Inflation

-CPI/PPI

-Core inflation

Types of unemployment:

Frictional unemployment

Seasonal unemployment

Structural unemployment

Cyclical unemployment

Frictional unemployment-people moving between jobs or entering or re-entering the labor force. (college)

Full employment- a condition that prevails when the only unemployment is frictional and structural unemployment.

Seasonal unemployment- caused by season variations.

Structural unemployment- caused by a mismatch between the types of skills that unemployed workers possess and the types of workers that employers would like to hire.

Technological unemployment- a type of structural unemployment caused by the introduction of laboursaving equipment or methods of production.

Cyclical unemployment- arises because of declines in aggregate expenditure and aggregate output such as durng recessions.

Labour Force- the sum of all employed and all unemployed people who are willing and able to work.

Capacity utilization rate- shows the degree to which firms use their factories and machinery.

Labour force participation rate- expressed as a percentage of the adult population.

Employment rate.

Underemployment- workers accept low-paying jobs or part-time jobs because they cannot find a full-time job consistent with their qualifications.

Discourage workers- who have abandoned the search for jobs because the are unable to find work.

Potential GDP or full employment output- the economy’s output at full employment.

Actual output- the level of output produced by the economy.

Output gap or income gap- the difference between the potential output and the actual output of an economy.

Okun’s law- the assertation that real output falls by 3% for every 1% increase in the unemployment rate.

Rate of inflation- is the rate of change of the average level of prices.

(CPI)Consumer price index- measures changes in the prices of consumer goods and services.

(PPI)Producer price index- measures changes in the prices of producer goods.

GDP deflator- measures changes in the average level of prices of all final goods and services.

Core rate of inflation or core GDP- prices of gasoline and some food items.

Rule of 70- a formula for determining the number of years required for a number to double for a given rate of change.

Hyperinflation or runaway inflation- an excessively high rate of inflation usually 100% or more annually.

THE WINNERS OF INFLATION (DEBTORS(BORROWERS), PRODUCERS)

THE LOSERS – CREDITIORS, PEOPLE ON FIXED INCOMES.

CH7

AS-AD Model

-Shifting the AD curve

- Understand the AS Curve

-AS Shifters

Short-run equilibrium of Real Output and the Price level

Aggregate demand- the total demand for all goods and services in the economy during a specific period. The various level of real output that will be demanded at various price levels.

Fallacy of composition- the assumption that what is true of the parts must also be true of the whole.

Aggregate expenditure:

AE=C+I+G+(X-M)

Interest rate effect- the impact of changes in interest rates on consumption and investment and thus on total spending.

Foreign trade effect – changes in the price level on exports and imports and thus on the quantity of real GDP demanded.

Real wealth effect- changes in the price level on real wealth and thus on the quantity of real GDP demanded.

THE FACTORS that can shift aggregate demand curve are called AD shifters and are components of aggregate expenditure; CONSUMPTION, INVESTMENT, GOVERNMENT SPENDING, NET EXPORTS.

Consumer(consumer wealth(price remains CW increase, AD curve to the right), taxes, expectations, interest rate)

Short run- a situation in which firms can not very all their inputs or productive resources, thus, they operate with some fixed costs.

Short run aggregate supply curve- a graph that shows the various levels of real GDP that will be supplied at various price elvels in the short run.

Keynesian range- the horizontal section of the AS curve that represents high unemployment and low real GDP.

Intermediate range- the upward-sloping section of the AS curve that represents high price level.

Classical range- the vertical section of the AS curve that represents output at its maximum.

THE FACTORS that can shift Short run AS curve:

PRODUCTION COST, CHANGES IN RESOURCES, CHANGE IN TECHNOLOGY, TAX Policies, Natural Desaster.

AN INCREASE IN AS RESULTS IN INCREASE IN REAL GDP AND A FALL IN THE PRICE LEVEL.

A DECREASE IN AS RESULTS IN DECREASE IN REAL GDP AND AN INCREASE IN THE PRICE LEVEL.

CH11

Government Spending

-Fiscal policy

-tool of fiscal policy

budget position

Autamatic Fiscal policy

Discretionary Fiscal Policy

Fiscal policy- is the use of government spending and taxes to influence economic behaviour. (budgetary policy)

The government budget- is a plan of hte indended revenues and expenditures of the government for the ensuring fiscal policy. It is the main instrument used by the government to execute its economic policies.

Budget defecit- government spending is greater than tax revenues (G>T)

Budget surplus- government spending is less that tax revenues (T>G)

Balane budget- government spending equals tax revenues (G=T)

Functional finance- the international use of defecits and surpluses to achieve desired economic objectives. (keynesian belives that it can be used as a weapon agains recessionary and inflationary situations)

Balance budget change in spending- a change in government spending equals the change in taxes.

Balanced budget theorem- if government spending and taxes increase by the same amount the resulting increase in income will equal the increase in government spending.

Automatic fiscal policy or automatic (built-in) stabilizers- the fiscal policy measures that are built into the economy. (progressive taxes, government assistance to agriculture and employment insurence)

Discretionary fiscal policy- deliberate changes in government spending and taxes to achieve desired economic objectives.

Fiscal drag- automatic stabilizer prevent the economy from recovering from a recession.

Contractiona fiscal policy- decreases in government spending and increases in taxes that result in a reduction in aggregate expenditure.

Expansionary fiscal policy- increases in government spending and increases in taxes that result in an increase in aggregate expenditure.

Full employment budget- the position of the budget if the economy were at full employment.

CHANGES IN THE BUDGET DO NOT NECESSARILY INDICATE CHANGES IN FISCAL POLICY. CHANGES IN THE FULL-EMPLOYMENT BUDGET, HOWEVER, DO INDICATE CHANGES IN FISCAL POLICY.

AN INCREASE IN GOVERNMENT SPENDING THAT INCREASES THE ECONOMY'S PRODUCTIVE CAPACITY (EDUCATION, HEALTH, ROADS RAIL, WATER) INCREASES AGGREAGATE SUPPLY. A DECREASE IN GS CAN REDUCE AS.

AN INCREASES IN TAXES REDUCES AS. A REDUCTION IN TAXES INCREASES AS.

Ch 13

Characteristics and Functional of money

• Kinds of Money, Near money, Money substitutes

• The Money Supply in Canada

• The value of Money

• Canadian payments System

• Money supply, Inflation and Unemployement.

Money- anything that is generally accepted as final payment for goods and services.(beads, salt, stones, gold, silver, paper, cattle)

SIX FEATURES THAT MAKE A CURRENCE WORK EFFECTIVELY: