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Lecture 5

MGTA01 Lecture 5- Oct 7.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Lecture 5 - Oct 7, 2013 Measuring Economic Performance Review Purpose of an economic system:  Assemble / organise factors  Make things that people want  So everyone is happy GDP: It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year- to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year. Inflation- Inflation makes everyone poorer Prices go up – but goods are the same People can afford to buy less. Hurts people on fixed incomes (pensioners)-> Old people. Hurts lenders How it happens:  Definition of inflation by Prof’s friend Jack:  Government prints too much money; especially if you print out money at a faster rate than the economy grows  They made a decision to print lots of money in US.  Interest rates are supposed to fall when you print lots of dollar bills. Hyper Inflation:  Money slowly loses its value  Hyper-inflation: when money has no real value  You can’t take the hyper inflation GDP year to year of a country at face value  Why might people pay extra money for a bicycle? Better looks, better functionality, and mainly, better marketing. Inflating in Canada: Typically, 2% - 3% per year “Nominal” vs “Real” GDP “Nominal” GDP is the value of GDP, simply as it is measured. e.g. Value of red bicycles produced 2009 = 1,000,000 bicycles x $100 each = $100,000,000 Value of red bicycles produced 2010 = 1,000,000 bicycles x $120 each = $120,000,000 What if bicycles made in 2010 are not any faster or better? What if price change (from $100 to $120) is result of inflation? Q. Is the economy really bigger? A. No. Same number of bicycles made “Real” GDP “Nominal” value is = $120,000,000 “Real” volume of production is same “Real” value of production = $120,000,000 = $100,000,000 1.20 “Real” GDP discounts inflation  Fiscal defi
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