ECO209Y1 Lecture Notes - Lecture 1: Potential Output, Capital Account, Floating Exchange Rate
Document Summary
A country"s balance of payments with the rest of the world. Where p is the current price, p-1 is the price level at the end of the previous period. Inflation is the percent increase in the level of prices during a given period. 1974: trudeau freezes wages and prices to control inflation. As soon as constraints are removed, prices increase. 1982: boc causes recession by increasing interest rate. 1991: boc governor decides 0% inflation is only good rate. If demand increases, prices don"t immediately change, but output increases. Hiring additional labor does not increase cost of each additional unit of production, low inflation. If unemployment is low, wages must increase to hire more workers. Prices increase due to increases in input price. Wages aren"t increasing in present, because if production is too expensive domestically, companies will move overseas (to mexico, china) The fraction of the labor force that cannot find a job u = (lf - n) / lf.
