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Study Guide

# [EC140] - Final Exam Guide - Everything you need to know! (50 pages long)

Department
Economics
Course Code
EC140
Professor
Ken Jackson
Study Guide
Final

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WLU
EC140
FINAL EXAM
STUDY GUIDE

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Macro Economics: Chapter 19
- Macroeconomics = study of eco behaving in broad outline
- National income refer to the value of total output and the value of the income claims generated by the
production of that output
National income
- Add up the value of the many different goods and service produced.(\$ value)
- Nominal national income= total national income measured in current dollar.
o Change can be caused= # of Quantity, Price.
- Real national income = value of individual output in constant base-period price
o Change can be caused = # of Quantity
- GDP= used to measure nation income
- Recession : a fall in the level of real GDP.( 2 consecutive quarters)
- Business cycle: fluctuation of national income around its trend value.
Potential output and the Output gap
- Potential output( Y*): The real GDP an economy produce if all ( land, labour, capital) employed
- Output gap: difference between potential output(Y*) and actual(Y)
o Y<Y* = measure \$ of good not produce = resources not fully used = recession gap
o Y>Y* = measure \$ of good in excess = inflationary gap
Real per Capita atioal ioe= deteries soiety’s stadard of liig.
Employment, Unemployment and the Labour Force
- Employment= # of pep 15 years or older who has a job
- Unemployment= # of pep who are not employment but are actively searching for a job
- Labour force = num of pep employed + # of pep unemployed.
- Unemployment rate =
- Frictional unemployment = unemployment caused by normal turnover(quit, new people fired)
- Structural unemployment = mismatch between the structure of supply and demand of labour
- Natutal unemployment = Frictional + Structural unemployment
- Cyclical unemployment= seasonal fluctuation ( Y<Y*)
Productivity
- Measure of the amount of output that the economy produces per unit of input.
- Labour Productivity= real GDP / level of employment( total hours worked or # number of pep)
Trough: unemployed resources and level recourse low .
The process of recovery moves the economy out of a trough
Peak : recourse used to high degree , labour shortage
Recession: downturn in eco activity
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Inflation and Price level
- Inflation = price of goods and service are going up.
- Price level= the average level of all price in the economy= denoted as P
- To measure the price level : use Consumer price Index = measure average price of the goods and service that
are bought by the households.
Purchase power of money = the amount of goods and service that can be purchased with a unit of money
- Purchase power of money negatively related to the price level
- Inflation reduce purchasing power of money & reduces the real value of anything that has \$ value.
Interest Rates :
- The price paid to borrow money for a stated period of time.
- Prime interest rate : the rate bank charge go best business customers. Change in prime rate = leads to
change in other rate in the same direction.
- Bank rate : rate charged by central bank( Bank of Canada)
- Nominal rate = The price paid per dollar borrowed per period of time.
- The real interest rate = Nominal rate expressed in terms of purchasing power, ( Nominal rate the rate of
inflation)
- The burden of borrowing depends on real interest rate.
International Economy
- Exchange rate = the number of units of domestic currency required to buy one unit of foreign currency
- Foreign exchange = foreign currencies or claims on foreign currency
- Depreciation = a rise in exchange rate = it takes more units of domestic currency to purchase one unit of
foreign currency.
- Appreciation = fall in the exchange rate = it takes fewer units of domestic currency to purchase one unit of
foreign currency.
Exports and Imports
- Imports : selling good to other countries
- Exports : buying good from other countries
- Net exports = Exports imports ( the trade balance)
Growth vs Fluctuations
- Long term Economic Growth :
o More important for a society living standard compare to short term
o More deates regardig go’t aility to ifluee log ter groth.
- Short term :
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