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Definition
| The study of the determination of economic aggregates, such as total output, total employment, the price level, and the rate of economic growth |
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Measure of a nation's overall level of economic activity - it is the value of its total production of goods and services
*production of output generates income*
National product is by definition equal to national income |
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| Total national income measured in current dollars. Also called current dollar national income. ( Add up the dollar value of all products produced) A change in this measure is caused by either change in physical quantities or the prices *** Current dollar national income |
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| Real national income is measure in constant (base year) dollars. It changes only when quantities change. It measures the value of outputs at the set of prices that prevailed in some base period. *** Constant-dollar national income |
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| Fluctuations of national income around its trend value that follow a more or less wavelike pattern |
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| Real GDP measure the quantity of total output produced by the nation's economy over the period of a year |
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| A recession is a downturn in the level of economic activity. Often defined as two consecutive quarters in which real GDP falls. |
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The potential output is what the economy would produce if all resources - land, labour and productive capacity were employed at their normal levels of utilization
Also called full employment output
Y*= Potential GDP
Y= actual output |
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The output gap measures the difference between potential output and actual output ( Y- Y*)
When YWhen Y>Y* it is an inflationary gap ( upward pressure on prices) |
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| Employment is the number of people, age 15 and up, that have jobs |
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| Number of people are 15 and up, that do not have jobs, but are actively searching for one |
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| The number of people employed + unemployed. (Those who potentially can work) |
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| Unemployment Rate = ( Number of people unemployed) / Number of people in the labour force) *100 |
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| Unemployment due to normal turnover of labour. ( ex: quit to search for better job) |
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| Unemployment caused by mismatch between the supply of labour and the demand of labour. ( employers and employees are not compatible, both are looking, but can't be matched up right away) |
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| Occurs when these is only frictional and structural unemployment. At full employment factors of production are being used at their normal intensity, the economy is at potential GDP. |
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| Unemployment that is neither frictional nor structural, and happens because of chances in the ebb and flow of the business cycle. |
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| Seasonal fluctuations of employment |
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Definition
| Ex: workers employed in the winter (ski instructors) are unemployed in the summer. Statistics Canada seasonally adjusts the unemployment movements in the data. |
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Term
| What explains the long term growth in Canadian real GDP? |
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Definition
The steady growth in the country's productive capacity has three sources generally:
1) Level of employment has increased
--> Rising population
--> More people choose to participate in the labour force
2) Canada's stock of physical capital - the buildings, factories, and machines used to produce output has increased
3) The productivity in Canada has increased |
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Term
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Definition
The level of real GDP divided by the level of employment (or total hours worked).
Productivity growth is the single largest cause of rising material living standards over long periods of time.
Real GDP per hour worked in Canada since 1975 has grown at the annual rate of 1.3 percent |
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Definition
| The average level of all prices in the economy, given by the symbol "P". |
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| Inflation ia the rise in the average level of all prices. Inflation reduced the purchasing power of money and reduces the real value of any sum fixed in nominal terms. |
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Definition
The CPI is an index of the average prices of goods and services commonly bought by households.
The price index shows the price of a basket of goods at some specific time relative to the price of the same basket of goods in some base period.
It is currently at 120.1 |
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Term
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Definition
The rate of inflation is expressed in percentage terms, is equal to the change in the price level divided by the initial price level, time 100:
(129.9-126.5) /126.5 * 100 = 2.21 %
About 2.3 % currently |
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Term
| Purchasing Power of Money |
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Definition
The amount of goods and services that can be purchased with a unit of money.
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. Inflation reduces the real value of anything whose price is fixed in money terms. |
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Definition
| If households and firms fully anticipate inflation, they will be able to adjust to it, by raising wages to be able to adjust nominal prices to their real values. In this case inflation will have less real effect. |
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| Inflation that was not anticipated and not adjusted for. This will shift the real value of prices and wages. This type of inflation has a bigger effect on the economy. |
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Definition
The price that is paid to borrow money for a period of time. Ex: an interest rate of 8% per year means that a borrower must pay 8 cents per year for each dollar borrowed.
The prime interest rate: the rate that banks charge to their best business customers
Bank rate: interest rate that the Central Bank of Canada charged commercial banks on short-term loans |
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Definition
The price paid per dollar borrowed per period of time.
Ex: Borrow 100$ at 8% nominal interest rate. This means you will pay back 108$ in a year. |
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Definition
The nominal rate of interest adjusted for the change in purchasing power of money. Equal to the nominal rate minus the rate of inflation. Ex: you received 8% of interest on the money you lent out, but if the inflation was 2%, you actually only got 6% of interest.
Real interest rates are an important determinant of the level of investment by firms. Changes in real interest rates create changes in the real cost of borrowing, hence change the firms investment plans. |
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Definition
The number of Canadian dollars required to purchase one unit of foreign currency
Today: $1.31/Euro |
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| A rise in exchange rate - it takes more units of domestic currency to purchase one unit of foreign currency. |
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Definition
A fall in exchange rate - it takes less canadian dollars to buy a foreign unit. ( The canadian dollar appreciated relative to the euro lately/ from 1.40 in June to 1.30 now)
The appreciation of the canadian dollar relative to the US dollar between 1986 and 1992 was caused by BoC's efforts to reduce the inflation rate.
The appreciation of the canadian dollar during the 2002-2006 was associated with sharp increases in commodity prices |
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Term
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Definition
| Net exports is the difference between Canadian exports and imports. Also called trade balance. |
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