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Study Guide

EC140- Final Exam Guide - Comprehensive Notes for the exam ( 57 pages long!)Premium


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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Lecture 2: Key Macroeconomic Variables
Measuring output and income
- Production of goods and services generates income
- Nominal national income: calculated in current dollars
Total production of goods and services valued at market price (where possible)
- Real national income: calculated at prices forma base year
Measures total output
Today’s production measured at prices from a base year
- Much more about GDP next classes
Potential GDP
- How much the economy could produce if it is operating normally
- Not easy to define
- Affected by unemployment, normal productivity, etc.
- When does the economy operate when it is producing more of less than what it
normally does?
- When actual GDP exceeds potential GDP: inflation gaps
- When actual GDP falls short to potential GDP: recessionary gaps
Associated with unemployment, wages do not rise as fast therefore creating this
situation
Terminology of business cycle
- Actual GDP vs Potential GDP
- Recession and recovery
- Peak: when it rises and reaches a peak
- Trough: when GDP bottoms out
Recessions vs a recessionary gap
- Recessions are extended periods of weak economic activity
Sometimes defined as consecutive quarters (so six months) with negative growth in real
GDP
- Recessionary gap does not imply or require a recession
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If rea GDP grows slower that potential GDP- leads to a recessionary gap
Measuring unemployment
- Unemployment: not employed and actively searching for a job
- Labour force: number employed or unemployed
- Unemployment rate: number of people unemployed divided by the number of people in
the labour force
- People not looking for work are not in either number
Types of unemployment
- Frictional unemployment: finding a job is not instantaneous- the normal period between
leaving one job or school, and finding a job
- Structural unemployment: If workers don’t have the skills needed in the labour market
- Cyclical unemployment: If firms are reducing production such that actual gdp is less then
potential GDP
- Full employment is when cyclical unemployment is zero (actual GDP equals potential
GDP)
Labour force trends
- Is growing because of population growth, immigration and more and more women
entering the labour force
Canadian labour productivity
- Labour productivity- real GDP divided by employment of hours worked
- Does income rise because of hours worked, or because of productivity
Price level and inflation
- Price level: average level of all prices in the economy
- Inflation: rate of change of the price level
- Anticipated vs. Unanticipated inflation
Calculating CPI
- Calculate total expidure in the base year
- Calculate ow much that would cost in the current year
- Divide step 2 by step 1 and multiply by 100
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