Macroeconomics

Economics

The study of how society manages its scarce resources

Scarcity

The limited nature of society's resources

The management of society's resources is important because...

...resources are scarce

The study of how people make decisions is called...

...economics

any college or university graduate would rather enter the labour force in a year of \__________________________ rather than in year of \____________________________

economic expansion, economic contraction

Microeconomics

The study of how individuals make decisions

The study of how individuals make decisions is known as...

...the study of microeconomics

Macroeconomics

The study of how the economy as a whole makes decisions

The study of how the economy as a whole makes decisions is known as...

...the study of macroeconomics

GDP

The statistic that measures the total income of everyone in the economy

The statistic that measures the total incomes of everyone in the economy is called...

...GDP

Inflation/Deflation

the rate at which average prices are rising or falling

The rate at which average prices rise or fall is known as...

...inflation/deflation

Unemployment

The percentage of the labour force that is out of work

The percentage of the labour force that is out of work is know as...

...unemployment

Retail sales

total spending at stores

The total amount everyone spends at stores is called...

...retail sales

Trade Deficit

The imbalance of trade between Canada and the rest of the world

The imbalances of trade between Canada and the rest of the world is known as...

...the trade deficit

Macroeconomic statistics include:

* GDP
* Inflation/deflation
* unemployment
* retail sales
* The trade deficit

Retail sales is an example of..

...a macroeconomic statistic

A term for the study of how households and firms make decisions and how they interact in markets is called:

microeconomics

A term for the study of economy-wide phenomena, including inflation, unemployment and economic growth is called:

macroeconomics

The goal of macroeconomics is to...

...explain the economic changes that affect many households, firms, and markets simultaneously

To explain the economic changes that affect many households, firms, and markets simultaneously...

...is the goal of macroeconomics

The basic tools of \________________________ are as central to macroeconomic analysis as they are to microeconomic analysis

supply and demand

The basic tools of ________________________ are as central to macroeconomic analysis as they are to microeconomic analysis

a. households and firms

b. independent and dependent variables

c. analyzing and interpreting

d. supply and demand

d. supply and demand

Microeconomics and macroeconomics are closely linked because:

the economy as a whole is just a collection of many households and firms interacting in many markets

The total income of a nation is known as:

the GDP

\__________ is the most closely watched economic statistic because it is thought to be the the best single measure of a society's economic well-being.

GDP

__________ is the most closely watched economic statistic because it is thought to be the the best single measure of a society's economic well-being.

a. inflation

b. economic growth

c. GDP

d. retail sales

c. GDP

GDP is the most closely watched economic statistic because it is...

...thought to be the best single measure of a society's economic well-being.

GDP is the most closely watched economic statistic because it is thought to be the best single measure of:

a society's economic well-being

an economy is a group of \__________________________ interacting with each other

decision makers

Macroeconomy is the study of economy-wide phenomena, including...

...inflation, unemployment, and economic growth

If you were to judge how a person is doing economically, you might first look at that person's income. T/F

T

The task of GDP is to...

...look at the total income that everyone in the economy is earning

GDP measures two things at once: the \_____________________ of everyone in the economy and the total expenditure on the economy's \_________________________________

total income, output of goods and services

GDP measures two things at once: the total income of everyone in the economy and...

...the total expenditure on the economy's output of goods and services

The reason GDP can measure total income and total expenditure is because...

...these two things are really the same

The reason GDP can perform the trick of measuring both the total \________________________ and the total \______________________________ is that these two things are really the same.

income, expenditure

For an economy as a whole, income must...

...equal expenditure

For an economy as a whole, expenditure must...

...equal income

Which headline would be most closely related to what macroeconomists study?

a. Canada's competition tribunal approved $26B Rogers-Shaw merger.

b. The price of gasoline rises due to Russia's invasion of Ukraine.

c. The unemployment rate decreases from 6 percent to 5 percent.

d. Avian flu is spreading across Canadian poultry farms

c. The unemployment rate decreases from 6 percent to 5 percent.

An economy's income is the same as its expenditure because every transaction has two parties:

a buyer and a seller

Every dollar of spending by some buyer is a dollar of income for some seller. T/F

T

Every dollar of spending by some buyer is...

a dollar of income for some seller

Karen pays Doug $100 to mow her lawn. In this case, Doug is a seller of a service, and Karen is a buyer. Doug earns $100, and Karen spends $100. Thus, the transaction contributes equally to...

the economy's income and its expenditure

Karen pays Doug $100 to mow her lawn. In this case, Doug is a seller of a service, and Karen is a buyer. Doug earns $100, and Karen spends $100. Thus, the transaction contributes equally to the economy's income and to its expenditure. Therefore...

...GDP, whether measured as total income or total expenditure, rises by $100

5 players (decision makers) in Macroeconomics

* The government
* firms
* Households
* The central bank
* The rest of the world

The 5 markets in Macroeconomics

* Product market
* Factor market
* Asset market (physical and financial)
* Money market
* Foreign exchange market

In the circular flow diagram households buy…

…goods and services from firms

Money flows through the market for goods and services when…

…firms sell goods and services and then households buy them

Firms use the money from selling their goods and services to pay…

…wages to workers, rent to land owners, and profit to firm owners

Money flows through the market for factors of production when…

…firms use the money from selling their goods and services to pay wages, rent, and profit and then end up with income

The precise definition of GDP is:

the **market value** of all final goods and services produced within a country in a given period of time

The market value of all final goods and services produced within a country in a given period of time is known as…

…the precise definition of GDP

GDP is the _______________ __all__ ___________________________ in a given period of time

market value of, final goods and services produced within a country

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2015.*


1. An accountant starts a client's 2015 tax return on April 14, 2016, finishing it just before midnight on April 15, 2016.

1. not included because it would be included for the GDP of 2016 not 1015

________________________________________ contributes more to the GDP over the production of a kilogram of coffee?

The production of a kilogram of hamburger

A kilogram of hamburger affects GDP more than a kilogram of coffee because…

…hamburgers have more products involved to make.

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2015.*


2. Roadway Motors, a Canadian automobile company, produces a convertible at a plant in Germany on March 17, 2015. Roadway Motors imports the convertible into Canada on May 21, 2015.

2. not included because the good was not produced in Canada.

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2015.*


3. Rotato, a Canadian tire company, produces a set of tires at a plant in Oshawa on September 13, 2015. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in Canada in 2015. (**Note**: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.)

3. included

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2015.*


4. Tasty's, a Canadian fast-food company, produces a hamburger at one of its many Halifax locations on January 9, 2015. It sells the hamburger to a customer that same day.

4. included

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2015.*


5. Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Ottawa on December 5, 2015. An elementary school student buys the chocolate bar on December 24.

5. included

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2017.*


6. You chop down a cherry tree on your property in British Columbia and make a dining room table in 2017. A similar table sells for $800 in a local furniture store.

6. not included because it’s a DIY activity so GDP is difficult to calculate

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2017.*


7. Graincorp, a Canadian agricultural company, produces corn syrup at a plant in Saskatchewan on September 11, 2017. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in Canada in 2017. (**Note**: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.

7. not included because the final good was the cereal

*Based on the definition, will this be included in (that is, directly increase) the GDP of Canada in 2017.*


8. Fastlane, a Japanese automobile company, produces a sedan at a plant in Oakville on December 4, 2017. A family buys the sedan on December 23

8. included because it was produced in Canada

GDP tris to be comprehensive. It included all items produced in the economy and sold _______________ in markets.

legally

For rental housing, GDP is calculated using the tenants ___________ __and__ the landlords ___________

expenditure, income

When a person’s house is owned by them and not rented, the government includes this in GDP by…

…estimating it’s rental value

The government calculates the GDP for a home **owner** by assuming the owner __________ , so the rent is included both in his _________ and his __________

pays rent to himself, expenditure, income

GDP excludes some items that are harder to measure. T/F

T

GDP includes all products because they are measurable. T/F

F

_____________ and ________________ are excluded from GDP.

Illegal goods, things you produced and consumed

If I grew and ate my own mangoes the GDP would…

… not be affected because it’s excluded from GDP

When Karen pays Doug to mow her lawn, that transaction is part of GDP. If Karen were to marry Doug, the value of the mowing is now left out of GDP because _____________________________________ , so GDP falls

Doug’s service of mowing the lawn is not for a price in the market.

Intermediate Good

The original good that you start with.

When Domtar Corporation makes paper, which Carlton Cards then uses to make a greeting card, the paper is called ____________________ , and the card is called _____________________

an intermediate good, a final good

An intermediate good is the ending product. T/F

F

An intermediate good is the starting product. T/F

T

A final good is the starting product. T/F

F

Roommates Grace and Kelly are sharing household chores and think they have an even exchange. If instead they paid each other for the chores the other did, what would happen to GDP?

a.It would fall.

b.It would rise.

c.It would be unaffected because paid or not, household chores are not included in GDP.

d.It would be unaffected because paid or not, household chores are included in GDP.

b. it would rise

The formula of GDP is divided into what components:

* consumption (C)
* Investment (I)
* Government purchase (G)
* Net exports (NX)
* = exports (E) - Imports (M)

The formula for GDP is:

Y = C + I + G + NX

Consumption (C)

spending by households on goods and services, with the exception of purchases of new housing

Investment (I)

spending on capital equipment, inventories, and structures, including household purchases of new housing

Government Purchase (G)

spending on goods and services by local, territorial, provincial, and federal governments

Net Exports (NX)

the value of a nation’s exports minus the value of its imports; also called the trade balance

Suppose,

A farmer produced a bag of wheat and sold it to a miller for $5

The Miller turns the wheat into flour and sold it to a baker for $15

The baker turns the flour into a bread and sold it to me for $30.

I ate the bread.

Can you compute GDP?

GDP is $30

What is included in GDP?

a. Your purchase of bonds issued by Canadian Government

b. Your purchase of stocks issued by Canadian Tire

c. Your recent visit to a dentist

d. Your purchase of ownership in a new company

c. Your recent visit to a dentist.

Stock, bonds, and ownership are neither goods nor services.

If I want the GDP of 2023 and a t-shirt made in 1995 was sold in 2023, this would…

…not be included in GDP because the shirt was produced in 1995, not 2023

Diego Maradona's "Hand of God" jersey from 1986 (suppose the price was $5000) World Cup was sold for $11.5 million in 2022. How was GDP impacted?

a. It has Increased 1986’s GDP

b. It has increased 2022’s GDP

c. GDP for both 1986 and 2022 remained unaffected

d. The 2022 sale increased 2020 GDP by $ 11.5 million, and 2019 GDP is revised upward by the difference

c. GDP for both 1986 and 2022 remained unaffected

Anna, a Canadian citizen who works in France for a Swiss firm, receives her pay in a German bank. To which country’s GDP does Anna’s employment contribute?

a. Canada.

b. Germany

c. France

d. Switzerland

c. France because that is where Anna is providing goods and services

In computing GDP, what is investment?

\
a. spending on stocks, bonds, and other financial assets

b. spending on real estate and financial assets

c. spending on new equipment, inventories, and structures, including new housing

d. spending on equipment, inventories, and structures, excluding household purchases of new housing

c. spending on new equipment, inventories, and structures, including new housing

If total spending rises from one year to the next, one of two things must be true (1/2):

\

1. The economy is producing a larger output of goods and services.

If total spending rises from one year to the next, one of two things must be true (2/2):

2. Goods and services are being sold at higher prices.

**Assume that the country produces only one good: Corn.**

* GDP (2020) = $100 million  = Price (2020) X Q (2020) = $10 \* 10 million
* GDP (2021) = $120 million = Price (2021) x Q (2021) = $10 \* 12 million

If price remains the same…

…we can compare GDP from two years. 2021 is a better year in terms of economic activities.

Nominal GDP

the production of goods and services valued at __*current prices*__.

Real GDP

the production of goods and services valued at __*constant prices*__