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Lecture 7

Lecture 7: Canadian Inflation, Unemployment and the Business Cycle

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York University
ECON 1010
Xueda Song

Lecture Seven Canadian Inflation Unemployment and the Business CycleMarch 6 2012Background InformationThe 1920s were years of unprecedented prosperityIn October 1929 this changed when the stock market crashedStock prices fell by 30 overnightThe Great DepressionBy 1933 real GDP had fallen by 30The price level had fallen by 20One person in five were unemployedThe 1990s and the 2000s were also years of unprecedented prosperityIn October 2008 stock prices fell real GDP growth and inflation slowedUnemployment rate began to risePeople began to question whether or not we were heading towards another Great DepressionInflation CyclesIn the long run inflation occurs if the quantity of money grows faster than potential GDPIn the short run many factors can start and inflation and real GDP and the price level interactTo study these interactions we distinguish two sources of inflationDemandPull InflationCostPush InflationDemandPull InflationAn inflation that starts because aggregate demand increases is called demandpull inflationDemandpull inflation can begin with any factor that increases aggregate demandExamples of this type of inflation areCut in the interest rateIncrease in the quantity of moneyIncrease in government expenditure
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