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Chapter 19

Economics 102: Chapter 19

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University of British Columbia
ECON 102
Robert Gateman

Economics 102Principles of MacroeconomicsChapter 19Macroeconomics study of the economy without details of markets for individual products o Concerned with the behaviour of economic aggregatesTotal output total investment total export and price level o Account for economic activity in different markets and consumer behaviourA full understanding of macroeconomics requires understanding the nature of shortrun fluctuations as well as the nature of longrun economic growthThere are two different streams of research in macroeconomics o Explicitly build models and populate with coefficients to find values for aggregates o Implicitly use aggregate relationships for consumption investment and employment to represent the behaviour of many firms and consumers in the economyExplicit economists assume wages and prices are perfectly flexible and therefore shiftImplicit economics assume wages and prices are fixed thus are in disequilibrium longer o This textbook will follow this approach to macroeconomic analysis191 Key Macroeconomic Variables Output and IncomeNational product value of a nations total production of goodsservices national income o The production of output generates income o All of the economic value that is produced belongs to someone in the form of incomeEmployees suppliers owners etcNational income value of the total output and the value of income created by production Aggregating Total OutputTo measure total output quantities of many different goods are aggregated o Add up the values of the different products monetary valueNominal national income Y the value of total output monetary value of national output o Tells us the value of current output measured at constant prices o Change in Y can be caused by a change in quantity or price of products o Referred to as currentdollar national incomeReal income value of individual outputs at a set of prices in some base period o Changes year to year are reflect changes in quantities as prices are held constant o Referred to as constantdollar national income National IncomeRecent HistoryGross domestic product GDP most commonly used measures of national income o Can be measured in either real or nominal terms textbook focuses on real GDPBusiness cycle fluctuations of national income around its trend value o Continual ebb and flow of business activity that occur in the longterm trend o Fluctuations are systematically enough to identify common factors Potential Output and the Output GapNational output represents what the economy actually produces
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