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Final

Final Exam Review

by Anu J
20 Pages
504 Views

Department
Economics
Course Code
ECON 1010
Professor
Steven Edwards

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Description
Notes by: ANU J Macroeconomics – ECON 1010 (Edwards) Review of chapters for the exam Chapter 1 - Define economics o Economics is the social science that studies the choices that individuals, business, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices - Distinguish between microeconomics and macroeconomics - Explain the two big questions of economics o How do choices end up determining what, how and for whom goods/services are produced?  What  How  Factor services in creating goods/services: o Labour o Land o Capital o Entrepreneurship  Includes risk (defining characteristic)  For whom o When do choices made in the pursuit of self-interest also promote social interest?  Globalization - Explain the key ideas that define the economic way of thinking o Trade-offs o Rational choice o Opportunity costs o Marginality (incremental changes); benefits and costs o Positive and normative statements - Explain how economists go about their work as social scientists and policy advisers Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J Chapter 2 - Define the PPF and use it to calculate opportunity cost o Zones on the curve:  Inside the curve = inefficient allocation of current resources  Outside the curve = unattainable with current resources  On the curve = maximum efficiency with current resources o Things to do on a PPF:  Find marginal cost  Find marginal benefit  Find opportunity cost  What is the trade-off?  Evaluate allocative efficiency  Equilibrium between MC and MB o Economic growth  Reflected through expansion of PPF  Two key factors influence it:  Technological change = development of new goods and better way of producing goods/services; specialization (example: smoothies and salad)  Capital accumulation = growth of capital resources, including human capital  Economic coordination  To reap the gains of trade, four complimentary social institutions have evolved: o Firms  Usually after corporate profits  Also other types of firms i.e. NGOs, charities, etc.  We refer to the firm as a profit-seeking corporation for the sake of macroeconomics o Markets  Free market system in Canada  Capitalist-dominated  Profit motive of capitalists and their consumers drive the market Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J o Property rights  “This is mine, that is yours” o Money  Medium of exchange that allows for this market exchange of goods/services to happen  Circular closed flow model of economics o Two key players:  Firms (producer)  Factor market  Households (consumer)  Goods market o Understand:  Flow of model  No injections, no withdrawals  How to draw it - Distinguish between production possibilities and preferences - Define efficiency o Two kinds: productive and allocative Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J Chapter 3 - Competitive market; price as an opportunity cost - Explain influences on demand o Define and explain the 5-6 influences  Price of related goods  Substitute goods o If the price of a substitute good goes up, demand goes up o If the price of a substitute good goes down, demand goes down  Complimentary goods o If the price of a complimentary good goes up, demand goes down o If the price of a complimentary good goes down, demand goes up  Expected future prices  Same as above, but based on speculations instead of current rates/prices  Income  Normal goods o Increase in income equals an increase in demand o Decrease in income equals a decrease in demand o Example: cars (especially good cars)  Inferior goods o Increase in income equals a decrease in demand o Decrease in price equals an increase in demand o Example: potatoes or Kraft Dinner  Expected future income and credit  Same as above, but based on speculation  Preferences  If someone likes a certain thing, they will have high demand for that thing  If someone doesn’t like a certain thing (or likes something else better), they will have low demand for that thing  Population Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J  Increase in population means an overall increase in demand o Typical demand curve  Downward sloping  The higher the price, the less I want  The lower the price, the more I want o Explain shifts of the curve and along the curve (figure 3.10 in textbook) - Explain influences on supply o Define and explain the 5-6 influences  Price of factors of production  Price of related goods produced  Expected future price  Number of suppliers  Technology  State of nature o Typical supply curve  Upward sloping  The higher the price, the more I want to produce  The lower the price, the less I want to produce o Explain shifts of the curve and along the curve (figure 3.10 in textbook) - Explain how D/S determine prices and quantities bought and sold - Use the D/S model to make predictions about changes in P and Q Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J Chapter 20 - Define GDP o Gross domestic product is the market value of all final goods and services produced in a country in a given time period  Expresses the health of the economy  Four key components  Market value  Final goods and services  Within the country  Given time period o Measure fiscal period  Identify GDP in a circular model  Identify GDP in the equation  Y = C + I + G + X – M  Income equals consumer expenditure plus investment plus government spending  Other  Depreciation  Gross investment  Net investment - Explain why GDP equals aggregate expenditure and aggregate income o Expenditure approach  Use everything that is spent to factor into the calculation o Income approach  Aggregate income is the total amount paid for the use of factors of production  Wages for labour  Interest for capital  Rent for land  Profit for entrepreneurship  Question on the exam: ledger with all these values, learn to add and subtract necessary values for the required result o Value-added approach  Didn’t do this in class - Explain how Statistics Canada measures GDP and real GDP Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J - Describe how real GDP is used and explain its limitations o Purposes behind GDP  Measurement of the health of the economy of the country  For international measurement purposes o Difference between real and nominal GDP  Draw the Lucas wedge (figure 20.3 in the textbook)  The business cycle vital to predicting potential GDP  Expansion  Peak o You only know when the peak is after the fact happens  Recession o Minimum 2 quarters of no growth  Trough o You only know when the trough is after the fact happens  Don’t need to focus on international comparative information o Limitations in GDP  Factors:  Health and life  Leisure  Security  Household work  Underground market  Don’t worry about the mathematical portion and the value of the dollar Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J Chapter 21 - Why is unemployment a problem? - What are the unemployment rate and other labour market indicators? o Equations will not be given on exam o Indicators  Unemployment rate  ( Number of people unemployed / labour force ) * 100  Involuntary part-time rate  ( Number of involuntary part-time workers / labour force ) * 100  Labour force participation rate  ( Labour force / working age population ) * 100  Minimum working age in Canada is 15 years  Employment-to-population ratio  ( Number of people employed / total working age population ) * 100  Minimum working age in Canada is 15 years - Why is unemployment present even at full employment, and how does it fluctuate over a business cycle? o Marginally attached worker  Not working and not looking  Has indicated that he wants a job  Has looked for a job in the recent past o Discouraged worker  Marginally attached worker who has stopped looking for a job because of failure of looking for a job in the past o Overarching types of unemployment:  Frictional  Can be also called “search unemployment”  Refers to the time of unemployment when someone is between jobs, or about to start another one but has already left the existing one  Structural  Number of vacancies ≥ number of unemployment people  Occurs for a number of reasons: Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J o Unemployed workers may not have the required skills for the vacant positions o Unemployed workers may not be physically in the same area as where the vacant positions are  Cyclical  Goes with the business cycle  Generally increased employment in times of growth and generally decreased employment in times of recession  Seasonal  Example: life guards o In the summer, they are employed at indoor and outdoor pools, theme parks, etc. o In the winter, they are employed at indoor pools only o Natural unemployment = the total frictional and structural unemployment when not cyclical unemployment is present or factored into the calculation  Natural unemployment rate  ( Natural unemployment / labour force ) * 100 - Why is inflation a problem? - How do you measure the consumer price index (CPI)? o What is the “basket” composed of? o How do you create the index number?  Compare prices of same things in the “basket” using a base rate o What do you use it for?  To create inflationary rate (the change in prices over time)  Inflationary rate = [ ( New price / old price ) * 100 ] - 100 o Core inflation vs. general CPI  Volatility  Volatile commodities part of CPI o Don’t need to know about the GDP deflator Professor: Steve Edwards Course: Introduction to Macroeconomics (ECON 1010) Notes by: ANU J Chapter 26 - Aggregate demand o Sum of consumption expenditures, investment, government expenditure and net exports  Y = C + I + G + X – M o Effects on aggregate demand
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