Chapter 19 Flashcards
macroeconomics is the study of the determination of economic ___, such as ____, _____, _____, and ____.
- aggregates
- total output
- total employment
- the price level
- the rate of economic growth
When aggregate output rises…
the output of many commodities and the incomes of many people rise with it
When unemployment rises…
Many workers have reduced incomes
When disruptions occur in credit markets…
Interest rates rise and borrowers have difficulty financing purchases
The most comprehensive measure of a nation’s overall level of economic activity is:
the value of its total production of goods and services, called national product, or output
The value of national product is equal to:
the value of national income
nominal national income is:
the total national income measured in current dollars
the real national income is:
national income measured in constant (base-period) dollars. It changes only when quantities change.
How can you find the dollar value of production of steel and bread?
Multiply the number of units of each good produced by the price each unit is sold. Add these values to give the quantity of total output or national income in dollars. This is nominal national income.
What is a recession?
A fall in the level of real GDP. Two consecutive quarters of negative growth in real GDP.
what is potential output (Y*) (potential GDP)?
The real GDP that the economy would produce if its productive resources - land, labour and capital - were fully employed.
Y is used to denote __ and Y* is used to denote __
Y is used to denote economy’s actual output, Y* is potential output
The output gap is:
actual output minus potential output, Y - Y*
What value of Y to Y* is considered as a recessionary gap?
When Y < Y* - economy’s resources are not fully employed.
What value of Y to Y* is considered an inflationary gap?
When Y > Y* - market value of production is in excess of what economy can produce - workers are working overtime. Upward pressure on wages and prices.
Unemployment denotes:
the number of people 15 or older who are not employed and actively searching for a job
the labour force is:
the number of persons employed plus number of persons unemployed
the unemployment rate equation:
number of people employed/number of people in labour force x 100%
When the economy is at full potential GDP:
there is full employment
frictional unemployment is:
unemployment caused by normal turnover of labour and mismatch between jobs and workers
structural unemployment is:
a mismatch between the structure of the supplies of labour and the structure of the demands for labour - mismatch between jobs and workers
full employment occurs only when:
unemployment is frictional and structural, corresponding to actual GDP being equal to potential GDP
cyclical unemployment occurs when:
actual GDP does not equal potential GDP. employment rises and falls with business cycle.
the december unemployment rate is reported to increase only if:
the unemployment rate rises by more than it’s normal seasonal increase (0.3 percentage points)
labour productivity is calculated by:
the level of real GDP divided by the level of employement or total hours worked
labour productivity is:
the measure of the amount of output that the economy produces per unit of input
the price level is:
the average level of all prices in the economy, expressed as an index number
inflation is defined as:
a rise in the average level of all prices (the price level)
the consumer price index (CPI) is:
an index of the average price of goods and services commonly bought by households
since the price level is measured with an index number, its value at any specific time has meaning only:
when compared with its value at some other time
the rate of inflation is measured by:
the change in the price level divided by the initial price level x 100, expressed as a percentage
the dollars in a price index are eliminated because the price index shows:
the price of a basket of goods at some specific time relative to the price of the same basket of goods in some base period
the purchasing power of money/real power of money refers to:
the amount of goods and services that can be purchased with a given amount of money
The rate of inflation in Canada is around ___ and has been since ___
- 2% per year
2. 1990
when was the last time the price level fell?
1953
the purchasing power of money is __ related to the price level because:
- negatively
- inflation reduces the real value of anything whose nominal value is fixed in dollars… the real value of $20 in a savings account is reduced by inflation
What type of inflation has a smaller effect on the economy?
Anticipation inflation
the interest rate is:
the price paid per dollar borrowed per period of time expressed either as a proportion or as a percentage
what is the prime interest rate:
the rate that banks charge to their best business customers
what is a nominal interest rate?
the price paid per dollar borrowed per period of time
what is the real interest rate?
the nominal rate of interest adjusted for the change in the purchasing power of money. equal to the nominal interest rate minus rate of inflation
what type of rate of interest does the burden of borrowing depend on?
real interest rate
what type of rate of interest has been higher over the last five decades?
the nominal interest rate has always been higher
what is the exchange rate?
the number of units of domestic currency required to purchase one unit of foreign currency
what is the foreign exchange?
foreign currencies that are traded on the foreign-exchange market
what is depreciation and appreciation of the dollar?
depreciation = a rise in the exchange rate, taking more units of domestic currency to purchase on unit of foreign currency appreciation = a fall in the exchange rate, taking less units of domestic currency to purchase on unit of foreign currency
what is a trade weighted exchange rate?
a weighted average exchange rate between the home country and its trading partners, where the weight reflects each partner’s share in the home country’s total trade
the trade balance (net exports) is:
the difference between exports and imports
how would you find the CPI between two years?
year 2/year 2 x 100
how would you find the output gap as a percentage?
actual - potential/potential x 100
how to find nominal interest rate of a loan?
amount paid - value of loan
