Econ203 - CH4 and CH5

• 1. GDP (Real Gross Domestic Product)
• 2. Inflation
• 3. Employment

looks at the amount of final goods and services in the economy and how much real income is created by that production (using prices from a  base year) - Also not affected by inflation

Price(BASE) X Quantity(CURRENT)

An increase in Real GDP. It is measured using the rate of economic growth

Real GDP yr2 - Real GDP yr1 / Real GDP yr1 x 100

A measure of the average prices of all goods and services produced.

the annual percentage change in the general price level. The inflation rate uses the same equation as the rate of economic growth except we replace Real GDP with the CPI

[(CPI2010 - CPI2009)/CPI2009)] X 100

• a) Fixed
• b) Base

The number of adults in the entire country that are employed full-time, part-time or self-employed

[(Labour Force - Employed)/Labor Force]X100

The percentage of the population 15 years or older that is either working or unemployed (ex in the labor force). It is used to see the size of the labor force compared to the whole population.

Labour Force/Population 15yrs+ X 100

unemployment that would be eliminated by higher levels of economic activity. This is mainly due to changes in seasons.

Unemployment that is due to the general structure (or lack of it) in the labor market

the unemployment that occurs in the time frame when transitioning between jobs or searching for jobs

shows the structural unemployment and frictional unemployment as a percentage. In Canada, there is normally a natural unemployment rate of 6%

(Employment/Population 15+ yrs) X 100

This occurs when there is 2 consecutive quarters (quarter = 3 months) of negative growth in real GDP. Basically, it indicates a decline in economic activity

1)Total expenditure on goods and services at market prices

2) Output of goods and services at market prices

3) Inputs to production at market prices

4) Incomes received ny households for inputs (i.e. working etc..)

Looks at the output of final goods and services, the income generated by the production of that output and expenditure on the sale of that output - using current prices.

• 1) Output Based GDP
• 2) Expenditure- Based GDP
• 3) Income-Based GDP

Supply, Produced

Demand, Bought

The difference between the market value of the product and the cost of "Intermediate inputs" - services and materials purchased from other businesses and used to make final goods

Services and materials purchased from other businesses and used to make final goods.

The finished product bought by the final user (NOT ANOTHER BUSINESS)

GDP = C + I + G + (X-Z)

spending by households on currently produced final goods and services

spending by businesses on currently produced final goods and services. It adds to the buildings, machinery and inventories that businesses use to make goods.

Government spending on currently produced final goods and services

locally made products being bought by foreign countries

Foreign countries' products being bought by the local market

The income-based approach looks at the incomes of everyone involved in providing the goods and services. Other costs and taxes are then added to include everything that goes in to the final prices of the goods.

Is the total of all wages, Salaries, and benefits paid to workers

The total of large corporations' profit and small business income. It measures the costs of management and entrepreneurship

Income earned by Financial Assets

This is simply the addition of Profit and Business Income + Interest and Investment Income from above

Total income earned by factors of production. Factors of production are all the previous terms we just looked at: incomes earned by labor, businesses and by holders of investment assets. Therefore: NDI = W + BI

measures depreciation of the capital stock. This refers to how a company's capital is getting older and less productive

Sales and Excise Taxes - Subsidies

GDP = W + B+ I + CCA+ Tin

Shows us the relationship between nominal and Real GDP

(Nominal GDP/Real GDP) X 100

it's used to explain the behaviour of real output and prices in the national economy

Is the planned aggregate expenditure on final goods and services at different price levels, with all other factors staying the same. 

We calculate it using the Expenditure-Based Approach for GDP

The output of final goods and services that businesses would produce at different price levels, with all other factors remaining the same (wage rates and net indirect taxes). We calculate it using the income-based approach

Market demand assumes that income is constant. AD means that income and price are simultaneously increasing at the same amount

it remains unchanged because there are no alternatives in the short run so people have to consume less of other products

• 1 - Interest Rate Effect
• 2 - Substitution Effect
• 3 - Wealth Effect

a) As prices increase, people and businesses need more money to pay their expenses

b) This increases the demand for loans which makes the interest rate go up and cost of expenditure increases.

c) As a result, people's planned expenditure would decrease and others would rather wait until interest rates drop

d) This helps show us the negative relationship between price levels and planned aggregate expenditure

The change in net exports when relative national prices change

If canadian prices increase, canadians will import more from the US cause its cheaper. Vice versa.

Both of these changes cause AD using the expenditure based approach to decrease as prices increase

The change in planned consumption when household wealth changes.

• 1) Changes in Labour Cost
• 2) Changes in business and investment income (profit) plus capital consumption.
• 3)Changes in net indirect taxes

upwards, positive

the point where planned expenditure equals current output and provides business revenues that cover costs and their expected profits

This is also known as the Long-Run Aggregate Supply (LAS). It is the output the economy can produce with the current labour and technology level being fully utilized. - not affected by the price level - its a vertical line

The short term fluctuation of actual real GDP.

The differences between actual Output (Y) and potential output (Yp)

• (Y-YP)
• (Y-YP/YP)X100

Un =[ (Labour Force - equilibrium employment)/Labor force] X 100

it's the unemployment rate when the economy is at potential output

it states that changes in unemployment rates are because of differences between the growth rate of actual real GDP (Y) and the growth rate of potential GDP

change in unemployment rate = -0.5 (growth rate of Y - growth rate of Yp)

• -During a recessionary gap, unemployment rises and workers are willing to work less so wage rates and other factor prices will become lower.
• - This will lead to a lower price level  and the actual output level will increase as shown by the new equilibrium

price levels are higher so workers will demand more money, wages will be higher and that will shift AS to the left to equilibrium

• Fiscal Policy 
• Monetary Policy

Gov Expenditure (G) and Tax Changes (T) used to influence AD

Changes in interest rates and money supply used to influence AD