Final Review Flashcards
①
②
③
④
⑤
⑥
↑ ↗ ← →
↓ ↘ ⇐ ⇒ ⇔
≥ ≈ ≤ △ ∑ ≠ ±
The Number of Times
a unit of Currency is used
is known as ___
& calculation
Velocity of Money
velocity of circulation
. Flow of Income (GDP)
Vₘ = ———————————-
. Stock of Money (Supply)
Relations of
GDP→ NDP→ NNP→
Personal Y→ Disposable Y
GDP
-) depreciation
-) indirect taxes
= NDP
+/-) foreign factor Y
= NNP
+) Gov TP
-) undistributed corp π
-) corp π taxes
-) other Y not paid out
= Personal Income
-) income taxes
= Disposable Income
5 Source Categories
of GDI
Gross Domestic Income
1) Compensation of EE
wages+tips+benefits
2) Gross Operating Surplus
corp. gross profits
3) Gross Mixed Income
non-corp. gross profits
4) Taxes (net of subsidies) on Prod
property tax
5) Indirect Taxes (net of subsidies)
sales tax
4 Major Sources
of Long-term Economic Growth
& LAS
- Qty/Qlty of Labour Productivity (Human Capital)
- Physical Capital
- Tech change %
- Natural Resources
Structure of
Labour vs
Working-Age vs
Population
Population
= Working-Age + Non W/A
Working-Age Population
= Labour Force + Non L/A
Labour Force
= Employed+Unemployed
Working-Age Population
is people EXCLUDING
- < 15 yrs of age
- 3 Territories & Aboriginal residents
- Penal/ Mental/ Hospital residents
- Armed Forces
4 groups who are
Non Labour Force
in working-age population
- Retired
- Financially independent
- Discouraged Worker
- Chose to be (housemaker)
Definition of
1) Employed
2) Unemployed (calc.)
1.a In Labour Force
1.b Paid
2.a In Labour Force
2.b Not Paid
2.c Seeking jobs actively
. Unemployed
Unemp rate =——————–
. Labour Force
Labour Force Participation Rate =
. Labour Force
= ———————-
. Working-Age Pop.
. Emp + Unemp
= ———————-
. Working-Age Pop.
Unemployment Type
- Time matching Ppl & Jobs
- Searching for Right Job
- Result of EI benefit
- Student graduated
- Homemakers enter market
Frictional Unemployment
Unemployment Type
- Long-term Frictional Unemp
- Spinoff of new/old industries
- Retrain/Move ppl to work
- Seasonal Unemp (e.g. winter only jobs)
- Rood cause: Taste/Tech Changed
Structural Unemployment
2 Conditions each
of reported
Unemp Rates
Under- / Over-Stated
Understated because
1) Part-timers = Full-timers
2) Excl. Discouraged Workers
Overstated because
1) False info of EI recipient
2) False info of underground economy
Costs of Unemployment
& calculation
G/S Produced < Potential
GDP gap =
potential GDP - actual GDP (R/N)
= 2.5 x Cyclical Unemp %
x actual GDP (R/N)
Okun’s Law
An Index excl.
$ fluctuating wildly items,
gives better indication of long-term inflation rates
Core CPI
excl. fruit/ vege/ oil/ tobacco/ mortgage
2 Measures of Inflation
1) CPI
Explicit index
Bundle of (constant) consumer G/S for fam-of-4 prices collected/mon
for consumer incl. IMPORTs
Excl Capital & Gov exp.
2) GDP Deflator
Implicit index
Domestic G/S prod incl. goods of capital/ export/ consumer & gov srv.
No Imports
Bundle may change yearly
Stat Canada uses
Formula to measure
Price or Income
of the Past
. Nom.Value₂
RealValue₁ =—————– x CPI₁
. CPI₂
CPI₁ = CPI @base yr or yr 1
RealValue₁ : item value if in yr 1
Relationship btw
△% Nom. Income
△% Real Income
Inflation Rate
△% Nom. Y =
△% Real Y + Inflation Rate
2 Costs of Inflation
1) Redistributive costs
a. $$ from weak → rich
b. $$ from lender → borrower
2) Output costs
due to uncertainty
- Invest ↓
- Menu costs ↑
- Export ↓ (Import ↑)
⇒ GDP ↓ & Job ↓
2 Types / Causes of
Inflation
1) Demand-Pull
Total demand/spending
exceeds capacity to prod
2) Cost-Push
Per-unit prod costs ↑
a. Wage-push
boss ↑ $ for EE are well-paid
b. Profit-push
industry too strong
c. Import-push
OPEC
Generally when
Inflation ↑ or ↓ ⇒
Unemployment __ or __
Unemployment ↓ or ↑
counter-cyclical fiscal policy
3 Reasons why
AD Crv is
Downward Sloping
1) Real Balance effect
$↑⇒ ppl spend (C) ↓
2) Interest Rate effect
$↑(inflation)⇒ int rate↑⇒ Invest↓
3) Foreign-Trade effect
$↑⇒ export ↓
When Macro-Equilibrium occurs @ LAS, the economy is at ___
when occurs
< LAS = ___
> LAS = ___
Full Employment Equilibrium
Recessionary Gap
2 consec. qtr=RECESSION
Inflationary Gap
output level>Potential GDP
2 Schools of Thoughts
about
whether economy
self-adjust to
economic gap
1) Neoclassical LAS only
a. Economy ADJUSTS the GAP
b. Market is competitive/ efficient
c. $ & Wages adjust rapidly
to surplus/ shortage
∴ Economy always
@Full Employment
2) Keynesian AS –
a. GAP occurs often & lasts long
b. Market is NOT Competitive
∵ Corp. & Unions powers
c. $ & Wages Sticky
∴ Gov Intervention is required
for Full Employment
An Inflationary Gap
is closed by
__ Nom. Wage
& __ Price Level
⇒ __ Real GDP
Nom. Wage ↑
Price Level ↑
⇒ Real GDP ↓
Stagflation is caused by
___ + ___
Recession with
↑Inflation + ↑Unemployment
The Income @which
has Equal Value of
Production &
Aggr. Expenditures
Expenditure Equilibrium
Y = AE
Injections = Leakages
I+G+X=T+Im+S
nm
No Unplanned Investment
Relations btw
MPE
MPC
MPM
MPE = MPC - MPM
∵ Consumption incl. Import
& GDP excl. Import
$1 Increase in
Autonomous Spending
leads to
more than $1 Increase
in Income & AE
& formula
Multiplier
. ∆ Income
Multiplier = ——————
. ∆Auto. Expenditures
. 1 1
= —— = ———
. MLR (1-MPE)
When using Fixed X Rates
DD of currency ↑
⇒ Currency value ___(shortage/surplus)
so it’s ___-valued (over/under)
Shortage
Under-valued
⇒ Export↑
⇒ Money supply↑
⇒ Inflation
⇒ Price level↑ ⇒ Export↓
When using Fixed X Rates
DD of currency ↓
⇒ Currency value ___
(shortage/surplus)
so it’s ___-valued (over/under)
Surplus
Over-valued
⇒ Export↓
⇒ Foreign Reserves↓
⇒ Recession
⇒ Price level↓ ⇒ Export↑
3 Subcategories of
Balance of Payments
1) Current Acct
Exports & Imports
Income/Expenditure
2) Capital Acct
∆ in Ownership of Assets
direct/portfolio inv.
3) Official Settlement Acct
∆ in Foreign X Reserves
= central bank gain/loss foreign currency
Status that Bank of Canada
provides Foreign Reserves
⇒ Outflow of Foreign Reserves
when CAD$ is less demanded by foreign
Balance of Pmts Deficit
Status that Bank of Canada
gains Foreign Reserves
in exchange for CAD$
⇒ Inflow of Foreign Reserves
when CAD$ is more demanded by foreign
Balance of Pmts Surplus
3 Schools of
Fiscal Policy
① Countercyclical FP
Keynes：Gov救市
G↑ T↓ in Recession
G↓ T↑ in Inflation
⇒ AD → LAS
② Balanced-Budget FP
Gov：有$多花，沒$少花
Automatic Stabilizer: like ①
Self-Adjustment ⇒ AS → LAS
∵ wage↑ in Inflation
& wage↓ in Recession
③ Cyclical Balanced Budget FP
Balance budget over Biz Cycle
⇒Accept Cyclical Deficit/Surplus
Avoid Structural Deficit/Surplus
When Removing Tariff
Currency Value ↑/↓ ?
Total Value of Trade ↑/↓ ?
& why?
Removing Tariff
⇒ $↓ ⇒ DD for Import ↑
⇒ Supp of Domestic $$ ↑
⇒ Domestic $$ Value ↓
⇒ Export ↑
⇒ Total Value of Trade ↑
(import & export ↑)
△Balance Sheet
When Loan is issued &
Cheque is deposited/cleared
@Same Bank or
Another Bank
⇒ All Banking System
When Cheque is deposited@
Same Bank
Reserves N/E| Deposits ↑
Loan ↑
Another Bank
Reserves ↑| Deposits ↑
while original bank
res. ↓| Deposits N/E (↑ then↓)
loan ↑
⇒All System
Res. N/E| Dep. ↑xmultiplier
Loan ↑xmultiplier
2 Reasons/Demands
that ppl Hold Money
①Transactions DD for $$
$$ as medium of X
GDP↑(income↑CPI↑)⇒DD↑
autonomous
②Asset DD for $$
$$ as store of wealth
a. rainy day needs
b. buy big-ticket when low int. rate
Inversely Related to Int. Rate
Keynes: Motives of
Speculative & Precautionary
In OMO open market ops
Gov buy bonds to __ Int Rate
& sell bonds to __ Int Rate
Gov buy bonds to ↓ Int Rate
($$ supp→ market)
& sell bonds to ↑ Int Rate
(bond’s int rate↓
∵no need to attact $$;
bond’s int rate↑
∵need to attact $$)
How Expansionary/Contractionary Monetary Policy transmit $$ in Economy & Result
Gov ↑$$ Supp by buying bonds
⇒ int rate↓ ⇒ C/I ↑
& X rate ↓⇒Xn↑
⇒ GDP/CPI ↑ (Exp MP)
———
Gov ↓$$ Supp by selling bonds
⇒ int rate↑ ⇒ C/I ↓
& X rate ↑⇒Xn↓
⇒ GDP/CPI ↓ (Con MP)
2 Schools of Views to
Firm’s Sensitivity to △Int Rate
⇒Impact on Economy/GDP
Firm is __ to Int Rate
Monetarist: Sensitive (flat)
Keynes: Insensitive (steep)
⇒Impact on Economy/GDP
Monetarist: BIG
Keynes: small
2 Schools of Views to
Ppl’s Sensitivity to △$$ Supp
Ppl are __ to $$ Supp
Monetarist: Insensitive (steep)
Keynes: Sensitive (flat)
