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[ECON-1007EL] - Midterm Exam Guide - Everything you need to know! (18 pages long)


Department
Economics / Science Èconomique
Course Code
ECON-1007EL
Professor
Mac Lean Brian
Study Guide
Midterm

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Laurentian
ECON-1007EL
MIDTERM EXAM
STUDY GUIDE

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Macroecooics:
The Birds-Eye View of the Ecooy
The Major Macroeconomic Issues
ECONOMIC GROWTH AND LIVING STANDARDS
Although wealthy industrialized countries are not free from poverty, hunger, and homelessness… The typical
person in those countries enjoys a standard of living better than at any previous time or place in history
Standard of Living refers to the degree to which people have access to goods and services that make their lives
easier, healthier, safer, and more enjoyable
Those with a higher standard of living enjoy more and better consumer goods, benefit from a longer life
expectancy and better general health, higher literacy rates, more time and opportunity for culture
enrichment and recreation, more interesting & fulfilling career options, and better working conditions
The current standard of living in Canada is the result of sustained economic growth through several generations,
a long upward trend in the quality of the goods and services the economy can produce, and policies to ensure
that the gins from growth have been shared
Output-per-Person is a better indicator of the average living standard than total output
PRODUCTIVITY
Average Labour Productivity - output per employed worker
Average labour productivity and output per person are closely related. The more we can produce, the
more we can consume!
The typical household is more likely to experience better wages and living conditions when average labour
productivity is rising
Due to the close link to the average living standard, average labour productivity and the factors that
cause it to increase over time are of major concern for macroeconomists
RECESSIONS AND EXPANSIONS
Recessions pronounced slowdowns in economic growth
Economic opportunities decline
Jobs are harder to find, and people with jobs are less likely to get wage increases
Profits are lower
More companies go out of business
Depressions extraordinarily severe economic slowdowns
Expansions periods of quick economic growth
Jobs are easier to find, and more people get raises and promotions
Businesses thrive
Booms particularly strong expansions
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UNEMPLOYMENT
The unemployment rate is the fraction of the labour force who are looking for a job but can’t find work
This rate is a key indicator of the state of the labour market
When the unemployment rate is high, work is hard to find and people who do have jobs typically find it
harder to get promotions or raise increases
INFLATION
Inflation is the rate at which prices in general increase over time
When the inflation rate changes very sharply, it can alter the distribution of income between borrowers
and savers
Very high inflation imposes costs on the economy, as does negative inflation (deflation)
Inflation and unemployment are often linked together in policy discussions
One reason for this is the oft-heard of argument that unemployment can be reduced only at the cost of higher
inflation, and that inflation can be reduced only at the cost of higher unemployment
Another impact of inflation is that interest rates tend to be higher in periods of high inflation
ECONOMIC INTERDEPENDENCE AMONG NATIONS
National economies do not exist in isolation but are increasingly interdependent
Trade Imbalances occur when the quantity of goods and services that a country sells abroad (its exports)
differs significantly from the quantity of goods and services its citizens by from abroad (its imports)
Recently, Canadian exports have typically outstripped imports, creating a trade surplus
On the other hand, a trade deficit occurred in the 1990’s
Trade Balance: X M = NX (Exports Imports = Net Exports)
X M > 0 = Trade Surplus
X M < 0 = Trade Deficit
Current Account Deficits borrowing from the rest of the world
The value of income going out of Canada (those with businesses and investments in Canada) is
GREATER than the money coming into Canada from those who have properties & assets outside of the
country
Macroeconomic Policy
TYPES OF MACROECONOMIC POLICY
Macroeconomic Policies government actions designed to affect the performance of the economy of a whole
The 3 major types of macroeconomic policy are:
1. Monetary Policy
Monetary Policy in NORMAL times, refers to central bank management of interest rates to achieve
macroeconomic objectives
The changes in interest rates affect other important economic variables; including the value of the dollar,
national output, employment, and inflation
Monetary policy is controlled by the Bank of Canada
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