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Chapter all

EDRD 1400 Chapter Notes - Chapter all: Technological Change, Foreign Direct Investment, Longrun

Environmental Design and Rural Development
Course Code
EDRD 1400

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Macroeconomics Textbook Notes
Chapter 4: GDP Measuring Total Production and Income
- Business Cycle describes alternating periods of economic expansion and
- During expansion total production and employment are increasing but
during recession employment and production are decreasing
- Economic Growth is the ability of an economy to produce increasing
quantities of goods and services (also affects a countries standard of living)
- Inflation Rate is the percentage increase in the price levels from one year to
the next
- Gross Domestic Product (GDP) is the market value of all finals goods and
services produced in a country for a given period of time
- GDP is measured in value, meaning that the value or dollar amount of goods
& services produced is used instead of quantity produced
- Final Good is purchased by a final user and is no longer used in production
- Intermediate Good or Service are an input that is used in another good or
service, such as car parts
- GDP only includes current production (does not include previous time
- Total production = total income
- Firms sell goods and services to three groups of people: domestic
households, foreign firms and households (exports), and the government
- Factors of production such as labor, capital, natural resources, and
entrepreneurship are used to produce goods and services
- Transfer Payments are payments made to households by the government
for which the government does not receive a new good or service
(unemployment payments etc.)
- GDP equation is defined by Y = C + I + G + NX
- Consumption describes households expenditures on goods and services but
not including new houses
- Investment describes spending by firms on new factories, office buildings,
machinery, inventories, and by households on new housing
- Government Purchases includes spending by the federal, provincial, and
local governments on goods and services but do not include payments to
- Net Exports is the value of a country’s total exports minus the value of a
country’s total imports
- There are two areas that the GDP fails to accurately represent; the
underground economy and household production
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- Household Production are goods and services that people produce for
- Underground Economy is the buying and selling of goods and services that
the government is unaware of and unable to tax (drug dealing, selling
random stuff)
- GDP is the not the perfect measure of well being for several reasons
(1) Value of leisure is not included
(2) Does not consider the state of the environment
(3) Is not adjusted for changes in crime and other social problems
(4) Measures the size of the pie but not how it is divided
- There is a difference between the real GDP and the nominal GDP
- Nominal GDP describes the value of final goods and services at current-year
- Real GDP is the value of final goods and services evaluated at base-year
- By using real GDP we are able to distinguish the difference between the
change in quantity and the change in price
- Price Level is a measure of the average prices of goods and services in the
- GDP Deflator is a measure of the price level, calculated by dividing nominal
GDP by real GDP and multiplying by 100
- The more prices increase relative to the increase in production, the more
nominal GDP increases relative to real GDP, and the higher the value of the GDP
- Increases in the GDP deflator allow economist to track price level over the
- There are four other forms of measuring total production and income which
are; gross national product, national income, household income, and
personal household income
- GNP includes all final goods and services produced by Canadians whether
the facilities are in Canada or abroad
- This differs from GDP which only includes production within Canada
(Canadian or foreign)
- National Income is the amount left over after consumption of fixed capital
(depreciation) is subtracted from the GDP
- The national income will always be smaller than the GDP by the equal
amount of depreciation
- Household Income is the earnings corporations retain and are subtracted
while payments received from the government are added
- Household Disposable Income is the household income subtracted by
federal income tax (actual spending money)
- Gross domestic income is the sum of income payments households
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- There are four different types of income labor income, small business, taxes
on productions and imports, and corporate operating surplus
Chapter 5: - Unemployment and Inflation
- Unemployment rate is the percentage of the labor force that is unemployed
- If the unemployment rate is low the party in power is doing well and so is the
economy, but if the unemployment rate is high the opposite occurs
- Labor Force Survey (LFS) are performed every month in order to compute
the unemployment rate
- This survey takes into account the working age population, the employed,
unemployed (actively searching for work), and not in the labor force
includes people who can work but aren’t seeking jobs
- Labor Force can be defined as the sum of employed and unemployed
workers in the economy
- There are three calculations associated with the labor force
(1) Unemployment rate: Number of Unemployed X100
Labor Force
(2) Participation rate: Labor Force X100
Working Age Population
(3) Employment-population ratio: Number of employed X100
Working Age Population
- Discouraged Workers are people who are able to work but have not looked
for jobs because they feel like there are no jobs (not in the labor force)
- People who are considered employed can work part time or full time which
doesn’t accurately display the amount of jobs in the labor market
- People may also claim to be unemployed and not seek jobs so they can claim
employment insurance
- Other indivuals may perform jobs illegally or under that table which also
increase the unemployment rate
- The higher the participation rate the higher the country’s GDP as well as GDP
per person
- How long people remain unemployed often depends on the state of economy
(recession = long period / expansion = short period)
- The employment rate changes between provinces, over time, and between
different types of work (part-time workers becoming full time workers is not
reflected in the employment rate)
- There are four types of unemployment: frictional, structural, cyclical, and
- Frictional unemployment is short-term unemployment that arises from the
process of matching workers with the right jobs
- There will always be frictionally unemployed workers but the process is
actually good for the economy, since workers and companies are taking the
time to find the perfect fit it is more likely that the workers will find their job
more satisfying, making them more productive
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