MGTA01H3 Lecture Notes - Lecture 5: Hyperinflation, Deflation

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25 Nov 2013
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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
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