Chapter 1 - The Science of Macroeconomics Flashcards
Define Economics
Science of choice to allocate limited resources to unlimited wants (not needs, limited)
Define Macroeconomics and some of its topical issues.
Macroeconomics: the study of the economy as a whole (aggregate)
Topical issues: cause recessions, government stimulus (spending), housing market impact on economy
What are the three macro-level variables?
(1) average price
(2) total output
(3) overall unemployment
What are four issues in macro economics?
(1) Gov budget deficit: gov expenditures > gov revenues
- impacts: workers, consumers, businesses, taxpayers
(2) Rising cost of living: post-pandemic rise >3%
(3) Policies help countries grow out of poverty
(4) Trade deficit: importing > exporting (impacts countries’ well-being)
What is the measure of the standard of living in Canada?
What scaled graph demonstrates the growth rate?
What are LT and ST trends in Canadian real GDP per capita?
Canadian real GDP per capita.
The logarithm (log) scale allows the curve to demonstrate the growth rate (g)
LT trends: avg annual growth rate is 2% since 1900 (10x higher than 2010)
ST trend: periods of falling income, recessions, and depressions (modern macro birth after great depression, now experience less intense recessions)
In CAD inflation rate per year, what does a negative graph signal
negative graph signals deflation and falling prices
What is Canada’s target inflation range? Who sets it?
Inflation target range is between 1-3%
Bank sets the target inflation range
When was modern macroeconomics born? What developments were made in this time?
Modern macro was born after the great depression 1930s, when government intervention was introduced.
Developments: wages were protected by contract wages and unions
What 3 things happened in the Asian Financial Crisis?
investments falling, weak economies, currency devalued
Describe how the subprime mortgage buyer crisis occurred.
2000-2007: global economic sustained expansion… UNTIL
2008 US recession
2009 global recession
Annual avg output growth was 3.2% (advanced 2.6%, emerging 6.5%)
National mortgage debt rose and defaulted as people could not pay loans
Define “model”
Define 4 key components of model
What are 3 uses of models
Model: simplified versions of more complex reality
- how exogenous variables impact endogenous variables
4 Components: assumptions, limitations, endogenous and exogenous variables
- Assumptions: ex. competitive market (buyer/seller too small to affect market price)
- Endogenous: model explains, dependent, values determined in the model
- Exogenous: model takes as given, independent, values determined outside the model (impacts endogenous)
Uses of models:
(1) shows relationships between variables
(2) explains economic behavior
(3) makes policy improve performance
What is the Demand function?
What relationships (+/-) does it have with it’s variables?
define the Demand curve?
Qd = D(P,Y)
QD relationship to price (-) and aggregate income (+).
Demand curve: relationship b/w QD and P, other things equal
What is the Supply function?
What relationships (+/-) does it have with it’s variables?
define the supply curve?
Qs = S(P,Ps)
QS relationship to price (+) and input price (-)
Supply curve: relationship b/w QS and P, other things equal
Describe equilibrium of simple model
Equilibrium: where Qd=Qs at point (EQ, EP)
What are the common 3 endogenous and 2 exogenous variables in the simple model?
exogenous (independent): Y (income), Ps (price inputs)
endogenous (dependent): Qd, Qs, P
