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Lecture 1

ECN204 Lecture 1: An Introduction to Macroeconomics


Department
Economics
Course Code
ECN 204
Professor
Eric Kam
Lecture
1

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ECN204Lecture1AnIntroductiontoMacroeconomics
AssessingtheHealthoftheEconomy:PerformanceandPolicy
● Inassessingthehealthanddevelopmentofaneconomy,macroeconomistsfocuson
○ RealGDP
■ Measuresthevalueoffinalgoodsandservicesproducedwithinthe
bordersofagivencountryduringagiventimeperiod,typicallyayear
■ NominalGDPmustfirstbecalculatedinordertocalculaterealGDP
○ Unemployment
■ Afailureoftheeconomytofullyemployitslabourforce
■ Occurswhenapersoncannotgetajobdespitebeingwillingtoworkand
activelyseekingwork
○ Inflation
■ Anincreaseintheoveralllevelofprices
■ Cancausedecreasesinstandardofliving
■ Surprisejumpininflationreducesthepurchasingpowerofpeople's
savings
● Macroeconomicsmodelshelpclarifygovernmenteconomicpolicies
○ Cangovernmentspromotelongruneconomicgrowth
○ Cangovernmentsreducetheseverityofrecessions
○ Arecertaingovernmentpolicytools,moreeffectivethanothers
○ Isthereatradeoffbetweenlowerratesofunemploymentandhigherratesof
inflation
○ Doesgovernmentpolicyworkbestwhenitisannouncedinadvanceorwhenitis
asurprise

TheMiracleofModernEconomicsGrowth
● Moderneconomicgrowthreferstoanincreaseinoutputperpersonascomparedwith
earliertimesinwhichoutputincreased
● Thevastdifferencesinlivingstandardsseentodaybetweenrichandpoorcountriesare
almostentirelytheresultofthefactthatonlysomecountrieshaveexperiencedmodern
economicgrowth

Savings,Investment,andModernEconomicsGrowth
● Toraiselivingstandardsovertimeaneconomymustdevoteatleastsomefractionofits
currentoutputtoincreasingfutureoutput
● Savings
○ Theaccumulationoffundsthatresultswhenpeopleinaneconomyspendless
thantheirincomesduringagiventimeperiod
● Investment
○ Referstospendingfortheproductionandaccumulationofcapitalandadditions
toinventories
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