1. DEFINING ECONOMICS
-microeconomics: individual markets of goods and services
-macroeconomics: employment levels, interest rates, inflation, recessions, government spending
THE DECISION MAKERS
consumers, businesses, and governments
DEMAND, SUPPLY, AND MARKET EQUILIBRIUM
2.MEASURING ECONOMIC GROWTH
GROSS DOMESTIC PRODUCT (GDP)
The total market value of all the final goods and services produced in a country over a given period.
-Income approach: adds up all of the income generated by this economic activity.
-Expenditure approach: add up everything that consumers, businesses, and governments spend money.
GDP = c+i+g+(x-m)
REAL AND NOMINAL GROSS DOMESTIC PRODUCT
-Nominal gross domestic product (nominal GDP) is the dollar value of all goods and services produced.
-real gross domestic product (real GDP). This measure removes the changes in output that are attributable to inflation.
key factors contribute to gains in productivity: Technological advances, Population growth, Improvements in training, education, and skill
3.THE BUSINESS CYCLE
PHASES OF THE BUSINESS CYCLE
-expansion, peak, contraction, trough, and recovery
• Leading indicators: Housing starts, Manufacturers’ new orders, Commodity prices, Stock prices, The money supply
• Coincident indicators: Personal income, GDP, Industrial production, Retail sales
• Lagging indicators: Unemployment, Inflation rate, Labour costs, Private sector, plant and equipment spending, Business loans
Depth, Duration, Diffusion
4. THE LABOUR MARKET
15 years of age and older
• Those who are unable to work • Those who are not working by choice • The labour force
LABOUR MARKET INDICATORS
• Participation rate • Unemployment rate
TYPES OF UNEMPLOYMENT
Cyclical unemployment, Seasonal unemployment, Frictional unemployment, Structural unemployment
5. THE ROLE OF INTEREST RATES
DETERMINANTS OF INTEREST RATES
• Demand and supply of capital
• Default risk
• Foreign interest rates and the exchange rate
• Central bank credibility
HOW INTEREST RATES AFFECT THE ECONOMY
• They reduce business investment
• They encourage saving
• They reduce consumption
-Real interest rate is the nominal interest rate minus the expected inflation rate.
6. THE IMPACT OF INFLATION
The Consumer Price Index (CPI) is a widely used measure of inflation.
THE COSTS OF INFLATION
• erode the standard of living
• reduces the real value of investments
• distorts the price signals sent to market participants
• rising interest rates and a recession
THE CAUSES OF INFLATION
• Lower unemployment is achieved in the short run by increasing inflation at a faster rate.
• Lower inflation is achieved at the cost of possibly increased unemployment and slower economic growth.
7. INTERNATIONAL FINANCE AND TRADE
BALANCE OF PAYMENTS
-Current account: records the import and export of goods and services between Canadians and foreigners
– Capital and financial account: records financial flows between Canadians and foreigners
DETERMINANTS OF EXCHANGE RATES
Commodities, Inflation, Interest rates, Trade, Economic performance, Public debts and deficits, Political stability