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MacroEconLecture Notes.docx

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University of Guelph
ECON 1100
Eveline Adomait

MacroEconomicsPART 1Chapter 23Comparative Advantage The Basis for ExchangeAbsolute Advantagethe advantage of taking fewer hours to perform a task than another person doesComparative Advantagethe advantage of having a lower opportunity cost of performing a task than another person does for the same taskProductivityunits of output per hour divided by units of input per hourThe Principle of Comparative Advantagetotal output is largest when each person concentrates on the activities for which his or her opportunity cost is lowestAlso covers supply and demand see micro notes for more detailPART 2Chapter 4Macroeconomics The BirdsEye View of the EconomyMacroeconomic Policiesgovernment actions designed to affect the performance of the economy as a whole41 The Major Macroeconomic IssuesStandard of Living SOLThe degree to which people have access to goods and services that make their lives easier healthier safer and more enjoyable People with high SOL consumer more and better goods longer life expectancy and better health as well as higher literacy ratesProductivity Average Labour Productivityoutput per employed worker the more we can producethe more we can consumeRecessions and Expansions Recessionspronounced slowdowns in economic growthDuring recessions economic opportunities decline jobs are harder to find people with jobs are less likely to get wages increased profits are lower and more companies go out of businessDepressionssevere economic slowdowns like the one that began in 1929 The Great DepressionExpansionsperiods of economic growth economies grow quicklyDuring an expansion jobs are easier to find more people get raises and promotions and most businesses thriveBooms strong expansions Unemployment Unemployment ratethe fraction of labour force who are looking for a job but cant find worka key indicator of the state of the labour marketWhen unemployment rate is high work is hard to find and people who do have jobs typically find it harder to get promotions or wage increases InflationThe rate at which prices in general increase over timeWhen inflation rates change sharply it can alter the distribution of income between borrowers and savers discussed more in chapter 6Very high inflation imposes costs on the economy as does negative inflation known as deflation Inflation and unemployment are often linked together due to the argument that unemployment can be reduced only at the cost of higher inflation and that inflation can be reduced only at the cost of high unemployment Economic Interdependence among NationsTrade Imbalances when the quantity of goods and services that a country sells abroad exportsdiffers significantly from the quantity of goods and services its citizens buy from abroad importsTrade Surplusexports that exceed nations imports 42Macroeconomic PolicyTypes of Macroeconomic Policy1Monetary PolicyRefers in normal times to central bank management of interest rates to achieve macroeconomic objectives Central bank is Canada is called theBank of Canada
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