Chapter 4 Flashcards
(26 cards)
What is Macroeconomics?
The study of the behaviour and performance of the economy as a whole
What macroeconomic variables are included in the long-run?
- Output
- Employment
- Inflation
What is Employment?
The number of adults (defined in Canada as persons aged 15 and over) who have jobs, including those who are self-employed
What is Unemployment?
The number of adults who are not employed but who are actively searching for a job
What is Frictional unemployment?
Unemployment caused by normal turnover of labor as new people enter workforce, some quit jobs, or are fired, taking time to find new jobs
What is Structural unemployment?
Occurs when labor doesn’t have skills in demand or isn’t in the region where demand exists - a mismatch between structure of labor supply and demand
What is the Labour force?
The total number of people who are either employed or unemployed
What is Productivity?
The amount of output that the economy produces per unit of input
What is Inflation?
When prices of goods and services are going up, on average
What are Interest Rates?
The price that is paid to borrow money for a stated period of time
What is an Exchange rate?
The number of units of domestic currency required to purchase one unit of foreign currency
What is Output (Y)?
Nation’s overall level of economic activity is the value of its total production of goods and services
What is National Income?
The sum of the values of different goods and services produced, most commonly measured as GDP
Canada’s GDP increases, but most of the increase comes from rising prices rather than an increase in the quantity of goods produced. Which measure of income should you use to better assess actual economic growth?
Use real GDP or real national income, which adjusts for inflation and reflects only changes in output quantity.
A government wants to close a recessionary output gap. What does this mean, and how might the government respond?
A recessionary gap means actual output (Y) is less than potential output (Y*). The government might increase spending or cut taxes to stimulate demand and close the gap.
A recent graduate has been actively looking for work but hasn’t found a job yet. What type of unemployment is this, and is it a concern for long-term growth?
This is frictional unemployment, which is normal and not a major concern for long-run growth.
A factory in a small town closes, and many workers lack the skills needed for the region’s growing tech sector. What kind of unemployment is this?
Structural unemployment—a mismatch between workers’ skills and the jobs available.
During a recession, overall demand in the economy falls, and many businesses lay off workers. What type of unemployment rises, and what does this indicate about GDP?
Cyclical unemployment rises, indicating that actual GDP is below potential GDP.
Canada’s labour force remains the same size, but the country produces more goods and services than last year. What macroeconomic variable explains this increase?
Labour productivity—output per unit of labour has increased.
You notice that your salary has increased by 3%, but prices have gone up by 2%. What has happened to your purchasing power, and which interest rate does this relate to?
Your real income has increased by 1%. This relates to the real interest rate (nominal – inflation).
If the Consumer Price Index (CPI) rises from 120 to 126 in one year, what is the inflation rate?
126 − 120 / 120 × 100 = 5%
126 − 120 / 120 × 100 = 5%
You borrow money at a nominal interest rate of 6%, and the inflation rate is 4%. What is the real interest rate?
6% − 4% = 2%
6% − 4% = 2%
If the Canadian dollar depreciates relative to the US dollar, how might that affect net exports?
Canadian goods become cheaper for foreign buyers, so net exports may increase, boosting GDP.
A Canadian company buys US-made equipment. If the CAD weakens, what happens to the cost of this transaction?
The cost increases, since more CAD are needed to buy the same amount of USD.
