Textbook Notes (368,214)
Canada (161,710)
ECON 295 (70)
Chapter 19

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Department
Economics (Arts)
Course
ECON 295
Professor
Christopher Ragan
Semester
Winter

Description
Chapter19 Output and Income The production of output generates income. National product = National income Aggregating Total Output Nominal (current-dollar) national income: Total national income measured in current dollars  A change in this measure can be caused by a change in physical quantities or a change in prices Real (constant-dollar) national income: National income measured in constant (base-period) dollars.  It changes only when quantities change.  Denoted by the symbol We will focus on real national income. National Income: Recent History One of the most common measures of national income  Gross domestic product = GDP Business cycle: Fluctuations of national income around its trend value that follow a more or less wavelike pattern. Potential output and the Output Gap National output represent what the economy actually produces. Potential output ( *): The real GDP that the economy would produce if its productive resources –land, labour and productive capacity- were employed at their normal levels of utilization. Output gap: Actual national income minus potential national income* Recessionary gap: A situation in which actual output is less than potential o*tput, Inflationary gap: A situation in which actual output exceeds potential ou*put,  can exceed * as there are many ways in which normal rates of utilization can be exceeded temporarily.  Labour may work longer hours or factories may operate an extra shift.  Often there is an upward pressure on prices. Why National Income Matters National income important measure of economic performance. Long-term growth is more important. Recession: A downturn in the level of economic activity. Often defined precisely as two consecutive quarters in which real GDP falls.  Associated with unemployment and lost output.  Actual GDP is below potential GDP When actual GDP exceeds potential GDP (it’s a boom), inflationary pressure usually ensues. Long term growth makes people materially better off on average. Employment, Unemployment and the Labour Force An increase in national income means either a rise in employment or a rise in productivity. Employment: The number of persons 15 years of age or older who have jobs. Unemployment: The number of persons 15 years of age and older who are not employed and are actively searching for a job. Labour force: The number of persons employed plus the number of persons unemployed. Unemployment rate: Unemployment expressed a percentage of the labour force, denoted . Unemployment imposes serious costs in the form of economic waste and human suffering. Frictional, Structural and Cyclical Unemployment Economy is at potential GDP = full employment But there will be still some unemployment for 2 re
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