ECON 2G03 Chapter Notes -Nominal Interest Rate, Real Interest Rate, Gdp Deflator
2 Dec 2013
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Document Summary
Real gdp: measures the total income of everyone in the economy. Inflation rate: measures how quickly prices are rising. Unemployment rate: measures the fraction of labour force that is out of work. Recessions and depressions are associated with unusually high unemployment. Endogenous variables: variables that a model tries to explain. Exogenous variables: model takes as a given. Purpose of a model is to show how the exogenous variables affect the endogenous. Exogenous variables come from outside the model and serve as the model"s input, whereas endogenous variables are determined inside the model and are the model"s output. Changes in aggregate income or in the price of materials affect price and quantity in the market. Market clearing: price of any good or service is found where the supply and demand curves intersect. Market clearing model assumes that all wages and prices are flexible, but in reality prices and wages are sticky. Over short periods, many prices are fixed at predetermined levels.
