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ECO202Y - Lecture 1.pdf

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University of Toronto St. George
Masoud Anjomshoa

ECO202Y - Lecture 1▯ ▯ ▯ ✤ Macroeconomics is the study of economics at the national level▯ ✤ Macroeconomics = aggregate economic activity, what is happening to the change of prices in the aggregate economy▯ ✤ Macro is the study of the structure of the economy - how things are actually interrelated with one another, the dynamic adjustments of the economy**▯ ✤ Dynamic adjustments - how does the economy move from equilibrium position to another, what are the economic forces that are causing that movement to take place?▯ ✤ Macro - performance of the economy - good or bad? Government policies related to how that national economic performance is unfolding - kinds of government policies▯ ✤ Endogenous variables - dependent variables - this what the model is going to try to explain▯ ✤ Exogenous variables - independent variables - explanatory variables▯ ✤ Exogenous variables explain endogenous variables▯ ✤ We also have constants and parameters - the coefficients that are in the equation (not variables!)▯ ✤ If you cannot get any data on your exogenous variable, you need to eliminate it▯ ✤ In Macro, there are three very important variables: GDP (or aggregate economic activity), unemployment, and inflation▯ ✤ Real GDP = measure of the quantity of production taking place in the economy▯ ✤ Real GDP fluctuates around its long term trend - the fluctuations are called business cycles▯ ✤ When the economy is growing = expansion▯ ✤ When the economy is shrinking = contraction▯ ✤ Unemployment rate = % of the labour force who is out of work and is actively seeking to find work▯ ✤ Recession = unemployment rate increases▯ ✤ Expansion = unemployment rate decreases (but it decreases at a much lower rate than it increased)▯ ✤ Inflation = measure of how rapidly is the overall price changing▯ ✤ Two things are related to infation = deflation & hyperinflation▯ ✤ Deflation = when prices are dropping (deflation is not a good thing)▯ Hyperinflation = when prices are rising very rapidly (about 50% per month)▯ ✤ ✤ Our models should be able to explain the three important variables▯ ✤ Macroeconomic policies = use the economic models that we develop to try to use government policies to help to produce better economic outcomes▯ ✤ When we think about macroeconomic pol
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