Chapter 5 Flashcards
The 3 Major Macroeconomic goals in Canada
Employment, Price-level stability, Economic Growth
Employment
Maintaining employment of human resources at relatively high levels (keep employment up)
Price-level stability
Keeping prices at relatively stable level so that economic agents can make better decisions.
Economic growth
achieving a high rate of growth in real output over time to improve living standards.
Real gross domestic product (RGDP)
- Measures the total value of all final goods and services produced in a given time period, (year/quarter) adjusted for inflation.
- Used to measure the level of output or production in the entire economy
Labour force
someone who is 15+ and willing to work
Unemployment Rate
The percentage of people in the labour force who are unemployed
Unemployment statistics do not account for:
- discouraged workers: individuals who left the labour force because they could not find a job
- Part-time workers counted as fully employed
- underground/illegal workers are not counted in statistics
Long term unemployment
(>13 weeks) accounts for 40-50% of total unemployment
Labour force participation rate
percentage of population (15+) in the labour force.
Frictional Unemployment
the temporary unemployment that results from workers searching for suitable jobs and firms looking for suitable workers. (From normal turnover, or while in between changing jobs)
Structural Unemployment
unemployment due to lack of skills necessary for available jobs.
- Reflects the dynamic dimension of a changing economy.
- Unavoidable because of imperfections in the labour market.
- Government training programs help reduce this
Cyclical unemployment
Unemployment due to short-term cyclical fluctuations in the economy
- Occurs during recession due to inadequate demand
- Viewed as correctable through government policies.
- High economic and personal cost
Natural rate of unemployment
The amount of unemployment that is unavoidable, equal to sum of frictional and structural unemployment when they are at a maximum.
- It exists when the economy is
neither in a recession nor a boom - Around 6-7% in Canada
Potential output
The amount of real output the economy would produce if all of its labour and other resources were fully employed. (Employed all who are willing to work)
Employment Insurance
allows workers to maintain some income and spending, reducing hardship and severity of unemployment.
- Leads to more frictional unemployment.
- Eliminating it could reduce unemployment.
- Could reduce or enhance well-being if removed
Price level
The average level of prices in the economy
Inflation
a continuous rise in the overall price level
- Consumers and producers have difficulty coordinating their plans and decisions without price stability.
Deflation
a decrease in the overall price level
Consumer Price Index (CPI)
a measure of the prices of a basket of consumer goods and services, used asa standard measure of inflation
Anticipated Inflation
Inflation rate that people expect
- Does not cause a problem because people see it coming and can prepare
Winners and Losers during inflation
- Inflation lowers income for people on fixed-dollar incomes (working class)
- Erodes real wealth of the creditor
- Hurts people whose income are tied to long term contracts
- Debtors pay back dollars worth LESS in purchasing power
Nominal interest rate
The reported interest rate, not adjusted for inflation.
Real interest rate
Nominal interest rate, minus inflation rate (also called the inflation-adjusted rate)
