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Chapter 1

Chapter 1 Intro to Macroeconomics.docx

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Western University
Actuarial Science
Actuarial Science 2053

Chapter 1 Intro to Macroeconomics Is the study of the structure and performance of national economies and of the policies that governments use to try to affect economic performance. The issues that macroeconomic address includes the following:  What determines a nations long-run economic growth?  What causes a nation’s economic activity to fluctuate?  What causes unemployment?  What causes prices to rise? Long Run Economic Growth  On average the annual output of goods and services has increased by 3.6% per year since 1871  Industrial economies is one of the central facts of modern history and has enormous political, environmental, social and even cultural implications  Growth of Canadian economy is the result of a rising population which has meant a steady increase in the number of available workers  Labour productivity: the amount of output produced per unit of labour input ex. Per hour of work is called average labour productivity  2009 Canadian worker produced 5 more times as much output in as average worker in 1921  Output of worker ultimately determine whether a nation will be rich or poor  Rates of saving and investment are important for growth Business Cycle  To describe short-run, sometimes sharp, contractions and expansions in economic activity  Recessions are also a major political concern because almost every politician wants to be re-elected and the changes of re-election are better if the country’s economy is expanding Unemployment  The number of people who are available for work and are actively seeking work but cannot find jobs  Unemployment rate = unemployed/labour force  1930’s the unemployment rate was 19% Inflation  When prices of goods and services are rising overtime  Deflation is during which the prices of most goods and services fell  Deflation occurred during 1930-1933, prices fell by an average of 6% per year  Inflation rate is the percentage increase in the average level of prices over a year  High inflation also means that the purchasing power of money erodes quickly, which forces people to scramble to spend their money soon after they receive it The International Economy  Open economy (has extensive trading and financial relationships with other economies)  Macroeconomics is how international trade and borrowing relationships can help transmit business cycles from country to country  Exports and imports grew rapidly following the signing of free trade agreements in the early 1990’s  Trade surplus when exports exceed imports  Trade deficit is when imports over exports  Important trade balance is the exchange rate: the amount of Canadian dollars that can be purchased with a unit of foreign currency Macroeconomic Policy  Economic performance of a country depends on natural and human resources, its capital stock, its technology and the economic choices made its citizen  Fiscal Policy which is determined at the federal, provincial and municipal levels, concerns government spending and taxation  Monetary Policy affects
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