Macroeconomics Review ECO105.pdf

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University of Toronto St. George
Paul Cohen

Macroeconomics Review 1115 11Macroeconomics analyzes the performance by the whole CND economy and global economyFallacy of composition means that what is true is not true for all whole is greater than the sum of parts Paradox of Thrift attempts to increase savings cause aggregate savings to decrease because of falling employment and incomes The fundamental macroeconomics question If left alone by government do the price mechanisms of market economies adjust quickly to maintain steady growth in living standards full employment and stable prices YesBased on Says Law Supply creates its own demand NoFrom John Maynard Keynes the founder of macroeconomics in 1930s 12 Price mechanisms of market economies adjust quickly to maintain steady growth in living standards full employment and stable prices Answer YesLeft Alone Markets NoLeft Alone Markets Fail Quickly SelfAdjust to Quickly SelfAdjust Fallacy of Composition Macroeconomic and Macroeconomic and microeconomic outcomes microeconomic outcomes the same different Origins of Business Cycles Causes external to markets Causes internal to markets government policy coordination failures between input and output markets money banking expectations Which Failure is Worse Government failure Market failure Role for Government Handsoff Handson Political Spectrum RightConservative Part of LeftLiberal Party of Canada Libertarian Canada New Democrats Bloc Qubcois GreenRecall This was a huge SAP on a Term Test 13 The most important measures of the performance of the CND economy are living standards unemployment and inflationGDPThe value of all final products and services produced annually in a country Higher GDP per person is good and lower GSP per person is bad Better to have steady growth in GDP UnemployedNot employed but actively seeking workIn general a higher unemployment rate is bad and lower unemployment rate is goodInflationRising average prices and falling value of moneyEx What you could have purchased with 100 last year will be less than what you can purchase with 100 this year 14The five groups of macroeconomic players are consumers businesses government Bank of Canada and the banking system and the rest of world Each has different choices 15Macroeconomics affects your future Your personal economic success depends on GDP unemployment and inflation Your understanding of those terms informs your vote for politicians whose economic policy influence economic performance and therefore your economic success21 25 2122Nominal GDP is the value at current prices of all final productsservices produced annually in a country Differences in nominal GDP between years are due to either price changes or quantity changesEx Nominal GDPIs greater than real GDP before the year used as a standard for constant pricesIs less than real GDP after the year used as a standard for constant pricesIs equal to real GDP in the year used as a standard for constant pricesCan only be compared to real GDP using a per person comparison Real GDP is the value at constant prices of all final productsservicesproduced annually in a country Since Real GDP uses constant prices then differences in real GDP between years are due only to changes in quantities Ex Assuming a standard year of 2002 to calculate real GDP for 2008 we use the prices in 2008 and quantities in 2002
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