ECON 209 Lecture Notes - Lecture 2: Nominal Interest Rate, Nairu, Canadian Dollar
7 Jun 2018
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2018_01_10: ECON 209
Lecture 2 Chapter 19: What Macroeconomics is All About
I. Most macroeconomic issues are about:
A. Long-run trends (economic growth)
B. Short-run fluctuations (business cycles)
C. Government policy is relevant for both
II. Two streams of research in macroeconomics
A. Based explicitly on micro foundations
B. Based implicitly on micro foundations
III. Model the consumption of the consumer and aggregate
IV. Consumer and firms are there
A. HOWEVER: We don’t explicitly model their behaviour
19.1 Key Macroeconomic Variables
I. Output and Income
A. National product (output) is the most comprehensive measure of the nation’s overall
level of economic activity
B. Production of output generates income
II. National product (amount of product and output produced) by definition should be equal to
the amount of national income generated by the economy
A. National product = National income
III. GDP (National product) found 2 ways:
A. Adding up value of the product produced
B. Adding up the income generated in the economy
C. Numbers are very, very similar
1. Difference between them is measurement error
IV. Output and Income
A. To measure total output in dollars -
add up the values of the many
different goods produced
1. Nominal national income
B. Base-period prices - Real national
income
1. Level of output or income
that the economy generates
in a given year
2. Denoted by Y
C. Difference between nominal and real
is what happens to prices
D. Real GDP
1. The standard when you compare over time (standard: annual)
2. Changing the quantities
3. Keeping the prices constant
a) Choose a base year
b) When you compare different years
(1) You are certain the change has do to quantity (prices were
constant)
E. One of the most commonly used measures of national income is called gross domestic
product (GDP)
1. Real GDP measures quantity of total output produced by nation’s economy over
a period of a year
2. Real GDP fluctuates around a rising trend
3. The trend shows long-run economic growth
4. The short-run fluctuations show the business cycle
Growth and Fluctuations in Real GDP, 1965-2014
Terminology of Business Cycles
V. Potential output: what the economy could produce if all resources were employed at their
normal levels of utilization
A. Often called full-employment output
1. Does not mean that unemployment doesn’t exist
2. Level of unemployment that is considered normal
B. Not the maximum
1. What the economy can produce using resources and factors of production at
normal levels
Document Summary
Lecture 2 chapter 19: what macroeconomics is all about: most macroeconomic issues are about, long-run trends (economic growth, short-run fluctuations (business cycles, government policy is relevant for both. Two streams of research in macroeconomics: based explicitly on micro foundations, based implicitly on micro foundations. Model the consumption of the consumer and aggregate. Consumer and firms are there: however: we don"t explicitly model their behaviour. Output and income: national product (output) is the most comprehensive measure of the nation"s overall, production of output generates income level of economic activity. National product (amount of product and output produced) by definition should be equal to the amount of national income generated by the economy. Gdp (national product) found 2 ways: national product = national income, adding up value of the product produced, adding up the income generated in the economy, numbers are very, very similar, difference between them is measurement error.
