Csc Chapter 4

Front 1

The Three Factors that lead to GDP Growth

Back 1

1) Increases in Population over time

2) Increases in capital stock/equipment

3) Advances in technology/Innovation

Front 2

Real GDP

Back 2

GDP figures measured using prices from a selected base year

Front 3

Business Cycle

Back 3

Fluctuations in output and employment over time. Measured in % Real GDP growth. Unpredictable and irregular growth patterns.

Front 4

Expansion

Back 4

First step in the business cycle. In times of normal growth, the economy is expanding. Inflation is stable, corporate profits are rising and unemployment is steady or falling.

Front 5

Peak

Back 5

Second step in the business cycle. Demand begins to outstrip the economy's ability to supply it. Inflation and wages increase. Interest rates rise, dampening business investment. As such, stock prices fall.

Front 6

Recession

Back 6

Real GDP decreases (a Contraction) for longer than two consecutive quarters.

Front 7

Contraction

Back 7

Third step in the business cycle. Real GDP begins to decrease. Business failures outnumber start-ups. Falling employment erodes household income leading to less spending. Firms make less profit meaning that they must layoff employees and postpone investment.

Front 8

The Number One Indicator for Economic Performance

Back 8

Real GDP

Front 9

Trough

Back 9

Fourth Step in the business cycle. Interest rates fall, triggering a bond rally. Inflation falls. Business and consumers who postponed big purchases/investment are now spurred on by the low borrowing rates. Stock prices rally.

Front 10

Recovery

Back 10

Fifth and final step of the business cycle. This step is brought on by a surge in consumer purchases of interest rate sensitive items like cars and houses. Firms must increase production to meet this new demand. Firms have not yet hired people back or raised wages but layoffs have stopped. When a recovery reaches the point of a previous peak, it becomes an Expansion.

Front 11

Leading Economic Indicators

Back 11

Designed to anticipate economic trends. Most useful and widely used indicators. Ex: Manufacturer orders for new mats suggest higher production, high commodity prices suggest demand for inputs, housing starts, stock prices.

Front 12

Coincident Indicators

Back 12

Change with the economy giving an idea of where the economy is currently at. Ex: GDP, Retail Sales, Personal Income

Front 13

Lagging Indicators

Back 13

Change after the economy has changed. Ex: Inflation rate, unemployment rate.

Front 14

The Four Criteria of a "Stats Canada" Recession

Back 14

1) Deep decline in business activity

2) Duration of longer than a few months

3) The decline must effect the entire economy, not just a single industry

4) Employment and per capita income fall

Front 15

Soft Landing

Back 15

Business cycle phase where economic slows sharply but does not turn negative and inflation remains low or falls. Considered the "Holy Grail"

Front 16

The Two Labour Market Indicators

Back 16

1) Participation Rate

2) Unemployment Rate

Front 17

Participation Rate

Back 17

The share of the working age people that is in the labour force. (66.5%) in Canada.

Front 18

Unemployment Rate

Back 18

The share of the labour force that is unemployed and actively looking for work. (7.1%) in Canada.

Front 19

Discouraged Workers

Back 19

Workers that are available and willing to work but can not find a job and have not made specific efforts to find a job in the past month. Not considered part of the labour force.

Front 20

The Three Types of Unemployment

Back 20

1) Cyclical Unemployment

2) Frictional "

3) Structural "

Front 21

Cyclical Unemployment

Back 21

Tied to the economy's performance. Rises with a weak economy, falls with a strong one.

Front 22

Frictional Unemployment

Back 22

Unemployment that is relatively normal and static. Ex: People quitting, those who just finished school, between jobs etc.

Front 23

Structural Unemployment

Back 23

Workers do not have the skills to find a job or are not located near available jobs. This type of unemployment is strongly related to globalization and technology. Lasts longer than frictional.

Front 24

Natural Unemployment Rate

Back 24

The minimal unemployment rate at which it is thought that all resource are properly used, even labour. The level of unemployment that is considered par with stable inflation.

Front 25

Equation for Real Interest Rate

Back 25

Nominal Interest Rate - Inflation Rate = Real Interest Rate

Front 26

The Three Functions of Money

Back 26

1) Medium of Exchange

2) Exact Unit of Account

3) Store of Value

Front 27

CPI

Back 27

Consumer Price Index. Indicator of inflation that measures the cost of living. Tracks price of 600 varied goods and services.

Front 28

Inflation Rate Formula Using CPI

Back 28

(CPI Current - CPI Previous)/ CPI Previous

Front 29

Output Gap

Back 29

The difference between Real GDP and Potential Real GDP. Used as an indicator of whether inflation is being pulled up or down.

Front 30

Potential GDP

Back 30

What an economy is capable of producing if all existing resources (labour, capital, technology) in an economy are used to their fullest potential without inflation effects.

Front 31

Negative Output Gap

Back 31

Actual output is below potential output. Inflation decreases or remains the same because I there is a need to increase output, new PPE or labour can be easily employed.

Front 32

Positive Output Gap

Back 32

Actual output is above potential output. Inflation increases.

Front 33

Demand-Pull Inflation

Back 33

Expanded output driven by heightened consumer demand leads to an increases in prices and, therefore, inflation.

Front 34

Cost-Push Inflation

Back 34

A supply-side cause of inflation. Increased production costs lead firms to increase their prices, leading to inflation.

Front 35

Disinflation

Back 35

A decline in inflation (with inflation remaining positive)

Front 36

Phillips Curve

Back 36

Inflation and unemployment have an inverse relationship.

Front 37

Sacrifice Ratio

Back 37

Used to gauge the cost of disinflation.

Front 38

Deflation

Back 38

Fall in CPI/Prices year over year. Leads to economic recession due to lowered corporate profits, layoffs, and lowered stock prices.

Front 39

Balance of Payments

Back 39

Financial Statement detailing all trade done by a country with the rest of the world for a quarter/year.

Front 40

Current Account

Back 40

Record of the exchange of goods and services, investment income and foreign aid between Canadians and foreigners.

Front 41

Capital and Financial Account

Back 41

Records investments of foreigners into Canada and Canadians investing abroad

Front 42

Floating Exchange Rate

Back 42

The Central Bank allows market forces to determine the exchange rate of it's currency. This is what Canada has.