Chapter 9 Introduction to Macroeconomics Macroeconomics n the
- Slides: 11
+ Chapter 9 Introduction to Macroeconomics
+ Macroeconomics n the study of the economy as a whole n We measure performance to track the development of the economy
+ Gross Domestic Product (GDP) n Expenditure Approach – total spent on final goods and services: n C+G+I+(X-M) n n n where C = consumption of households G = government purchases I = investment X = amount received in sale of exports M = amount spent on imports n Income Approach – add income earned by factors of production in producing the final goods and services
+ Gross Domestic Product (GDP) n Gross National Product (GNP) popular before mid-80’s n but it didn’t include foreign firms in Canada paying Canadian workers n Real GDP growth rate = Real GDP year 2 – Real GDP year 1 x 100 Real GDP year 1 n Real GDP per capita more informative (divide by pop. )
+ Drawbacks to GDP n population size (do a GDP per capita instead) n non-market production (volunteer, homemaking, etc. ) n underground economy (legal & illegal) n types of goods (better than previously) n Leisure (not considered) n Environment (harmful effects) n distribution of income (doesn’t show real picture of wealth)
+ Unemployment n Unemployment rate is the percentage of the labour force not working at any given time n UE Rate = Number unemployed x 100 Labour force n Labour Force is n n n those employed willing and able to work actively seeking employment
+ Unemployment Issues n part-time counted as full-time n those who give up looking not part of labour force n some are overqualified n Full Employment (FE) does not mean all in labour force are working n FE may be in the 5 -7% range given the types of unemployment
+ Types of Unemployment n Structural n n n skills of workers not needed technological replacement to other lower paying country n Frictional – between jobs (also students) n Cyclical – based on downturn in the economy n Seasonal – employment depends on climate (farming)
+ Okun’s Law n Okun’s Law – the GDP gap is 2% for every 1% the unemployment rate is higher than the natural rate n E. g. , Full employment is 5% n Real unemployment rate 7% n GDP gap = 4% (7 -5 x 2) n If GDP is $500 b (=96%) then potential GDP is $521 b ($500/. 96)
+ Inflation n Consumer Price Index – general increase in prices from one year to the next n Formula = CPI year 2 – CPI year 1 x 100 CPI year 1 n. A “basket of goods” is used with weightings of different goods n. A base year is used to allow comparisons n Price index n Formula = Price of Basket in current year x 100 Price of Basket in base year n Indexing – means your wage or pension is tied to the CPI
+ Limitation of CPI n weightings don’t reflect everybody’s spending habits n Statscan slow to change due to spending pattern changes n Cultural differences
