Study Guides (238,085)
Canada (114,909)
Economics (352)
ECN 204 (104)

ECN 204 - Midterm Notes.docx

49 Pages
Unlock Document

Ryerson University
ECN 204
Thomas Barbiero

ECN 204Introduction to Macroeconomics Before MidtermsChapter 4 Introduction to MacroeconomicsSection 41 Assessing the Health of the Economy Performance and Policy Definitions Inflation 1 A continual rise in the general level of prices in an economy 2 An increase in the overall price level Nominal GDP 1 GDP measured in terms of the price level at the time of measurement unadjusted for inflation 2 The dollar value of all goods and services produced within the borders of a given country using the countrys current prices during the year the goods and services were produced Real GDP Real Gross Domestic Product1 The value of final goods and services produced within the borders of a given country during a given time period typically a year 2 Nominal GDP adjusted for inflation UnemploymentA failure of the economy to employ its labour force fully NotesWhen assessing the health and development of an economy macroeconomists focus on o Real GDPThis statistic is very useful because it can tell us whether an economys output is growingEx if Canadas GDP in one year is larger than the previous year we know that Canadas output increased from the first year to the nextTo determine real GDP nominal GDP must first be calculatedSince nominal GDP uses the prices in the year that the output was produced it suffers from a major problem it can increase from one year to the next even if no increase in output has occurredTherefore because of this problem Real GDP eliminates these kinds of price changes So if we compare using the Real GDP numbers from one year to the next we can really know if there has been a change in output o UnemploymentOccurs when a person cannot get a job despite being willing to work and actively seeking workHigh unemployment ratenation is not using a large portion of its most important resource o InflationCan cause decreases in the standard of livingSurprise jump in inflation reduces the purchasing power of peoples savingsMacroeconomic models also clarify many important questions about the powers and limits of government economic policy including the following o Can governments promote longrun economic growth o Can governments reduce the severity of recessions by smoothing out shortrun fluctuations o Are certain government policy tools more effective at mitigating shortrun fluctuations than other government policy tools eg monetary policy versus fiscal policy o Is there a tradeoff between lower rates of unemployment and higher rates of inflation o Does government policy work best when it is announced in advance or when it is a surpriseAnswers to these questions are very important because of the differences in economic performance seen across various economies at different timesSection 42 The Miracle of Modern Economic Growth Definitions Modern Economic GrowthThe historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita NotesModern economic growth refers to an increase in output per person as compared with earlier times in which output but not output per person increasedThe vast differences in living standards seen today between rich and poor countries are almost entirely the result of the fact that only some countries have experienced modern economic growthSection 43 Saving Investment and Modern Economic Growth Definitions Economic Investment 1 Paying for new additions to the nations capital stock or for new replacements for capital stock that has worn out 2 Spending for the production and accumulation of capital and additions to inventories Financial InvestmentPurchasing financial assets stocks bonds mutual funds or real assets houses land factories or constructing such assets in the expectation of financial gain InvestmentSpending for the production and accumulation of capital and additions to inventories SavingThe accumulation of funds that results when people in an economy spend consume less than their incomes during a given time period NotesTo raise living standards over time an economy must devote at least some fraction of its current output to increasing future output o Requires both flows of saving and investmentSaving occurs when current consumption is less than current outputInvestment occurs when resources are devoted to increasing future output the amount of investment is ultimately limited by the amount of saving Banks and Other Financial Institutions o Households are the principal source of savings but businesses are the main economic investors o These institutions collect the savings of households rewarding savers with interest and dividends and sometimes capital gains increases in asset values o The banks and other financial institutions then lend the funds to businesses which invest in equipment factories and other capital goodsSection 44 Uncertainty Expectations Shocks and ShortRun Fluctuations Definitions Demand ShocksSudden unexpected changes in demand ExpectationsThe anticipations of consumers firms and others about future economic conditions Flexible PricesProduct prices that react within seconds to changes in supply and demand Inflexible pricesor sticky pricesProduct prices that remain in place at least for a while even though supply or demand has changed also called sticky prices InventoryGoods that have been produced but remain unsold Long Run 1 In microeconomics a period of time long enough to enable producers of a product to change the quantities of all the resources they employ period in which all resources and costs are variable and no resources or costs are fixed 2 In macroeconomics a period sufficiently long for nominal wages and other input prices to changes in response to a change in the nations price level Price LevelThe weighted average of the prices of all the final goods and services produced in an economy ShocksSituations in which one thing is expected to occur but in reality something different occurs Short Run 1 In macroeconomics a period in which nominal wages and other input prices do not change in response to a change in the price level 2 In microeconomics a period of time in which producers are able to change the quantity of some but not all of the resources they employ a period in which some resources usually plant are fixed and some are variable
More Less

Related notes for ECN 204

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.