Chapter 19: What Macroeconomics Is All About

Front 1

Macroeconomics

Back 1

the study of the determination of economic aggregates such as total output, the price level, etc.

Front 2

National Product

Back 2

the value of a nation's value of its total production of goods and services

Front 3

nominal national income

Back 3

total income measured in current dollars. A change in tho measure can be caused by a change in either the physical quantities or the prices

Front 4

real national income (Y)

Back 4

national income measured in constant (base-period) dollars. The sum of quantities valued at prices that prevailed in the base period; therefore reflecting only changes in quantities.

Front 5

Business Cycle

Back 5

Refers to a continual ebb and flow of business activity that occurs around the long-term trend (i.e. a single cycle may include an interval of quickly growing output, followed by an interval of slowly growing or even falling output)

Front 6

Potential Output (Y*)

Back 6

what the economy would produce if all resource were employed at their normal levels of utilization.

Front 7

Output gap

Back 7

measures the difference between potential output and actual output (Y-Y*)

Front 8

Recessionary gap

Back 8

Y < Y*. The economy's resources are not being fully employed. Actual output is less than potential output.

Front 9

Inflationary gap

Back 9

Y > Y*. Actual output is more than potential output. (This can be achieved via overtime, extra shifts etc.) This causes an upward pressure on prices.

Front 10

Recession

Back 10

A downturn in the level of economic activity. Often associated with unemployment and lost output.

Front 11

Productivity

Back 11

A rise in output per person employed

Front 12

Employment

Back 12

The number of adult workers (15 and over) who have jobs.

Front 13

Unemployment

Back 13

The number of adult workers who're not employed but who are actively searching for a job.

Front 14

Labour force

Back 14

the total number of people who are either employed or unemployed

Front 15

Unemployment Rate

Back 15

(# of people employed/ # people in labour force) X 100 percent

Front 16

When is there "full employment"?

Back 16

When the economy is at potential GDP. Said to occur when the only unemployment is frictional and structural.

Front 17

Frictional Unemployment

Back 17

The constant turnover of individuals in given jobs and a constant change in job opportunities.

Front 18

Structural Unemployment

Back 18

Unemployment arising from the mismatch between the characteristics of the labour force and the characteristics of the available jobs. (Mismatch between structure of the supplies of labour and the structure of the demands of labour.)

Front 19

Cyclical Unemployment

Back 19

Neither structural or frictional. It changes with the ebb and flow of the business cycle.

Front 20

The 3 general source of long-run growth

Back 20

1. Increased level of employment
2. Canada's stock of physical capital has increased more or less steadily over time
3. Productivity in Canada keeps increasing

Front 21

Labour Productivity

Back 21

the level of real GDP divided by the level of employment (or total hours worked)

Front 22

Why is productivity important?

Back 22

Productivity growth is the single largest cause of rising material living standards over long periods of time.

Front 23

Inflation & Inflation Rate

Back 23

Inflation: The prices of goods and services are going up, on average.

Inflation Rate: the rate at which the price level is rising

Front 24

Price level (P)

Back 24

The average level of all prices in the economy, expressed as an index number. (It only has meaning when it is compared with its value at some other time.)

Front 25

Consumer Price Index (CPI)

Back 25

The average price of the goods and services that are bought by the typical Canadian household

Front 26

Why is inflation important?

Back 26

Inflation reduces the real value of anything whose price is fixed in dollar terms.

The purchasing power of money is negatively related to the price level. (If the price level doubles, a dollar will buy only half as much)

Front 27

Anticipated inflation

Back 27

If households.firms anticipate inflation over the coming year, they will be able to adjust many nominal prices and wages so as to maintain their real values. (Fewer real effects)

Front 28

Unanticipated inflation

Back 28

Generally leads to mrs changes in the real value of prices and wages. (Larger effect than anticipated inflation)

Front 29

Interest Rate

Back 29

the price that is paid to borrow money for a stated period of time. (Can change depend on the associated risk.)

Front 30

Real Interest Rate

Back 30

The nominal rate of interest adjusted for the change in the purchasing power of money. Equal to the nominal interest rate minus the rate of inflation.

Front 31

Why do Interest Rates matter?

Back 31

Changes in real interest rates lead to changes in the cost of borrowing and thus to changes in firms' investment plans. Also, many retirees rely on interest earnings from their stock to provide much of their household income.

Front 32

Exchange Rate

Back 32

The number of units of Canadian dollars required to purchase one unit of foreign currency. (i.e. if one euro was worth 1.64 Canadian dollars, then the exchange rate is equal to 1.64)
It is quite volatile

Front 33

Depreciation

Back 33

A rise in the exchange rate, it takes more Canadian dollars to purchase one unit of foreign currency.

Front 34

Appreciation

Back 34

A fall in the exchange rate, it takes fewer Canadian dollars to purchase one unit of foreign currency.