ECON 1BB3 Chapter 14&15: Economics - Chapter 14&15 Notes.docx

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

Recession: a period of declining real incomes and rising unemployment. Fact 1: economic fluctuations are irregular and unpredictable. Real gdp grows rapidly: business is good, firms have nay customers, profits growing. Real gdp falls: businesses have trouble, economic contraction, declining sales and profits. Real gdp measures: value of all final goods/services produced within given period of time, total income of everyone in economy. When real gdp falls, so does: personal income, corporate profits, consumer spending, investment spending, industrial production, retail sales, home sales, auto sales. Real gdp declines: rate of unemployment rises. Firms produce less so need less workers. Perfect capital mobility: real interest rate in canada must increase/decrease with increases/decreases in value of world real interest rate. Classical dichotomy: separation of real variables and nominal variables. Real variables: measure quantities or relative prices. Nominal variables: measure in terms of money. Changes in money supply affect nominal variables not real variables.