prosper while others do not. This is the essence of eco-
nomic growth. As Nobel Laureate Robert E. Lucas, Jr.,
The following are a few features of our macroeconomics
once wrote, “Once you start thinking about growth, it
chapters:
is hard to think of anything else.”
• Flexibility. A key dilemma confronting economics pro- • Short Run. The great economic expansion of the
fessors has always been how much time to devote to 1990s came to an end in 2001, as the economy started
long-run topics, such as growth and production, versus to contract. The recession beginning in 2007 was
short-run topics, such as economic fluctuations and busi- the worst downturn since World War II. Difficult
ness cycles. Our book is designed to let professors choose. economic times remind us that macroeconomics is
It works like this: To pursue a long-run approach, profes- also concerned with understanding the causes and
sors should initially concentrate on Chapters 1 through 4, consequences of economic fluctuations. Why do
followed by Chapters 5 through 8. e conomies experience recessions and depressions,
and what steps can policymakers take to stabilize the
• To focus on economic fluctuations, start with
economy and ease the devastation people suffer from
Chapters 1 through 4, present Chapter 5, “Measuring
them? This has been a constant theme of macroeco-
a Nation’s Production and Income,” and Chapter 6,
nomics throughout its entire history and is covered
“Unemployment and Inflation,” and then turn to
extensively in the text.
Chapter 9, “Aggregate Demand and Aggregate Supply.”
• Policy. Macroeconomics is a policy-oriented subject,
• Chapter 11, “The Income-Expenditure Model,” is self-
and we treat economic policy in virtually every chapter.
contained, so instructors can either skip it completely
We discuss both important historical and more recent
or cover it as a foundation for aggregate demand.
macroeconomic events in conjunction with the theory.
• Long Run. Throughout most of the 1990s, the U.S. In addition, we devote Chapter 17, “Macroeconomic
economy performed very well—low inflation, low Policy Debates,” to three important policy topics that
unemployment, and rapid economic growth. This recur frequently in macroeconomic debates: the role
robust performance led to economists’ increasing of government deficits, whether the Federal Reserve
interest in trying to understand the processes of eco- should target inflation or other objectives, and whether
nomic growth. Our discussion of economic growth in income or consumption should be taxed.
Chapter 8, “Why Do Economies Grow?” addresses
the fundamental question of how long-term living
xxiii
c MyEconLab ® For the Instructor

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• Concept Checks: Each section of each learning objec- ing has become more targeted and efficient.
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Moraine Valley Community College
• Animations: Graphs are the backbone of introductory
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c Integrated Supplements • In the eText available in MyEconLab, select figures
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xxiv
• Current News Exercises provide a turnkey way to important economic concepts. Pearson’s Experiments
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Other documents randomly have
different content
The vendor struck the gong. "An Earthman, my friends; a fighting
man—powerful, surging with life in spite of his wounds. Who'll start
it—?"
Coldly, Shane swept the auction room with his glance.
Here, in front, on one side, were the slaves—a motley assortment,
dragged to this final degradation from a dozen far-flung planets. One
by one, they were thrust upon the block, exposed to the ghoulish
appraisal of the crowd that filled the room.
The crowd. A crowd of silver men and women, with gleaming hair
and violet eyes and pale, translucent skins. A hundred hungry-eyed,
avid brothers and sisters of Shi Kyrsis.
Even the room itself was strange. The materials resembled nothing
known anywhere in all the void. The lush decor followed an alien
theme.
"This man is good for long-time use!" exhorted the vendor. "See the
strength of him—the fire and vigor! You cannot pass him by...."
A door to Shane's right opened. A woman came in, a silver woman.
The woman.
Kyrsis.
An old man close to the block called eagerly, "I'll give a hundred,
vendor!" in a thin, cracking voice.
"A hundred I'm offered! Now who'll make it a hundred and fifty? No
one can afford to let this strong man go at a mere hundred—"
"Hundred and ten!" someone shouted.
Kyrsis turned. For the first time, her eyes met Shane's, and she
stopped suddenly, staring as if paralyzed.
"Hundred twenty!"
"Hundred thirty!"
"Do I hear a hundred forty? Surely no fine, strapping fighting man
can go for less—"
"Two hundred," Kyrsis said.
"Two hundred! The Lady Kyrsis bids two hundred—"
"Two fifty, vendor!" cried the old man by the block.
"Three hundred," came back Kyrsis.
"Do I hear three fifty—?"
"With his wounds, he is worth no more than three," the old man
mumbled.
"Three twenty-five then! Do I hear three twenty-five?"
"Three ten—"
"Three fifty," echoed Kyrsis.
The vendor paused and looked about. "Three fifty is bid...." He
struck the gong. "Sold to the Lady Kyrsis for three fifty."
Shane left the block, strode to the silver woman's side; and for a
moment they stood there in vibrant silence, alone in the crowd,
duelling with their eyes.
Then Kyrsis asked: "What dark fate brought you here, Gar Shane?
When I last saw you, you were hewing a path through the Malya
horde at the arena...."
"And you were in the prisoners' cage." The Earthman ignored the
strange tremor in the silver woman's voice. His words were clipped.
"Talu and I escaped and fled Amara in a flyer. But one of Quos
Reggar's slavers sucked us in and brought us here."
"The slavers came to rescue Reggar," Kyrsis said. "They swept
Amara clean." She looked down, breathing deep as if to still some
inner tension. And then: "Talu was with you? They brought her here
—?"
"—and put here aside. Her hair was cropped, so they knew she
already had a master." Shane laughed harshly. "Me—I'd worn no
yoke, so they sent me to the block."
"Then ... let us go. I have already done my other buying." The
tremor in Kyrsis' voice was stronger, now—a sort of undercurrent of
strange excitement.
"Your 'other buying'—?"
"A few young slaves to ... to train for household use." The silver
woman's fingers trembled, cold as ice, upon Shane's arm. "Come!
Let us go now—quickly—"
She led Shane out, through other rooms, where other vendors
hawked their wares, and other slaves stood shamed or sobbing,
bared to the eager, weirdly-lusting eyes of the silver people.
Then they reached a sort of transit station, and an attendant
brought a car of a type Shane had never seen before, and they got
in.
Three frightened children, a Malya boy of perhaps twelve and two
Chonya girls even younger, huddled at the back, their dark eyes big
with panic.
"Your slaves, Lady Kyrsis?" Shane asked coldly. The barb in his voice
would have slashed through the scales of a zanth.
The silver woman kept her eyes on the controls. The car hurtled off
through a tube-like passage. She did not answer.
Then the car halted. They got out—Shane, Kyrsis, children—and
entered rooms, rooms luxuriously furnished in the alien style of the
silver people.
"And now?" Shane inquired thinly.
Kyrsis' breathing was fast and shallow, her face even more pale than
before. She spoke too rapidly, in a ragged, uneven voice. "You are
weary, Shane, so weary. You must rest now. Here—let me take off
your shackles. There is a room here you will like—a quiet room...."
She unlocked the cuffs on his wrists and tossed them aside, then led
him swiftly to an adjoining sleep chamber. Foam-soft cushioning a
foot thick blanketed a dais along one wall, big enough for a dozen
men. A lingering perfume filled the air. Soft lights cast a silvery glow.
From somewhere came faint strains of elfin music.
"Rest here, Earthman," the silver woman said softly. "Rest until I call
you...."
For a moment her icy fingers touched his cheek. Then she left the
room, closing the door behind her.
Shane stared after her, a frown furrowing his brow. After a moment,
he stepped to the door, tried the handle.
It was locked.
Shane's frown deepened. He rubbed a grimy hand across his cheek

where the cold of Kyrsis' fingers still lingered; finally turned to a
more thorough inspection of his quarters.
As he pivoted, light glinted on the glass-like surface of the wall that
flanked the door—caught a vague flicker of movement.
Shane moved on across the chamber with no sign that he had seen
it.
An alcove held a radiation bath. The Earthman stepped into the
cubicle and flipped the switch, luxuriating under the warm tingle of
the molecular bombardment. Slowly, the sweat and dirt and grime
faded from his body, the dried blood washed away. The worst of the
weariness left his muscles. His bones almost stopped aching.
Refreshed, he snapped off the radiation and, leaving the cubicle,
drank greedily from a crystal bubbler set beside it.
Now he went back to the sleeping chamber. His eyes flickered over
the spot in the wall beside the door.
The surface showed blank and dead as the rest.
Shane grinned sourly to himself; crossed the room and tried the
door once more.
It was still locked.
The Earthman hesitated. Then, grimly, he braced one foot on the
casing beside the lock, gripped the handle, and threw his full weight
on it.
Inside the lock, something snapped. The handle twisted askew.
Again Shane tugged, his muscles swelling with the strain.
The broken handle pulled from its socket. Inserting a forefinger in
the hole, Shane manipulated the lock, pulled back the bolt.
The door swung open.
Shane stepped outside. He glanced at the wall behind the spot
where he had seen the movement.
A picture hung there. Lifting aside, he found a small, hinged panel.

Opening it, he discovered that a lens set behind the shiny coating of
the inner wall enabled him to survey the entire sleep chamber.
Again, the sour grin twisted Shane's lips. Swiftly, he strode through
the silence, checking the other rooms. He found them empty, all but
one. Its door was locked.
The Earthman drew back a moment.
A picture hung a few feet to one side of the locked door.
Shane stepped over to it and lifted it from the wall.
It concealed another peep hole. Shading his eyes, the Earthman
peered through the lens.
Kyrsis was within ... Kyrsis and one of the captive Chonya girls.
The silver woman held the child upon her lap. She was talking to her
—smiling, squeezing the chubby hands. Her manner was gentle,
tender.
Yet under it all, somehow, hung a weird, unholy note—grotesque,
obscene.
Some of the fear had left the child's eyes now. She smiled wanly ...
nestled, not quite so tense, in the silver woman's arms.
Kyrsis' eyes closed. Her lips parted, and Shane knew that she was
singing as she rocked the child.
The child's lips drooped. Trustingly, the small arms half-embraced
the silver woman. The tired head rested on Kyrsis' breast.
The child slept.
Now new emotions came to Kyrsis' lovely face ... strange passion—a
horrid anticipatory glow. Her nostrils flared. Her violet eyes grew
large, gleamed with fires older than time itself. She cradled the child.
Ever so tenderly, yet with a terrible air of strain, her parted lips
sought the girl's.
Shane stood frozen, breathing hard, tight in indecision's grip.
The child moved languidly in Kyrsis' arms—restless, not struggling,
and for a moment the silver woman straightened, sucked in air.
Then, again, she pressed her lips against the girl's.
Shane cursed beneath his breath and turned towards the door.
But even as he did so, Kyrsis rose, the child still in her arms. The
silver woman's face was serene now, ethereally beautiful, unmarred
by any trace of strain. Gently, she laid down the still form of the
child. Then, coming erect again, she moved towards the door.
Shane slid the picture back into place and stepped out of sight in the
adjoining room.
The door to the room in which Kyrsis had been, opened and closed.
The silver woman passed down the hall, out of sight.
Tense, silent, Shane made for the room from which she'd come.
The door was unlocked now. Swiftly, he slipped inside and stepped
to the couch where the Chonya child still lay, so very still. He
touched the soft hand. Lifted it with trembling fingers.
Behind him, the door-latch clicked.
Shane turned.
Kyrsis stood watching him. "You come unannounced, Earthman," she
murmured coolly.
"I came in as you left," Shane said, and of a sudden his hands, his
voice, his whole body, were shaking uncontrollably, gripped in a
paroxysm of surging fury. "I saw you here, with the child! Do you
hear me? I saw you—!"
"So...?" Kyrsis' face was still calm, the violet eyes unfathomable.
The veins at Shane's temples stood out, throbbing. With a
tremendous effort, he brought his voice under a semblance of
control.
He said: "This child is dead!"
CHAPTER XI
They stood there thus for a long, taut, echoing moment.
Then Kyrsis said: "You leave me no choice, Earthman. I see I must
tell you Gadar's secret."
"Gadar—?"
Her lips twitched. "Yes, Earthman. Gadar, the dark star—the star
hurled into your solar system from across the void: cold, bleak,
barren, uninhabited Gadar."
"You mean that you—your people—are of Gadar?"
The silver woman nodded. "Yes. When our star cooled, in the course
of that endless voyage across the void, we had no choice but to
burrow deeper and deeper, like animals—cutting ourselves away
from the awful cold of outer space, hunting desperately for the last
dim vestiges of warmth at our planet's core. Then, when at last we
had come into the family of your sun, we saw no reason to let it be
known that we existed. For we knew the thing we had to do if we
were still to live, and we knew that if you knew it, Gadar would be
doomed."
"Then—this is Gadar? We are inside it now—deep down below the
surface?"
"So deep that even the echographs of your Federation's exploration
parties did not find us. Here, for a million years, we have built our
civilization." A new glint came to the woman's violet eyes, a note of
excitement to her voice. "The things we have done, Shane! The
incredible things! You will never believe them until you see them. We
have conquered time and space and matter—"
"And the child is dead," Shane said.
"The child—" Kyrsis broke off, and a shadow crossed her face. "Yes,
the child is dead."
Unspeaking, the Earthman waited. His temple veins no longer

throbbed, but his jaw was hewn of granite.
Kyrsis said: "There are so many things your childish science knows
that are not true—and one of them is the nature of life."
Shane studied her, narrow-eyed. "So? In what way?"
"You think that life comes into being when certain conditions are
correct. But we know otherwise."
"I hear only words, not meaning," Shane clipped coldly.
"Of course. Because the whole pattern of your thinking is based on
false assumptions." The silver woman groped for words. "The thing I
seek to say, too simply, is that life is not a creature of conditions. It
is an entity, a basic element, a product of the whole great cosmic
process of creation. Either it exists in a place, or it does not." She
shrugged. "Your solar system has it."
"And Gadar—?"
"Gadar had it once, ten million years ago. But life is like any other
resource. You use it up. It dissipates and scatters, transmuted into
useless forms by a process that not even our science can reverse."
Her voice fell. "Then, Shane, your planet dies."
Shane stared at her. "So you bought slaves—"
"Of course we bought slaves!" A note of hysteria crept into the silver
woman's laugh. "Power, you talked about. Why would anyone buy
slaves in a universe where power is free? What we sought was life—
life in a form we could drink up, before our bodies finally died!" She
came close to Shane, her pale face smooth and glowing, the violet
eyes afire. "Look at me, Earthman! Look closely! How old would you
guess me? How many of your Earth years?"
Shane did not speak.
"A hundred years, Earthman? A thousand? Ten thousand? A hundred
thousand?" Again she laughed—wildly, up and down the scale. And
then, steady once more: "Shane, I first drew breath a million years
ago! Our science has kept me as I am—young in body and mind and
heart. But without new life—without the living slaves we buy—I
would wither and die in months. This child,"—and she gestured to
the limp, dead body of the Chonya girl—"what did she know of life?
What did she care? I played with her, and comforted her, and she
was happy; and then I sucked the life out of her body, and you hate
me for it. But was it so wicked, really? Was it not better that I should
live, I who have learned to love life through a million endless year,
than she, who would have wasted that life and thrown it away in
some dull corner of the asteroid belt?"
Shane shifted; stared down at the dead child for a long, long
moment, then back at the woman again.
"You are thinking, 'Is there no other way?'" Kyrsis whispered. Her
pale hand touched the Earthman's arm. "I tell you, Shane: there is
none. How many years have our scientists sought it? How many
eons of spatial time? But always, the answer is no. We must have
life itself—humanoid life, like that of this girl here. No other can be
transmuted to our bodies."
"If life is an element, as you say, a thing that wells up with creation,
out of the birth of a planet, then you could have moved to another
planet," Shane said in a dull, flat voice. "If life is gone from Gadar,
then you could have migrated, picked a new home."
"It sounds so easy, does it not?" the silver woman taunted. "But
where life exists, there life forms evolve. We could have taken such
a planet only by conquest. Would your worlds have liked that,
Shane? Would they have been willing to see us come in and seize
their homelands? You fought out of pride, for the belt the Chonya
chieftains gave you. Would the worlds of your system do less if we
tried to invade them?"
Shane stood mute.
Kyrsis' arm slipped about him. The rich purple lips came close to his.
"Come with us, Shane! Join us!" she whispered. "For a million aching
years I have sought a man like you. Do not leave me, now that I've
found you...."
A weakness crept through Shane's body.
With a tremendous, savage effort, he hurled the silver woman from
him.
"You'd steal my life as Quos Reggar stole my belt!" he shouted. Stark
murder was in his eyes.
"No, Shane—! No!"
"Words!" the Earthman lashed fiercely. "Words, to lull me as you
lulled that Chonya child!" He caught Kyrsis' arm, dragged her up
from the place where she had fallen. "You talk of life as if you, your
people, were the only ones who knew the way to live it. But life
belongs to each man, alone—his precious own, to waste or hoard as
he sees fit—"
The woman asked: "And what will you do, now that you have
decided?"
"Decided—?"
The look she threw him was a study in contempt. "I can see it in
your eyes, Earthman. For a moment you hung, unsure, caught up by
the vision of the wealth and power that might be yours; of me at
your side, and endless years for us together. But then it dawned
upon you of a sudden that I might suck your life out, as we suck
those of the other slaves we take, though such was not my plan.
The thought brought fear, and in the same instant you became the
great Gar Shane, who would strike down Gadar and save your solar
system." She laughed, and the sound was chill as outer space. "You
are as much a child as that dead lump there beside you. Do you
think to pit yourself against my people—scientists who could plot
your every thought ten million years before your birth? You are but a
fool, and you will die as all the others have died, and Quos Reggar
will wear your belt and serve us!"
"There comes a time for every man to die," Shane said. "If this is
mine, I'll face it." He picked a heavy, club-like, metal ornament from
a table, and his face had the rugged lines of carven stone. "We go
now, Kyrsis. And if I can die—remember, so can you!"
"But where—?"
Shane bared his teeth in a death's-head grin. "To your ramps, Shi
Kyrsis. Even slavers carry a fleet alarm."
"A fleet alarm—?"
"When a space ship wallows through the void, out of control, a
crewman throws the switch on the fleet alarm box. It sends out a
distress call on a Federation beam—a call so strong that it can reach
to the farthest star."
"And then—?"
"The fleet command sends aid." The Earthman laughed thinly. "They
send a patrol most often, or even a single ship. But when they get a
call straight out of the core of Gadar, they'll waste no time on mere
patrols or squadrons. There'll be a fleet, the whole great Federation
fleet, sweeping down upon your planet."
"Indeed?" the woman mocked. "So your Federation's fleet will come.
What can they do to us, burrowed here deep within the solid rock of
Gadar? And we have weapons, Earthman—weapons the like of
which you've never seen."
"Then roll them out," Shane said. "This will be your chance to use
them." He pushed her through the doorway; on past the other
rooms and out into the car.
She asked, "What can you do if I will not aid you?"
Shane shrugged. "I'd have no choice but to go my way alone, I
suppose ..."—and then, sinking in the barb with a savage twist
—"after I'd beaten your brains out, killed you so dead that not even
your people's science could ever put you back together!"
They traveled through endless miles of tube-like passage, after that,

but always climbing ever upward—the silver woman sitting at the
controls, Shane watching, hawk-like, alert in every nerve and fiber,
the heavy club gripped ready in his hand.
Then, finally, they reached a place where great volcanic pipes led
upward, and slaver space ships towered base-down, ramped and
ready.
There was a guard, a silver guard, who said, "It is forbidden to go
farther."
"Of course," Shane said—and smiled and struck him down.
"Must I go further?" Kyrsis asked. Panic was in her voice.
"Much further," Shane replied. Again he threw her the death's-head
grin. "Life is a sacred thing, you've said, and I am a fool—fool
enough, at least, to think it should be true for my Chonyas, as well
as your people. So drive on—out along the ramp to where Quos
Reggar's own great ship is waiting!"
"Not Reggar's own ship—!" The silver woman's lips were trembling.
"Earthman, he may be on board now. He brought me back to Gadar
with him, and—"
"—and if he's here, so much the better!" The recklessness was back
in Shane's stance now. The blue eyes gleamed a chill excitement.
"Why do you think I seek his ship, except to find him? He is the key
to this bath of blood; were it not for him and his kind, your people
might have been hard-put to implement their plans for slaughter.
Fool that I am, lacking your skill and science, I've a feeling that if I
can cut Quos Reggar's throat, I'll have traveled far towards choking
off this madness!" He lifted his club. "Drive on, Shi Kyrsis! Quickly,
before the vision of that dead Chonya child again seeps through
me!"
Trembling, the silver woman worked at the controls. The car went
racing down the ramp to where Quos Reggar's ship stood waiting.
"Inside!" Shane said. "Keep close before me!"
They clambered aboard the slaver, tight with tension. But there was
no sign of life. Reggar's own quarters lay deserted.
"The control room, then," the Earthman said tightly.
In silence, they climbed the long steel ladder.
A lone Pervod sat in the control room, rewiring a panel. He looked
up, saw Kyrsis already in the doorway. Lust touched his sly reptilian
face. "Ho, woman—!"
Shane smashed his skull.
And there was the black metal cube that was the fleet alarm box.
"You spoke of weapons, Kyrsis?" Shane said bleakly. "Now is the
time, then. Roll them out!"
He threw the switch.
CHAPTER XII
They were coming now—a horde of great silver ships that lanced
through the void like streaks of light, hurtling down on Gadar. The
slim, sleek Chonya craft were with them, too ... the dull black Malya
flyers; and Shane knew that his other calls had gotten through—that
the worlds and the asteroids were uniting against slavery and death
and chaos.
A siren blasted shrill alarm. Quos Reggar's renegades swarmed onto
the ramp, racing for their ships to take up the challenge.
The light of battle shone in Shane's blue eyes. The reckless laugh
rose in his throat. With a jerk, he levered the slaver flagship's great
hatches shut. His thumb rammed home the contact button for the
interlacing belts of proton cannon that girded the craft.
The exploding flame of pronic blasts erupted across the short-range
visiscreen's whole viewer—searing the outlaws from the ramp,
smashing the slaver ships off their bases, turning the great volcanic
pits to a holocaust of flaming ruin.
And Shane the Earthman, gar of the Chonyas, high lord of the
asteroids, laughed his wild, bold, reckless laugh and jammed the
contact button home again ... again ... again....
But now a voice came through the amplifier—Quos Reggar's voice,
shaking with rage and hate and fury: "Though it costs me my own
ship, I'll blast you, chitza! You'll sear as my men have seared—"
Shane flicked the switch. "Blast, then, Reggar! Blast—but you'll blast
the Lady Kyrsis with me!"
Beside him, Kyrsis screamed, "No Reggar! Not that—not that! The
meteors—"
Shane snapped the switch. "The meteors—?"
The silver woman's poise was gone. She shook her fist, and the
glittering metallic hair came tumbling down about her shoulders.
"You'll see, Earthman! You'll see! We have weapons such as you've
never dreamed of—"
Shane's eyes flicked back to the long-range visiscreen—to the silver

fleet that raced towards Gadar. It was closer now ... so close he
could see the fore-jets opening for the landing.
Only then, abruptly, the fleet was swerving—swinging wide in wild,
irregular maneuver.
And then the meteors came—bright balls of flame in swirling clouds
and clusters, with cores of stone and molten iron; flashing across the
screen in the path of the Federation fleet ... hurtling through space
in a murderous barrage.
And one ship swerved too late, and a great orange-and-purple
monster crashed into it with a burst of fire and sparking shards.
"You talk of power, Earthman?" Kyrsis raged shrilly. "You brag of
your Federation's broadcast system? Then look at this, and know
what power really means! We have tapped a source of energy so
great it makes all others puny—a source your science left untouched,
though it lies within your solar system! But we have harnessed that
force. We have concentrated it into great controlled magnetic fields
that we can shift at will, so strong they pull the very meteors from
their courses and hurl them to the place that we desire them!"
Shane rocked, and shock was suddenly written on his lean, hard
face. Wordless, he stared into the screen.
"And there is more, Gar Shane—much more!" the woman cried.
Swiftly, she stepped to the screen and twirled the dials. "There was
a plan we drew for such a time as this—a plan to smash barbarian
worlds to dust and ashes. We'll hurl the meteor swarms down on
their cities, clouds of them so huge they'll cut through any
atmospheric layer." She whirled. "Here, see your homeland, Earth! It
will be the first to go! Already, the field is concentrating, forming—
drawing in the meteor clouds out of the void—"
The viewer on the long-range screen was clearing. And there was
Earth, Shane's native planet, a great, green-glowing arc in the lower
corner. A lone space ship was rising in the foreground, speeding out
into the void. But already, about it, were meteor clusters ...
gathering swarms that grew with every passing minute.
"You see, Gar Shane? The people of your Earth are doomed!" the
silver woman jeered in paranoiac frenzy. "There is no hope, no way
to save them! The other planets, too, will go, till at last there is no
one left but we of Gadar. Then we shall migrate out of this dark star,
into your worlds, where life is not yet spent and faded. My people's
strength will rise anew—"
Bleakly, Shane stared into the screen, through a moment that lasted
all eternity.
Then, in one explosive motion, he snatched the space-phones from
their rack. His voice crackled out into the void: "Chonyas ... Chonyas
... Shane, your gar, is calling—"
And taut-drawn Chonya words came back: "We stand by for your
orders—"
"I want a ship," Shane answered tightly, "a single fast Chonya ship,
equipped with Abaquist repellers, to try to break through the meteor
swarm and come down to Gadar to me on the fleet alarm beam."
"We come, Gar Shane—"
Even with the words, a slim, sleek craft was breaking from the
milling fleet, swerving through the sky in a monstrous arc.
Then it was coming round again—striking its course, plunging down
on Gadar. Straight into the blazing meteor swarm it sped, and even
on the screen Shane could see it tossing—careening, staggering,
lurching with shock.
And then it was through the swarm and out again. Its hull was
ripped, its hatches battered, but still it plummeted down towards
Gadar.
Kyrsis cried: "Now I know you are truly mad, not just a fool, if you
think you can fight both my people and Quos Reggar here on Gadar
with the crew of a single ship!"
Shane said: "We're leaving now," and levered back the hatches.
Again he fired a burst from the proton cannon to clear the way ...
saw the shaft's walls vibrate with its violence.
The Chonya ship hurtled down the huge volcanic pipe like a shooting
star. Barely in time, it braked and based upon the ramp.
Before she could read his thoughts, Shane snatched up Kyrsis bodily
and raced through the smouldering pronic rubble to the Chonya
craft.
"Blast!" he shouted, and swung aboard; and almost before the
hatches were shut, the ship was in the air again, lancing up into the
sky.
The commander said: "Where now, Gar Shane? What are your
orders?"
The Earthman laughed harshly. "Send out the word to break the
Federation fleet into squadrons, each to stay far from the others,
and all to strike at Gadar. We'll see how many meteor swarms our
friends down there can muster!"
"And the rest of us—the Malyas, Chonyas—?"
"You'll follow me," Shane said. He took the jet-globe. "I'll set the
course."
Kyrsis' eyes were like great violet flames. "Pay him no heed,
Chonya!" she cried hoarsely. "Kill him! Lock him away! He is of
Earth, and he has gone mad with fear for his homeland! He takes
you there to try to battle another, greater meteor swarm! It will be
the death of all of you!"
The Chonya glanced curiously at her in her disarray, then looked into
the visiscreen, the jet-globe. "A Chonya holds no fear of death, Silver
One," he observed, iron-steady. "Besides, our course is set for
Jupiter, not Earth."
"Jupiter—!" the woman cried, and now a new note of panic was in
her voice. She clutched Shane's arm. "Why Jupiter, Earthman?
Why?"
"Not Jupiter, Kyrsis, but one of Jupiter's moons," Shane answered
thinly. "You see? There it lies in the visiscreen."
"Jupiter V—!" the silver woman whispered. "No, Shane! No—!"
"Yes, Kyrsis!" the Earthman came back coldly. "Jupiter V, the place
where Reggar held me prisoner. And the satellite closest to the
planet, a satellite heaped twelve levels deep with power converters."
"No, no—"
Relentlessly, Shane hammered on: "Who was it wanted all that
power? Who built that great Paulsini unit? Not any slaver, surely! No,
that took skill and science and years of work. And when it was done,
your people had more power than the world had ever known—power
drawn from the endless seas of energy of Jupiter's great Red Spot,
the heat of oceans of flaming hydrogen, the force that lies congealed
in gases held under such pressures that they turn to solids, all
turned somehow to your use by those new converters that I saw
there."
The silver woman looked at him. A little of the wildness left her eyes,
replaced by something that might have been cunning. Her voice
came down to its former liquid murmur. "And what will you do when
you get to this moon, Earthman? Will it bring back the cities of your
native planet?"
"Say what you mean," Shane came back tightly.
"Perhaps Earth could be spared—for your aid against the other
worlds of the Federation."
Shane's eyes blazed. "You do think me a fool, Shi Kyrsis! After all
that has gone, can you believe I would trust you?"
"It is a chance you must take, if you would save Earth's cities."
Strain showed in Shane's voice, his face. But his jaw stayed hard, his
blue eyes steady. "If Earth must go, then go it will, Shi Kyrsis. For all
I know, the meteors may this moment be hurtling down. But even if
they are, and though it costs me my life and my homeland, I'll still
take the chance in order to break your life-sucking people's power."
"But you cannot destroy that power—"
The Chonya commander broke in: "More meteors, Gar! They gather
between us and the satellite!"
And Kyrsis jeered. "You see, Earthman? You have lost already!"
Shane said to the Chonya: "We're going through."
"Through the swarm?" The commander's face lost a little of its color,
but his voice stayed firm. He picked up his space-phones. "I shall
give the order."
"We're going through," Shane repeated grimly, "and some of us—
those who have repellers—may get there. There will not be many,
but only a handful of workers can be on that moon, with Reggar's
crew withdrawn, so even a few ships will be enough."
"Yes, Gar," the Chonya nodded coolly. He spoke into the space-
phones, gave the order.
The ship lanced into the swarm.
There was a nightmare quality to those endless moments. Space
was suddenly ablaze about them with a thousand screaming lights
that slashed at them from all directions. Off to the right, a great ball
of fire appeared from nowhere and blotted out a ship. A streak of
flame speared through another, and it exploded in mid-flight.
And still they drove on through the tempest, tossed and jostled,
beaten, butchered.
An alarm bell clanged fiercely.
"A rip in the hull, upper port," the Chonya reported grimly.
Jupiter V was very large in the screens now. It loomed like a
monstrous metal ball, glistening with the hood of structure that
encased it.
"The swarm is following us now," the commander said. "It moves
with us, traveling even faster than are we." His lips twisted wryly.
"Their control is getting better all the time."
Shane stared into the visiscreen. It was as if the satellite were
hurtling up to meet them. The exploding speed of it made the
screen seem almost to whirl.
And still the meteors swarmed and blazed around them.
"Thirty seconds more," the Chonya said. "We must brake by then, or
crash instead of ramp."
Jupiter V now extended past the edges of the screen. They could
see but a segment of it—a segment that raced ever upward, ever
towards them, dividing into a thousand and finer details every
second.
"Twenty seconds," the Chonya reported.
The meteor swarm seemed to close in about them—tighter, tighter.
"Fifteen seconds."
The meteors' light was stunning, blinding.
Shane's teeth were clenched, his lips parted, his eyes glued tight to
the viewer of the visiscreen. The muscles stood out along his neck.
The tension about him was a living thing.
"Ten seconds."
A sort of paralysis seemed to grip the Earthman. He stood frozen,
still staring like one in a trance.
The ribs in the satellite's casing stood out, now—the ports, the
vents.
The meteors seemed to have grown to blazing suns.
"Five seconds."
Shane's paralysis broke. He snatched the phones, and of a sudden
his eyes were blazing like the nightmare scene beyond their hull.
"Veer!" he shouted. "Don't land! Veer—!"
The Chonya commander's hand struck the jet-globe with a crack like
a whip. It spun till it sang, racing round and round.
The ship swung out in a wild gyration. Reeling, slashing crazily
across the moon's perimeter, it hurtled off through space.
Behind them, the other ships, too, were peeling clear.
But not the meteor swarm. Down it plunged, down, in the course
the ships had followed, straight at the hundred-mile ball that was
Jupiter V.
"They'll crash—!" the Chonya cried, and jubilation was in his voice.
"They did not know we were so close! Now it's too late to turn
them!"
The explosive flash of the meteors bursting through the satellite's
casing came like an exclamation point. Great cracks appeared—
monstrous fissures, spewing flame.
And still more meteors hurtled down—the whole, vast, captive
swarm. The planetoid's casing glowed red-hot, then white, till the
moon was a fiery, radiant sphere.
Then suddenly, it seemed to shiver. A gigantic explosion ripped one
side, sent the planetoid spinning over. A huge, wedge-shaped chunk
tore loose and blasted off through space; then another ... another.
Without a word, the commander of the Chonya craft picked up the

manual on interspatial navigation, riffled through to the page on
Jupiter V. Tore it out, crumpled it, dropped it to the floor.
Shane threw him a grim, tight grin and said: "There's still work, back
on Gadar."
The Chonya spun the jet-globe; focussed the visicreen on the dark
star.
Even as the image drew sharp and clear, a ship shot out of one of
the great volcanic pipes that served as the planet's ramping spots.
Shane's face went dark again. "That's Reggar's ship. Where is he
going?"
And then, beside him, Kyrsis said, "Oh, no—!"
Shane turned at the sheer, stark panic in her voice.
Her face showed even more.
The Earthman looked back to the visiscreen again; and this time he,
too, rocked under the impact of the thing that was happening.
Gadar was moving from its orbit!
Faster it went, and faster, slashing a course towards outer space.
The ships of the Federation fleet raced madly from its path.
"No—!" Shi Kyrsis cried again. "No, they must not leave me!" Her
face was working now, contorted. The silvery tones seemed duller,
more like lead.
In an awe-struck voice Shane said: "This is the way they must have
come! It was no cosmic accident! They hurled their own planet
across the void—"
"No, no!" the silver woman shrieked, and the wild hysteria in her
tones was giving way to madness. "They can't, they can't! I must go
with them—!" Her twitching face was no longer human.
Then, before anyone could stop her, she turned and ran—out of the
door, away from the control room.
But outside the room there was no place to run ... only an echoing,
well-like shaft that dropped away a hundred feet through the vitals
of the ship, its depths linked only by a steel-runged ladder.
Unseeing, unheeding, the silver woman plunged over the brink and
plummeted downward. Her scream rose and fell in the banshee wail
of a soul in torment.
It ended with a sound like the bursting of an air-filled paper bag a
room or two away.
The Chonya sucked in air. He let it out with a sound that might have
been pity.
White-lipped, Shane said: "There was a Chonya child, a little girl...."
Abruptly, he turned away and spun the jet-globe.
The ship's commander frowned. "I do not understand, Gar Shane."
The Earthman's eyes stayed on the visiscreen. He said: "My road still
lies before me. It leads to Quos Reggar, and my great iron belt, and
Talu, the Malyalara."
CHAPTER XIII
They picked up the trail in the asteroid belt, in the wreckage of a
gutted town. It led to Horla, then, and from there to the burning
sands of Mercury's barren wastes, and then back out to the moons
of Saturn. But always Reggar was a jump ahead, and always there
was blood and death and pillage.
Once, on Juno, Shane thought he had him. But Reggar blasted off as
the Earthman ramped in, and they lost the trail in the outer
asteroids.
And then, one night, Shane came to Titan.
As always, there was desolation. As always, the great slaveship was
gone. And a weeping bartok woman shook her fist at Shane and
cried, "So now you come! But they have killed my man. My children
starve, and I am left to care for Reggar's cursed, dying Malyalara—"
Shane turned on her, "A Malyalara—? Quos Reggar's Malyalara?"
An emotion that might have been fear flickered in the woman's eyes,
and she would have fled had Shane not caught her arm. "Please,
Earthman—!" she pleaded piteously. "My man is still warm in his
grave. I say strange things—senseless, without meaning. Please let
me go—" And when Shane released her, she scurried off through the
rubble like a frightened mouse and disappeared in the ruins of a
broken building.
But Shane followed her—cautious, cat-footed; through alleys and
shadows and tumbled wreckage; till finally she went into one of the
ancient, conical, loaf-like hovels in the oldest part of the native city.
For ten long minutes the Earthman watched and waited. Then, half-
angrily, he rose from the place where he lay hidden, and slapped the
gun slung at his hip, and strode to the door through which the
woman had gone. His knock echoed.
After a moment the woman opened the door a crack. When she saw
who it was, her eyes went wide, and she tried to force the door back
shut.
But Shane put his weight against it and held it open, and said, "I
want to see your house, bartok."
"No, no—!" the woman panted.
"I must," Shane said. As gently as he could, he pushed her aside,
and stepped into the room.
And there was Quos Reggar.
The giant mongrel stood in the corner, behind the door through
which Shane had entered. A light-pistol gleamed in one webbed
hand, and the great lobed eyes were hot with hate.
And about the creature's waist still was drawn the iron-linked belt—
Shane's Chonya belt, the belt of the asteroids.
"Welcome, Earthman!" the mongrel rasped, just as on the other
night that now seemed so far away, so long ago. "Welcome to
death!"
Shane froze in his tracks—statue-like, taut-muscled. His eyes alone
moved ... gauging Quos Reggar, measuring the distance, weighing
the light-gun against his own draw.
And the mongrel saw the things in the cold blue eyes—the death,
the decision; and he snapped sharply, "No, chitza! Wait—!"
"Why?" clipped the Earthman. "Why put it off?" And there was
recklessness in his voice; a fierce exaltation.
"Because it may be you need not die!" the mongrel came back
swiftly. "Because there are things you do not know—things that still
may save your life and make it worth living."
Shane still stood taut, motionless, waiting. He did not answer.
"I thought you would come to Talu's name," the hybrid told him, and
now the creature's tone held a gloating note. "I planned it well—and
you, fool that you are, came to the trap as on wings of fire."
"Get on with it!" Shane slashed harshly. "We both know what is
between us. Why waste this time?"
"The time is not wasted," Reggar answered. "Your coming here as
you did proves something ... a fine point on which much may hang,
for you as well as me."
Shane bared his teeth. His left hand moved in a savage,
contemptuous gesture. "Get on with it!" he slashed again. "What is it
you seek to say?"
A sly smile of sorts came to Reggar's lips. He called: "Talu—"
"Here, Sha Reggar." She stepped through the doorway, lithely
graceful as always, garbed in a ban-dong of scarlet and gold. A gold
clip held the midnight hair, and a gleaming fire-ruby of Neptune
hung by a golden chain in the hollow of her throat.
Her eyes met the Earthman's, poised and calm. "Sha Shane...."
A touch of color came to Shane's lean face. Quickly, he looked away,

back to Quos Reggar.
But a ghoulish grin twisted the mongrel's lips. "Why stare at me,
Earthman? Look at her, look at her! Is she not lovely?"
Shane's eyes did not waver. "I'm listening, Reggar," he answered
tightly.
The hybrid chuckled. "You came quickly, Earthman ... so quickly,
when you heard mention of this woman. You threw caution to the
winds and came alone, in spite of all sense and judgment."
"So—?"
"So I knew there is a feeling between you and this Malyalara—a
thing without logic, beyond your judgment, perhaps what you
humanoids call love."
The color heightened in the Earthman's face. "You're mad as a ban,
Reggar!" he challenged angrily.
"I think not," leered the mongrel. "And it is good. Because you shall
have the woman—untouched, too, Earthman, for I am not as your
race, and she could never catch my fancy, save as a pretty toy."
"And the price, Reggar?" Shane queried tightly. "What must I do to
earn such favor?"
The creature before him shrugged. "I need not feign you have not
hurt me. For you have. You and your Chonyas have harried me
through the void, and up and down among the planets. You've
tracked me down as the zanth tracks down its prey. But now, I tire
of being hunted. My crew is weary and sick, and the hull of my ship
is worn to cracking. So I have stayed behind this time to strike a
bargain with you, if I can."
"A bargain?" The Earthman laughed harshly. "When was your word
ever worth a xi, that I should take it now?" His eyes narrowed, and
he studied the other. "Besides, what bargain could I make? The
Federation hunts you also."
"The Federation?" Reggar sneered. "Loot will always buy someone in
the Federation. But you—you fight from hate; and that is different."
"Then why haggle with me? Why not kill me now, if indeed you fear
me?"
"Why does anyone bargain?" Again the mongrel shrugged. "Because
you have something I want and need—something I cannot get
without your aid."
"Well? What is it?"
Thoughtfully, the great lobed eyes surveyed the Earthman. The
rasping voice sank lower. "It is sanctuary, Gar Shane. That is what I
seek ... a place in the asteroids to hide, away from the eyes of the
Federation. As for you, you need not even call off your war against
me. Not openly; you will merely manage never quite to find me."
The Earthman frowned. He looked away—to Talu, still standing in

the open doorway; to the woman who'd lured him here, mousy and
frightened in the farthest corner; to the tawdry room and its
tawdrier trimmings.
Then, at last, his eyes moved back to Reggar. In a tone of
wonderment, he asked, "Did you really think that I might do it?—
That I might break the oath I swore; betray the trust the Chonyas
gave me with their great iron belt?"
Almost silkily, Reggar murmured: "Before you refuse, there are
things you should consider."
The cloak of control fell away from Shane. His blue eyes blazed. His
jaw was hard. "I swore my oath on the star-stone of Hiaroloch,
Reggar," he slashed harshly. "There's nothing in this world or any
other that will make me break it." And then, with savage force: "Get
on with your killing, butcher—and make sure your first beam hits me
true, for it will be your last!"
The mottlings stood out on Reggar's scaly face. The light-gun thrust
forward, and muscles stood out along the webbed hand's bones.
"Perhaps there is a thing you have forgotten, chitza!" he snarled.
"Perhaps you do not recall—the theol!"
"The theol—?" And though the words came out as a question,
already the color was draining from the Earthman's face.

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1 Introduction: What Is Economics? 1 12 Investment and Financial Markets 249

Part 1 Preview of Coming Attractions:

Positive versus Normative Analysis 3 Using Microeconomics to Evaluate Public

Economic View of Traffic Congestion 5 Computing Percentage Changes and Using

The Economic Way of Thinking 6 2 The Key Principles of

Preview of Coming Attractions: The Marginal Principle 31

The Principle of Voluntary Exchange 34 Government Enforces the Rules of Exchange 54

Exchange and Markets 34 Government Can Reduce Economic

Application 4 Fertilizer and Crop Yields 37

The Value of the Minimum Wage 38

The Supply Curve 64

Outsourcing 49 Market Equilibrium: Bringing Demand

Markets 51 Excess Supply Causes the Price to Drop 70

Virtues of Markets 51 Application 3 Shrinking Wine Lakes 71

The Role of Entrepreneurs 52 Market Effects of Changes in Demand 71

Decreases in Demand Shift the Demand Curve 74 The Components of GDP 94

Predicting and Explaining Market Changes 82 Fluctuations in GDP 104

Application 6 Why Lower Drug Prices? 83 GDP as a Measure of Welfare 106

6 Unemployment and Inflation 112

Application 2 Less Unemployment Insurance, Labor Market Equilibrium and Full

The Costs of Unemployment 120 Using the Full-Employment Model 140

Unanticipated Inf lation 127

Are Poor Countries Catching Up? 156

Wage and Price Flexibility and Full Application 2 Behavioral Incentives in

The Production Function 133 Capital Deepening 158

Application 3 Sources of Growth in China and Understanding Aggregate Demand 183

Induced Innovations 167 Application 2 Two Approaches to Determining the

* Summary 171 * Key Terms 171

9 Aggregate Demand and Aggregate Application 1 Increasing Life Expectancy and

Sticky Prices and Their Macroeconomic The Federal Budget 206

Automatic Stabilizers 209

Application 2 The Confucius Curve? 211 Exports and Imports 236

The Kennedy Administration 211 The Income-Expenditure Model and the

Appendix: Formulas for Equilibrium Income and the

* Summary 215 * Key Terms 216

Equilibrium Output 219 Application 1 Energy Price Uncertainty Reduces

The Consumption Function 222 Evaluating the Future 252

Consumer Spending and Income 222 Understanding Present Value 252

Saving and Investment 226 Application 3 Underwater Homeowners and Debt

Application 2 Multipliers in Good Times and How Financial Intermediaries Facilitate

Application 1 Quantitative Easing and the Fed’s

Application 4 Coping with the Financial Chaos

* Economic Experiment 285

Application 1 Secular Stagnation? 309 Understanding the Expectations Phillips

Application 4 How American are American

The Consumption Possibilities Curve 363 19 The World of International

Protectionist Policies 365 How Exchange Rates Are

Application 1 The Impact of Tariffs on the Changes in Demand or Supply 383

Exchange Rate Systems Today 395 Glossary 402