Microeconomics:
- the branch of economics that studies the
economy of consumers or households or
individual firms
VS.
Macroeconomics:
- The Study of the economy as a whole in
contrast to microeconomics , which studies
its parts.
GDP:
The total value of all final goods and services produced by and economy in
a given year.
- The most commonly used measure of a country’s output.
- GDP can be calculated in two different ways :
* Expenditure approach - Add up the total that is spent on all
goods and services in one year.
* Income approach – Add up all income that is earned by the
different factors of production (wages, rent,
interest, profit)
- The GDP in each case should be the same.
Multiple-counting: Inflating the size of the GDP by including the value of the
components of the final goods in the total.
To calculate the GDP using this approach, the final value of
goods and services produced in Canada is tabulated by Statistics
Canada through gathering expenditure information on a
nationwide basis.
The formula below is used to arrive at the GDP:
GDP = C + G + I + (X – M)
GDP = C + G + I + (X – M)
C = Consumption:
- What households spent on goods and services.
- total spent on durable goods, semi-durable goods, nondurable goods and services
G = Government Purchases':
- contains value of expenditures on all goods and services
by all levels of Government.
- Includes spending on wages to employees, office
supplies, and public capital goods (schools hospitals)
I = Investment:
- A business’s purchase of capital goods, construction of
new buildings, or changes to inventories, with a view to
increasing production and profit.
(X – M) = the value of net exports in Canada
M = imports:
- Purchases of all items , some of which are produced
outside of Canada
X = Exports:
- Production that originated in Canada but is purchased by
Individuals, businesses and governments in other
countries.
Gross National Product (GNP):
- Total value of all final goods and services
produced by Canadian-owned factories or
productions in Canada or anywhere in the world.
• Canada Started using GDP as its main measure of
output because it gives a better indication of
Canadian output.
- Includes production from Japanese – owned firms
but excludes production from Canadian Owned
firms.
• GDP is calculated based on
the market prices at the time
the goods.
- Changes in the level of
prices year to year can produce
misleading results.
•If prices increase rapidly,
the growth in GDP may not
actually be a result of
increased output.
•GDP is most commonly
used as a tool for
measuring economic
growth of a Country.
Real GDP: the constant
dollar GDP or chained
dollar GDP.
•Economic Growth:
- How much a
country's economy has
expanded from one
year to the next.
Real GDP
Growth rate =
(real GDP year 2 – real GDP year 1)__
Real GDP year 1
x 100
Example:
1999 real GDP = $966.4 billion
2000 real GDP = $ 1009.2 billion
growing are rate of
- Economy
4.4%
• Population size change can
be misleading if it change
significantly.
- Dividing a Country’s
GDP by its population
reveals its per capita GDP.
•Does not count output that
has no dollar value attached to
it (renovating homes)
•Does not include
transactions without
paper trails ( selling
drugs)
• Negative effects of
economic production.
(water pollution, Solid
waste)
• distribution of income
Unemployment Rate:
- the percentage of the labor force not working at any given
time. Statistics Canada calculates this figure once a
month.
Process:
- Conducting a nation wide survey
- Population is then grouped into a number of categories.
1. Under age of 15 and/or institutionalized.
2. eligible to be part of the workforce but chose
not to participate
3. Labor force
Labor Force:
- The total of all Canadians holding jobs plus all those
actively seeking work.
Unemployment Rate
=
# Unemployed
Labour force
X 100
This definition gives rise to some criticism:
- Includes anyone who has any type of wage earning job
as being employed.
- Does not include workers who have been looking for
jobs for so long that they may have just “given up”. If
not actively looking they are not included as
unemployed.
- People who are “underemployed.”
The actual unemployment rate is really higher than the official
figure suggests.
Full Employment:
- In Canada is considered by many to be when the unemployment
rate is in the range of 6 to 7 percent. Also known as the natural
rate of unemployment.
• High unemployment rate also entails the financial cost of programs, such as
the Financial Insurance. This helps alleviate the problem of unemployment.
•Financial cost is compounded by lost taxation revenues due to lower incomes
and decreased spending on goods and services.
•People suffer from a loss of self-esteem, los of job skill and increase in family
tension.
•People living in Atlantic Canada and individuals with lower education levels
consistently face higher levels of unemployment than the average Canadian.
(Figure 9.6 and 9.7 in textbook)
Unemployment above the natural rate of unemployment has
both financial and social costs:
Financial - lost output that results from labor resources
that are sitting idle. Lost output is known as
GDP Gap.
GDP Gap:
- Difference between the actual GDP produced by the
economy and the potential GDP that could be produced if
the unemployment rate was not higher than the natural
rate.
Okun’s Law:
- for every percentage point that the actual
unemployment rate exceeds the natural rate, a GDP gap of
2% occurs.
Formula:
(unemployment rate – natural rate) X2
GDP gap = actual X
---------------------------------------GDP
100