Economics Part 2

Question 1

How do we measure how the economy is doing

Answer 1

Economics indicators

Question 2

Name the 9 economics indicators

Answer 2

GPD annual growth rate
GDP per capita
Unemployment or employment rate
Consumer price index (inflation)
Balance of trade (exports - imports)
Industrial production
Retail sales
Exchange rate for CAD
Consumer/business confidence

Question 3

Gross domestic product (GDP)
Definition

Answer 3

A broad measurement of a nation’s overall economic activity – the godfather of the indicator world!
Defined as the monetary value of all the finished goods and services produced within a country’s borders in a specific time period

Question 4

GDP formula

Answer 4

GDP = C + G + I + NX
C = consumer spending on goods and services
G = government spending
I = capital expenditures by businesses for property, equipment, etc.
NX = exports less imports

Question 5

Business cycle and its four phases

Answer 5

The business cycle is the periodic but irregular pattern of ups and downs in total economic production

1. Expansion : pace of economic activity speeds up
2. Peak : economic activity hits its high
3. Contraction : pace of economic activity slows down
4. Through : economic activity hits bottom

Question 6

Recession

Answer 6

two quarters of GDP decline: A recession is defined as two or more consecutive quarters (a quarter is three months) of decline in the GDP

Question 7

Depression

Answer 7

severe, long-lasting recession: A depression is defined as a particularly severe and long-lasting recession, accompanied by falling prices (deflation).

Question 8

Interest rate

Answer 8

The additional amount charged by a lender to a borrower for a loan. It is a percentage of the total amount borrowed.
The interest rate affects the cost of borrowing money for businesses and consumers. This affects consumer purchases and businesses’ ability to make investments in their firm. The government controls interest rates more carefully than in the past.

Question 9

Inflation rate

Answer 9

A high inflation rate means that prices are increasing more rapidly and purchasing power usually decreases, unless salaries keep up.

Question 10

Exchange rate

Answer 10

A weaker Canadian dollar makes it easier for Canadian manufacturers to export products
The federal reserve determines the currency value of a country
+ influenced by interest rates, inflation rate, balance of trade, etc

Question 11

Government’s role in managing the economy

Answer 11

– Fiscal policy (income, sales, and other taxes as well as government spending)
– Monetary policy (interest rates and money supply)