ECON 318 Study Guide - Final Guide: Inflation Targeting, Business Cycle, Bank Reserves
23 May 2018
School
Department
Course
Professor
format - 50 MCQ , PICK 4 OF 5 LONG ANSWERS
Key topics for the Exam
Money/Currency
• Monetary policy
• Role of BoC
• BoC vs Federal reserve
• G8 countries banks
• Fiat money
• What does increased debt do
• Credit
• RRSPs
International Trade
• Trade with the US
• NAFTA
• Capital flows
• Terms of Trade
• How value of Canadian dollar affects trade
Business Cycles
• The different phases of business cycle
• Policies based on business cycles
• Inflation related to economic activity
• Role of government (i.e. budget balance) during times of recession and boom.
• Employment fluctuations (cyclical vs structural)
Inflation in Canada
• How does inflation affect spending
• Consumption vs saving
• Inflation and interest
• Target
• Inflation and business cycle relation
• Inflation and foreign trade, CaD value
Environmental protection
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• Firms that produce pollution, are profit maximizing, as such the private
marginal cost is less than the social marginal. They do not regard a clean
environment as a scare resource= Negative externality
• By production at Price=Marginal cost, firms ignore negative externality and
produce too much
• Koyoto protocal -1997 : many countries signed agreement to reduce
emissions
• GHG: gases (including carbon dioxide, methane, nitrous oxide) that are a
negative externality globally, destroying the planet by melting glaciers, loss
of fresh water, reducing crop yields and food supply. Increased storms and
weather volatility.
• How do GHG cause damage? : heat up the earth by traping heat in the
atmosphere (similar to effect of greenhouse for plants). Also put holes in
ozone.
• Measured: GHG/person in Canada
• Amount down to 20.1 tonnes/person compared to 22.1 (30% decrease) since
1990
• GHG= (GHG/ENERGY)x(Energy/GDP)x(GDP) - decreasing gdp is an
unrealistic way to decrease GHG, because country’s populations and
technology advance are growing.
Pollution control policies
1. Direct control= environmental regulation directly imposed on producers. - It
can be inefficient because it requires an equal amount of pollution abatement
from all firms, and some firms have a higher pollution abatement cost than
others (the overall outcome is inefficient b.c total pollution remains
unchanged)
2. Emissions taxes- government imposes tax of t $/unit -A firm will save t $
for each unit of pollution it does not produce, therefore t= firm’s marginal
benefit from pollution abatement - the tax is INTERNALIZED by
company (they pay the entire tax)
3. Tradable Pollution Permit (CAP AND TRADE) : gov issues certain amount
of pollution permits and firms can trade amongst themselves. The benefit is
that the government sets the amount of pollution. Also the lowest cost way
to reduce pollution
Unemployment Fluctuations
• In long run, INCREASE IN L.F are more or less matched by the increase in
employment.
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find more resources at oneclass.com
• In the short run, the unemployment rate fluctuates because labour force is not exactly
matched.
• On the supply side, LF has grown virtually every year since WW2
• On the demand side, many jobs are eliminated every year and many new jobs are created
- most years; enough jobs created to offset jobs losts; results in a net increase in
employment most years.
• During periods of rapid economic growth, unemployment rate falls.
• Recession- U.E rise
In MARKET CLEARING THEORY : RGDP=Y* ; only unemployment is frictional and
structural
Flows in Labour Market
• 2014-2015: U.E rate was almost constant @ 6% - that doesn’t mean no jobs were created
during this time; roughly 500 000-600 000 workers found jobs/month, at the same time
other workers left LF.
• Flows into and out of unemployment are better indicators of the labour market
activity rather than rate
Measurement issue: official data UNDERSTATES full effects of 1) discouraged workers & 2)
underemployed workers
The two costs of Unemployment = Loss of Output & personal costs
Unemployment Fluctuations
Market clearing theories explain fluctuations in employment and real wages as
having 1 of the 2 causes;
• 1 changes in tech that affect the marginal product of labour will lead to
changes in demand for labour
• 2 changes in the willingness of individuals to work will lead to changes in
the supply of labour
• In both cases, the flexibility of real wages results in clearing of labour
market
• Whatever unemployment exists must be caused by frictional or structural
• What determines NAIRU?
• 1) Frictional unemployment is unemployment that results from the
turnover in the labour market as workers move b.t jobs
• The normal turnover of labour causes frictional unemployment to persist,
even if the economy is @ potential output
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Format - 50 mcq , pick 4 of 5 long answers. Money/currency: monetary policy, role of boc, boc vs federal reserve, g8 countries banks, fiat money, what does increased debt do, credit, rrsps. International trade: trade with the us, nafta, capital flows, terms of trade, how value of canadian dollar affects trade. Business cycles: the different phases of business cycle, policies based on business cycles, role of government (i. e. budget balance) during times of recession and boom, employment fluctuations (cyclical vs structural) Inflation and interest: how does inflation affect spending, consumption vs saving, target. Environmental protection: firms that produce pollution, are profit maximizing, as such the private marginal cost is less than the social marginal. : heat up the earth by traping heat in the atmosphere (similar to effect of greenhouse for plants). Also put holes in ozone: measured: ghg/person in canada, amount down to 20. 1 tonnes/person compared to 22. 1 (30% decrease) since.
