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Midterm

Midterm - Lecture Study Notes

13 Pages
121 Views

Department
Economics for Management Studies
Course Code
MGEA06H3
Professor
Iris Au

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Week 1
7.6% unemployment rate in Canada currently
Unemployment rate is never negative or zero
Unemployment rate is not constant; changes from time to time.
Question: Why unemployment rate will never be zero?
Answer: There are frictions in the economy, which include:
Industries some expand, some contract
Regions some do well, others do not
Normal movements people move in and out of the labour market
NRU DOES NOT equal to zero!
Discouraged workers are NOT counted in the labour force.
Consumer Price Index (CPI) it measures how fast the prices of goods and
services bought by a typical Canadian household change over time. It uses the base-
year bundle.
GDP deflator it measures how fast the prices of goods and services produced
within Canada change over time. It uses the current-year bundle.
In the base year, the index = 100
What are the issues in inflation?
It reduces the purchasing power of money (the amount of goods and services that can
be purchased with a unit of money).
The same amount of money buys fewer goods
It reduces the real value of anything whose price is fixed in money terms.
www.notesolution.com
Redistribution of wealth Unexpected inflation would redistribute wealth
arbitrarily.
Inefficiency erosion of money as medium of exchange.
Week 2
Gross Domestic Product (GDP) the total value of goods and services
produced in the economy during a given period.
The expenditure approach, sometime called gross domestic expenditure
(GDE), adds up the expenditure needed to purchase the final output (end use,
not for the production for goods and services) produced during a given
period.
The income approach looks at all the incomes earned by Canadians as a
result of production.
It takes into account of the followings:
oFactor incomes wages, salaries, interest, business profits.
oNon-factor payments indirect taxes (HST, PST AND GST) and
subsidies, capital consumption allowances (CCA, depreciation of
capital), inventory valuation adjustments (IVA, change in physical
inventory held by firms)
Both the expenditure approach and the income approach give the same GDP, why?
Answer: ones spending = anothers income
Question: How do we measure output?
Answer: Value added = Output of every firm in Canada Intermediates purchased by firm
www.notesolution.com
Gross domestic product (GDP) measures the sum of all final goods and
services produced within a country.
Gross national product (GNP) measures the sum of all final goods and
services produced by a countrys residents.
Nominal GDP measures the production of goods and services valued at
todays prices (current prices).
Real GDP measures the production of goods and services a country valued at
constant prices (base-year prices).
Week 3
(Aggregate) Demand (AD) = desired expenditure (what we intended to spend):
oAD = C + I (intended investment) + G + X IM.
(Aggregate) Supply = actual expenditure = actual national income:
oGDE = C + I + G + X IM.
The key difference is investment in GDE includes unintended change in
inventories while investment in AD includes only intended investment.
Exogenous variables these are given to the model (i.e., they are constants
and you do not need to solve for them).
oHowever, external factors can change the values of these variables.
Endogenous variables the values are determined within the model (i.e., you
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Description
Week 1 7.6% unemployment rate in Canada currently Unemployment rate is never negative or zero Unemployment rate is not constant; changes from time to time. Question: Why unemployment rate will never be zero? Answer: There are frictions in the economy, which include: Industries some expand, some contract Regions some do well, others do not Normal movements people move in and out of the labour market NRU DOES NOT equal to zero! Discouraged workers are NOT counted in the labour force. Consumer Price Index (CPI) it measures how fast the prices of goods and services bought by a typical Canadian household change over time. It uses the base- year bundle. GDP deflator it measures how fast the prices of goods and services produced within Canada change over time. It uses the current-year bundle. In the base year, the index = 100 What are the issues in inflation? It reduces the purchasing power of money (the amount of goods and services that can be purchased with a unit of money). The same amount of money buys fewer goods It reduces the real value of anything whose price is fixed in money terms. www.notesolution.com Redistribution of wealth Unexpected inflation would redistribute wealth arbitrarily. Inefficiency erosion of money as medium of exchange. Week 2 Gross Domestic Product (GDP) the total value of goods and services produced in the economy during a given period. The expenditure approach, sometime called gross domestic expenditure (GDE), adds up the expenditure needed to purchase the final output (end use, not for the production for goods and services) produced during a given period. The income approach looks at all the incomes earned by Canadians as a result of production. It takes into account of the followings: o Factor incomes wages, salaries, interest, business profits. o Non-factor payments indirect taxes (HST, PST AND GST) and subsidies, capital consumption allowances (CCA, depreciation of capital), inventory valuation adjustments (IVA, change in physical inventory held by firms) Both the expenditure approach and the income approach give the same GDP, why? Answer: ones spending = anothers income Question: How do we measure output? Answer: Value added = Output of every firm in Canada Intermediates purchased by firm www.notesolution.com
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