MGEA06 Textbook Notes - Chapter 6.docx

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University of Toronto Scarborough
Economics for Management Studies
Iris Au

Chapter 6 Macroeconomics The Big PictureThe Nature of Macroeconomics Distinguishing features of macro focuses on behavior of economy as a wholeMacroeconomics The Whole is Greater Than the Sum of Its PartsParadox of thrift when people are worried about the possibility of economics hard times and prepare by cutting their spending Reduction in spendingbusiness laying off workers resultpeople may end up worse than if they hadnt tried to cut spending Flip sidespending more stimulates economy Behaviour of macro is greater than sum of individual actions and market outcomesMacroeconomics Theory and Policy Before 1930s regarded economy as selfregulatingSelfregulating economy problems are resolved without gov intervention through working of invisible handsKeynesian economics economics slumps are caused by inadequate spending and mitigated by gov intervention Gov intervention can help depressed economy through monetary policy and fiscal policyMonetary policy uses quantity andor growth rate of money to affect economic activity Monetary policy influences inflation interest exchange rates and other important shortrun economic variables Bank of Canada responsibleFiscal policy uses c
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