ECO209Y1- Final Exam Guide - Comprehensive Notes for the exam ( 44 pages long!)

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Published on 29 Mar 2018
School
UTSG
Department
Economics
Course
ECO209Y1
UTSG
ECO209Y1
Final EXAM
STUDY GUIDE
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Microeconomics: problems faced by economic agents
Macroeconomics: study of economy as a whole
Determining price level
Unemployment rates
Aggregate output of a country (GDP)
Interest rates
A country's balance of payments with the rest of the world
Objects of macroeconomics
Where P is the current price, P-1 is the price level at the end of the previous period
Π = (P - P-1) / P-1
Generally refers to CPI
Inflation is the percent increase in the level of prices during a given period
Rate of inflation
As soon as constraints are removed, prices increase
1974: Trudeau freezes wages and prices to control inflation
Interest rate was 22%
People stop borrowing
1982: BoC causes recession by increasing interest rate
Succeeds in no inflation, causes recession
1991: BoC governor decides 0% inflation is only good rate
Historical instances of inflation and recessions
Hiring additional labor does not increase cost of each additional unit of production,
low inflation
If unemployment is high, hiring is easier
Prices increase due to increases in input price
If unemployment is low, wages must increase to hire more workers
If demand increases, prices don't immediately change, but output increases
Wages aren't increasing in present, because if production is too expensive domestically,
companies will move overseas (to Mexico, China)
No inflation if wages do not increase
Why inflation happens
The fraction of the labor force that cannot find a job
Where LF is the size of the labor force, and N is the number of employed workers
u = (LF - N) / LF
Depends also on labor force participation rates, the type of employment (underemployed
workers)
Unemployment rate is not indicator of state of economy on its own
Rate of unemployment
Value of all final goods, services produced in economy during given period
Nominal GDP, real GDP
GDP/capita
Aggregate output (GDP)
Where i is the nominal rate, and r is the real rate
r = i - Π
Rate of interest
Denoted by e, where one unit of foreign currency is expressed in terms of domestic currency
Exchange rate
Fixed exchange rate
Set by central bank
Flexible/floating exchange rate
Market forces
Managed/dirty floating exchange rate
Central bank intervenes to avoid sudden jumps
Ways to determine rate
Current account: exports and imports of goods and services, investment income, transfer
Balance of payments
Lecture 1: Introduction
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Current account: exports and imports of goods and services, investment income, transfer
payments
Capital account: capital flows from investment, borrowing, lending
Recession: two or more periods of negative growth
Recessionary gap: producing below potential output
General definitions
ECO209 Page 2
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Document Summary

A country"s balance of payments with the rest of the world. Where p is the current price, p-1 is the price level at the end of the previous period. Inflation is the percent increase in the level of prices during a given period. 1974: trudeau freezes wages and prices to control inflation. As soon as constraints are removed, prices increase. 1982: boc causes recession by increasing interest rate. 1991: boc governor decides 0% inflation is only good rate. If demand increases, prices don"t immediately change, but output increases. Hiring additional labor does not increase cost of each additional unit of production, low inflation. If unemployment is low, wages must increase to hire more workers. Prices increase due to increases in input price. Wages aren"t increasing in present, because if production is too expensive domestically, companies will move overseas (to mexico, china) The fraction of the labor force that cannot find a job u = (lf - n) / lf.

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