Final Exam Flashcards
Great Depression
- 1929-1933
- involved financial bubbles that burst
- high unemployment
- falling living standards
- bankruptcies
- government policy mistakes
- worse than global financial crisis because there were no government programs to help unemployed
Global Financial Crisis
- 2008-2009
- housing bubbles that burst
- failure of banks and financial institutions
- falling asset prices, housing prices and stock market values
Macroeconomics
analyzes performance of the whole Canadian economy and global economy → combined outcomes of all microeconomic choices
Microeconomics
analyzes choices that individuals in households, businesses and governments make and how those choices interact in markets
Fallacy of Composition
what is true for one is not true for all → the whole is greater then the sum of individual parts
Paradox of Thrift
attempts to increase savings because total savings to decreases of falling employment and incomes
3 players in the circular flow market
- households
- businesses
- governments
In input markets…
households are sellers and businesses are buyers
In output markets…
households are buyers and businesses are sellers
Microeconomic focuses on…
interaction of demand and supply in input markets alone or output markets alone
Macroeconomics focuses on…
connections between input and output markets
What are part of macro focus on whole economy?
money, banks and expectations
Says Law
supply creates its own demand
Market Failure
market outcomes are inefficient or inequitable and fail to serve the public interest
Government Failure
government policy fails to serve public interest
“Yes - left alone, markets self adjust - hands off” camp believes:
- macro and micro outcomes are the same
- external events or government policy cause business cycles
- government failure is more likely than market failure
- governments should be hands off
- prices are flexible
- supply creates its own demand
“No - left alone, markets often fail - hands on” camp believes:
- fallacy of composition → macro and micro outcomes are different
- markets cause business cycles through connection failures between input and output markets, roles of money, banking and expectations
- self adjustment will not always maintain stable prices
- market failure is more likely than government failure
- government should be hands on
Politicians in “Yes - left alone, markets self adjust - hands
off” camp (3)
- conservatives
- capitalists
- republicans
Politicians in “No - left alone, markets fail often - hands on”
camp (2)
- liberals
- NDP
Agreements between the two camps:
- business cycle happens even without government failure
- some role for government
- markets eventually adjust, but how long do they take
Key performance outcomes of Canadian economy are:
GDP, unemployment, and inflation;produced by the 5 macroeconomic players - consumers, businesses, government, Bank of Canada and the banking system, and the rest of the world
Good outcomes are:
- higher GDP (gross domestic product)
- lower unemployment
- low/predictable inflation
Consumer choices:
- spend income or save it
- buy Canadian products/services or imports
Business choices:
- investment spending
- hiring workers or not
- buying inputs or not
- buying inputs domestically or importing
- selling outputs domestically or exporting
Investment Spending
business purchases new factories and equipment
