Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON 209 > Ch.19 What Macroeconomics Is All About > Flashcards

Ch.19 What Macroeconomics Is All About Flashcards

1
Q

What does changes in current-dollar national income reflect?

A

Changes in both P and physical Q of output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does changes in real national income reflect?

A

Changes only in physical Q of output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Real National Income

A

National income measured in constant (base-period) dollars. It changes only when quantities change.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define National Product

A

Sum of G&S produced in an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define National Income

A

Sum of everyone’s income inside an economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define Nominal National Income

A

Total national income measured in current dollars

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Gross Domestic Product (GDP)

A

Total value of G&S produced within the geographical borders of an economy over a particular year (doesn’t matter WHO produces)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In what terms can GDP be measured?

A

In real or nominal value of national income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What kind of fluctuations can GDP show?

A

Long-term economic growth

Short-term fluctuations around the trend (positive and negative growth rate)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the formula to calculate annual growth rate?

A

[(Y2-Y1)/Y1]*100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define Gross National Product (GNP)

A

Total value of G&S produced by the nationals of an economy.
GNP = GDP - Americans prod. in Canada ($ sent back to US) + Canadians prod. in US ($ earned abroad sent back to Canada)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the variables in the Business Cycle?

A

Recession/Recovery OR Trough/Peak

You can define a cycle by its length and depth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is National Income also known as?

A

Constant-dollar national income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When does an inflationary gap occur?

A

When actual national income (Y) exceeds potential national income (Y*) - positive output gap

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define the output gap and what it measures

A

Output gap = Y - Y* - it measures the difference between potential output (can at best be estimated) and actual output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How does the recessionary and inflationary gaps are translated in terms of PPB?

A

Recessionary: inside the PPB (lack of production)
Inflationary: outside the PPB (excess production)
= 0: on the PPB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When does a recessionary gap occur?

A

When actual national income (Y) is less than potential national income (Y*) - negative output gap

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What happens in terms of gap when factors of production are employed at levels that are above normal utilization levels?

A

Inflationary gap - excess production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What happens in terms of gap when the unemployment rate is high?

A

Recessionary gap - fewer production - inside PPB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Where are we in the Business Cycle (BC) when existing capacity is used to a high degree AND labour shortages may develop?

A

Peak

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Name 4 characteristics of an economic boom (rising half of the BC)

A
  1. Obsolete equipment is replaced
  2. Employment and income are expanding
  3. Both consumers and business expectations become more favourable
  4. Excess productive capacity is reduced
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Name 4 characteristics of an economic slump (falling half of the BC)

A
  1. Employment and income are contracting
  2. Both consumers and business expectations become less favourable
  3. Consumers tend to save more and spend less
  4. Profits are falling for most firms and even turning negative for some.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How do we measure unemployment rate?

A

the number of unemployed people expressed as a fraction of the labour force

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Name 4 types of unemployment in Canada

A
  1. Seasonal unemployment
  2. Cyclical unemployment
  3. Structural unemployment
  4. frictional unemployment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Which is the type of unemployment that points to a recession?

A

Cyclical unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Which two types of unemployment exist even when Canada is at full employment?

A

Structural and frictional unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Define Structural unemployment

A

Mismatch between jobs and workers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Define Frictional unemployment

A

Natural turnover in the labour market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Define Cyclical unemployment

A

When Y

30
Q

Until what % of inflation can we tolerate booms?

A

3%

31
Q

Does everyone benefit from economic growth?

A

No

32
Q

What are 5 measures that affect GDP?

A
  1. Employment, unemployment, and labour force
  2. Productivity
  3. Inflation and price level
  4. Interest rates
  5. Exchange rates and trade flows
33
Q

Define Employment

A

Total number of people who have a job

34
Q

Define Unemployment

A

Total number of people who don’t have a job but are actively looking

35
Q

Define Labour Force

A

Total number of people employed or unemployed (usually 15-65 y.o.)

36
Q

What is the formula for unemployment rate?

A

= (# of ppl unemployed/# of ppl in labour force)*100

37
Q

How can employment rise? (2)

A
  1. If the labour force increase and the fraction of unemployment vs employment stays cst, employment increase
  2. If the labour force stays cst, but the fraction increase, employment increase (e.g. 3/5 work now instead of 1/5 before)
38
Q

Define Potential GDP in terms of employment

A

We calculate potential GDP at FULL employent

39
Q

Define Full employment in Canada

A

Level where everybody who wants to find a job at current wages will do.

40
Q

Name 2 ways of increasing outputs

A
  1. more employment (improve in employment)

2. more output/person (improve in productivity)

41
Q

Why would people don’t want to work in the current labour market? (2)

A
  1. Natural turnover, time in between two jobs (frictional unemployment)
  2. Mismatch between available profile and jobs requirements (structural unemployment)

These two are already taken into consideration in GDP (up to 3%). We stay at full employment even when they are present

42
Q

Why do we worry so much about unemployment?

A

If an Economy has long-term unemployment, has a bigger burden on it = less income, loss of output. Associated with higher crime, mental illness, and general social unrest.

43
Q

Define productivity

A

Measure of the amount of output that the economy produces per unit of input

44
Q

What does an increase in Y* indicate in the L-R?

A

Economic growth

S-R: Y
L-R: Y*
Want to have Y reach Y* - close the gap. BUT Y* can at best be estimated

45
Q

What is the formula for Labour Productivity

A

Level of real GDP/number of workers (or total hours worked)

46
Q

What is the single largest cause of rising material living standards over long period of time?

A

Productivity growth

47
Q

Name 3 ways to increase productivity.

A
  1. Increase in ppl employed
  2. increase in capital employed
  3. increase in productivity
48
Q

What happens when there is a constant rise in price (L-R inflation)?

A

Demand curve shifts right

49
Q

Define Price level

A

The average of all prices in the economy expressed as an index number

50
Q

Define CPI (Consumer Price Index)

A

Average price of basket of commodities consumed by the average consumer

51
Q

What is the formula to calculate the Rate of Inflation?

A

Use CPI data

[(Year 2 - Year 1)/Year 1]*100

52
Q

How do you calculate an Index number?

A

(Cost of market basket in a given year/Cost of market basket at base)*100

53
Q

Why does inflation matter?

A
  1. Reduce purchasing power

2. Reduce the real value of any sum fixed in nominal (dollar) terms

54
Q

What are the 2 categories of inflation

A

fully anticipated and unanticipated

55
Q

What happens if inflation is underestimated?

A

Purchasing power and standard of living decrease

56
Q

Define Interest Rate

A

The price paid per dollar borrowed per period of time, expressed either as a proportion (e.g., 0.06) or a percentage (e.g., 6%)

57
Q

Define Overnight (or discounted) Rate

A

I.R. of one bank borrowing to another bank to meet daily payment.
If overestimated: lend surplus to other at overnight I.R.
Fluctuates depending on demand

58
Q

Compare Nominal interest rate and Real interest rate

A

Nominal: I.R. in % e.g. borrowed a 100$ at 10% I.R. = pay 110$
Real I.R.: real number of commodity I can buy if I can anticipate the I.R. Charge nominal I.R. such that real I.R. stays constant.

59
Q

How to calculate exchange rate in this class

A

domestic/foreign (e.g., 1 USD buys 1.3 CAD)

60
Q

How does the exchange rate ratio change with appreciation and depreciation?

A

Appreciation of domestic currency: fall in the ratio (e.g., 1 USD buys (less) CAD) = Imports increase, export decrease
Depreciation of domestic currency: raise in the ratio (e.g., 1 USD buy (more) CAD) = Imports decrease, exports increase

61
Q

Define Net exports

A

Exports - Imports = trade balance

62
Q

What is a reason for Canada’s increase in export and import over the past 45 years?

A

Trade agreement (NAFTA) - takes out tariffs, so total volume of exchange increases)

63
Q

Which of the following indicates an increase in labour productivity?

A

a) Inc in real GDP and pop
b) inc in real GDP and labour forme
c) a more rapide inc. in R-GDP than in pop
d) a more rapide inc. in R-GDP than in labour force
e) a more rapide inc. in R-GDP than in level of employment

64
Q

What does the real interest rate measure?

A

The burden of borrowing and also the real return on an asset in terms of its purchasing power

65
Q

Define deficit

A

when imports is higher than exports

66
Q

What are two reasons that might help to explain Canada’s negative trade balance from 2009 to 2012?

A
  1. Appreciation of CAD (imp inc and exp dec.)

2. A decrease in income in Canada’s main trading partners

67
Q

What is another way of putting L-R vs S-R fluctuations

A

L-R in linked to economic growth

S-R is linked to fluctuation in the business cycle (peak and trough/ recession and recovery

68
Q

An upward trend in real national income is also called

A

economic growth

69
Q

How do you calculate real and nominal interest rate?

A

Real interest rate = Nominal interest rate - inflation rate

70
Q

A price Index changes from 120 to 114 over a particular period of time. The % change in the price level was?

A

-5% (114/120=0.95) - indicates a fall of 0.05 in the price level

ECON 209 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions