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ECON102 Study Guide - Final Guide: Economic Indicator, Comparative Advantage, WagePremium


Department
Economics
Course Code
ECON102
Professor
All
Study Guide
Final

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University of Alberta
ECON 102
Introduction to Macroeconomics
Winter 2018
Final Exam
Prof: Mesbah Sharaf
Exam Guide

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Table of Contents:
Key Terms ........................................................................................................................................ 2
Chapter 5: Introduction to Macroeconomics ............................................................................. 2
Chapter 6: Measuring Economic Performance ........................................................................... 4
Chapter 7: Economic Growth ...................................................................................................... 6
Chapter 8: Aggregate Demand ................................................................................................... 7
Chapter 9: Aggregate Supply and Macroeconomic Equilibrium ................................................ 9
Chapter 10: Fiscal Policy ........................................................................................................... 11
Chapter 11: Money and Banking System .................................................................................. 13
Chapter 12: Bank of Canada ..................................................................................................... 14
Chapter 13: Monetary Policy .................................................................................................... 15
Chapter 15: International Finance ............................................................................................ 16
Key Terms
Microeconomics: studies the behavior of each individual economic unit, studies the
demand of one consumer and producer
Macroeconomics: studies behavior of the whole economy (aggregates totals). We
study aggregate supply and demand.
Chapter 5: Introduction to Macroeconomics
Cost of unemployment: poverty, crime, low level of consumption
Participation rate: amount participating in the labor force (anyone of working age
looking for a job) over all the people
Employment rate: employed number of people over the number of people in the labor
force
Unemployment rate: number of unemployed people over number of people in the
labor force
Frictional unemployment: people who just graduated and are looking for a job
Natural rate of unemployment: structural and frictional unemployment combined
(always present)
Underground economy: people who do not
report their activities to the government
Discouraged workers: not counted as
unemployed; they are out of the labor force
Underemployed worker: people who are
overqualified for their jobs
Business cycles: are the short term
fluctuations in the level of economic activities
or the actual output fluctuates around the
potential output (YNR)
Stages of business cycle:

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Peakhighest point of a cycle where output (GDP & employment)
reaches its’ maximum and then stops rising and falls afterwards
Trough minimum point of a cycle where output (GDP & employment)
reaches its’ minimum, stops falling, and rises afterwards
Contractiondrop in output (output is our GDP and employment). It is
called a recession (time period during which contraction happens)
Recoveryincrease in output (GDP & employment). This is an expansion.
Boom: prolonged expansion, expansion for a long period of time in the
economy.
Depression: prolonged or “severe” recession
Leading indicators variables that give an indication of what the
economy is going into.
GDP: Canadians and foreigners all combined producing foods and services
domestically
Increase in the output (GDP) means higher employment
Inflation: continuous increase in the price level; reduces the purchasing power of the
money value and what your money can get you
Deflation: a continuous drop in the price level
Price level: it is the general price level, it is the average price level of all goods and
services
Consumer price index (CPI): weighted average of the prices of the basket of goods
= cost of the basket using current prices/cost of the same basket using
the base year prices times 100%
Inflation rate = (P2-P1/P1) times 100%.
P2: the price during current year
P1: the price of the year you wish to compare to; you can use either CPI (only for
selected basket) or GDP deflator (all goods and services)
Inflation rate: if there is inflation, average price increases
In the base year (reference year): the CPI and the GDP deflator = 100. The nominal
GDP and the real GDP will be EQUAL in the base year too
Inflation indexing: account or adjust for inflation
Menu cost: cost of changing prices
Shoe leather cost: cost of the time and effort that people use up by having less cash in
order to reduce the inflation tax that they pay on cash holdings when there is high
inflation
Hyperinflation: Very severe or higher rate of inflation for a long period of time. CPI is
the rate of inflation.
Nominal interest rate (what you get when you put your money in the bank or lend
your money) = real interest rate (interest rate that accounts for the effects of
inflation) + inflation rate
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