Chapter 4 Flashcards
What is microeconomics
Applies to individual markets of goods and services, it looks at how businesses decide what to produce and who to produce it for, and how individuals and households decide what to buy
What is macroeconomics
broader issues such as employment levels, interest rates, inflation, recessions, government spending, looks at the overall health of the economy.
What are the three approaches to calculate GDP
- Expenditure approach: Add up everything that consumers, businesses and government spend money on during a certain period, and net exports.
- Income approach: idea is that total spending should be equal to total income generated by producing all goods/services
- Production approach: AKA value added approach, calculates an industry/sector’s output and subtracts the value of all goods and services used to produce the outputs.
What is real VS nominal GDP
Nominal GDP: Dollar value of all goods and services produced in a given year at prices of that same year (increases can be caused by increased production or increased prices)
Real GDP: true productivity, removed the changes in output that are attributable to inflation and allows us to see how much GDP has grown based only on production..
What is productivity
GDP per unit of input (labour and capital used to produce G/S)
What are leading indicators
Tend to peak and trough before the overall economy (housing starts, manufaturer’s new ordrs, commidity prices (raw materials), average hours worked per week, stock prices, money supply
What are coincident indicators:
Change at approximately the same time as economy (Personal income, GDP, industrial production, retail sales)
What are lagging indicators
Change after the economy ( unemployment, inflation, labour costs, prvate sector PPE spending, business loans and interest)
What are the identifiers of a recession?
- Depth, decline must be of substantial depth
- duration, must ast more than a couple months
- Diffusion, decline must be a feature fo the whole economy
What is partipation rate vs unemployment rate
participation rate: represents working-age population inthe labour force (working age = 15+) = (labour force)/ (Working age population) * 100
Unemployment rate = (not working but actively looking)/(labour force) * 100
What are the four types of unemployment
- Cyclical:fluctuations of business cycle
- Seasonal: work in industries that only operate during part of the year
- Frictional: normal labour turnover when poeple enter and leave, will always exist
- Structural: mismatch between jobs and wokers, lack skills do not live in correct location, wage isnt sufficient, will always exisst
What is natural unemployment rate
Minimum level which unemployment does not drop (cyclical and seasonal minimized)
What is CPI
Monitors how the average price of a basket of goods and services purchased by a typical canadian household changes from month to month. helps canculate
inflation = (CPI Current - CPI previous) / (Cpi Previous) * 100
inflation has inverse relationship with unemployment
What are the two causes of inflation
- demand-pull inflation: When supply cannot meet increased demand
- Cost-push inflation: when higher costs of production from higher wages or incrase of raw material prices, businesses increase prices
What is the Phillips curve
When unemployment is high, inflation is low. The curve explains:
- Lower unemployment is achived in short-run by increasing inflation at a faster rate
- Lower inflation is achieved at the cost of increased unemployment and slower economic growth
