Textbook Notes (363,339)
Canada (158,341)
Economics (800)
ECON 1100 (224)
Chapter 4

Chapter 4 Intro to Macroeconomics Notes

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University of Guelph
ECON 1100
Bram Cadsby

Birds eye view of the economy Chapter 4 Macroeconomics One of the benefits of the Great Depression was that it forced economists and policy makers of the 1930s to recognize that there were major gaps in their understanding of how the economy works Macroeconomics The study of the performance of national economies and the policies governments use to try to improve that performanceMacroeconomic policies government actions designed to affect the performance of the economy as a wholeMajor Economic IssuesEconomic GrowthLiving Standards People w high standard of living enjoy morebetter consumer goods benefit from longer life expectancybetter general health from higher literacy rates from more timeopportunity for cultural enrichmentrecreation from better career optionsfrom better working conditions One reason fro the growth of Canadian output over the past century is the rapid growth of Canadian populationhenceof worker availableOutput per person is a better indicator of average standard of living than total outputProductivity While growth in output is strongly linked to changes in what the typical person can consume macroeconomists are also interested in changes in what the average worker can produce Average Labour Productivity output per employed workerProductivityEconomies dont always grow steadily Pronounced slow downs in economic growth are called recessions and severe slowdowns are called depressions Sometimes the economy grows quickly These periods of economic growth are called expansions and strong expansions are called booms UnemploymentUnemployment Rate The fraction of the labour force who are looking for a job but cant find workis a key indicator of the state of the labour market expansions are called booms Inflation The rate at which prices in general increase over timeVery high inflation imposes costs on the economy as does negative inflation known as deflationInflation and unemployment are often linked together in policy discussions One reason for this linkage is the oft heard of argument that unemployment can be reduced only at the cost of higher inflationthat inflation can be reduced only at the cost of higher unemploymentInterest rates tend to be higher in periods of high inflationEconomic Interdependence among NationsNational economies dont exist in isolation but are increasingly interdependent Trade imbalances which occur when the quantity of goods and services that a country sells abroadits exports differs significantly from the quantity of goodsservices its citizens buy from abroad its importsTrade surplus Exports exceed importsTradeDeficit Imports exceed exportsMacroeconomic PolicyTypes of Macroeconomic policy 3 major typesMonetary Policy central bank management of interest rates in order to achieve macroeconomic objectives Most economists agree that changes in interest rates affect other important economic variables including the international value of the dollar national output employmentinflation In almost all countries a government institution called the central bank controls monetary policyFiscal Policy the decisions that determine the governments budget including the amountcomposition of government expendituresgovernment revenues Government Budget Balance balance between government spendingrevenuemainly from taxesGovernment Budget Deficit when government revenues fall short of expenditures negative balance Government Budget Surplus If revenues exceed expendituresthe balance is positive
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