Final Notes PDF

Final Notes Saturday, November 23, 2024 11:30 AM Consumer Surplus A consumers expenditure on a product is the market price multiplied by the amount of units so Surplus is found by subtracting consumer expenditure from total benefit Marginal benefit Producer Surplus Difference between the...

Final Notes Saturday, November 23, 2024 11:30 AM Consumer Surplus A consumers expenditure on a product is the market price multiplied by the amount of units so Surplus is found by subtracting consumer expenditure from total benefit Marginal benefit Producer Surplus Difference between the price and what sellers are willing to sell for Ex you're willing to sell for 1 unit for 20 but the market E price is 60 PS for the first unit is 40 do The difference between the price they received from selling each unit of a product and the marginal cost of producing that unit Marginal cost/benefit = Supply and Demand 1/2BH or BH/2 Total benefit is all prices added together Perfect competition - a market with many buyers and sellers, of the same standard pro old (lower half) ollars but decreases for each additional unit oduct, easy entry and exit  1/2BH or BH/2 Total benefit is all prices added together Perfect competition - a market with many buyers and sellers, of the same standard pro GDP The dollar value of final goods and services produced within a country in one year Expenditure - all purchase made on goods and services in a given year GDP= C + I + G + (X ○ Excludes intermediate goods, only considers final product ○ Excludes used goods, financial transactions, Transfer Payments Consumption Goods Services and goods Investments Goods bought for future use Business fixed investment (equipment) Residential Fixed Investment (housing) Inventory investment (stock of unused goods) Government Purchases They include all government spending on goods and services (roads Excludes transfer payments, (EI, welfare payments) Net Exports Exports minus Imports Income Approach - All income earned by these purchases National Income = Wages + Rent + I Includes: Non-Factor payments: Indirect taxes and Depreciation Net investment = Gross investment – Depreciation Real GDP Expressed using the same base year price to calculate Per capita GDP is Real GDP/Population Real GDP= Nominal GDP/GDP deflator Nominal GDP -is calculated using market prices in the current tax year, GDP expressed as total income is identical to GDP expressed as total spending. Inflation Increase in price level over a time period oduct, easy entry and exit X-IM) s, military) Interest + Profit as total spending. Inflation Increase in price level over a time period 2 ways to calculate price change, Consumer Price Index (CPI) and GDP deflator Inflation rate = year / previous year - 1 = -1 CPI # assigned to each year that show how prices have changed relative to a specific base yea is a measure of the overall price level for consumer goods and services. It keeps track of the changes in the cost of living for a typical household. Core CPI excludes food and energy because they are volatile GDP Deflator compares prices in the current year to those in a base year. It includes the prices of all goods and services produced in an economy, including capital goods Labour Labour Force : Includes employed and unemployed ○ People who are working or seeking work ○ Excludes: criminals and those not looking for work Labour force population is people over 15 ar s. Labour Labour Force : Includes employed and unemployed ○ People who are working or seeking work ○ Excludes: criminals and those not looking for work Labour force population is people over 15 Labour Force Participation Rate - Labor force / working age population X 100 = Participation Rate Unemployment rate : includes those were are unemployed but looking for work Four Types of Unemployment: Frictional Unemployment: ○ Temporarily between jobs or looking for a first job ○ Friction in job market, takes time to find job, constant ○ Qualified workers who aren't working Structural Unemployment: ○ Due to a mismatch between workers and jobs caused by structural changes in the e ○ Ex. Robots replacing humans Cyclical Unemployment: ○ Due to economic fluctuations ○ Viewed as especially correctable through government policies, monetary and fiscal Seasonal Unemployment: ○ Due to seasonal nature for some occupations and industries Natural Rate of Unemployment (NRU) - The amount of unemployment that exist when th when there is only frictional and structural unemployment Aggregate demand Aggregate- added all together the total quantity of goods and services demanded in an economy at a given overall price level AD=C+I+G+(X−M) economy making jobs obsolete l he economy is healthy, l and time period. Aggregate- added all together the total quantity of goods and services demanded in an economy at a given overall price level AD=C+I+G+(X−M) The AD Curve The AD curve shows the relationship between the price level and the quantity of output deman It slopes downward for these reasons: 1. Wealth Effect: As prices decrease, people feel richer and spend more. 2. Interest Rate Effect: Lower prices lead to lower interest rates, which encourages borrowi 3. Foreign Trade Effect: Higher prices decrease exports and increase importss vice versa Shift in AD An increase in spending causes a rightward shift in the AD curve. A decrease in spending causes a leftward shift in the AD curve. Factors Changing AD Consumption C Disposable income Wealth (such as stock market gains or rising property values. Expectations Interest Rates - Higher interest rates make borrowing more expensive, discouraging spen Investment Interest Rates Business Confidence/Expectations Government Spending All raise AD Net Exports Foreign Incomes- When incomes in other countries rise, they demand more of your count Exchange Rates- ex. Can dollar decreases imports drop and exports rise because its cheap Trade Policy- impacts imports/exports Aggregate Supply Total Quantity of goods and services that producers are able to supply Shifters Input Cos costs. l and time period. nded. ing and investment. nding on items like cars or homes, reducing consumption. try's exports, increasing AD. per to buy and produce from that country s of Short run sts: Changes in wages, raw material prices, or energy Aggregate Supply Total Quantity of goods and services that producers are able to supply Shifters Input Cos The AS curve becomes steep above potential output because costs. a relatively large increase in the price level is required if Exa businesses are to increase output in this range. eve Productiv SRAS righ Short run aggregate supply Supply Sh Short run changes in AS are caused by varying input prices AS (shift l Long Run changes in AS are caused by varying resource supply and productivity Business Cycles Expansion- a phase where the economy is growing, increased economic activity, including production Key Characteristics Rising GDP (total output of goods and services increases) Falling unemployment (businesses grow, hiring more workers) Increased consumer spending Rising Investment Mild inflation- prices start rising due to increased demand After a recession, government policies like stimulus spending or interest rate cuts can lead to e Contraction- A phase where the economy is shrinking, businesses produce less. Econ activity slows Key Characteristics Falling GDP Rising Unemployment Reduced consumer spending- less spending due to job losses Lower investment: Companies cut back on investments as profits decline Deflation- Demand weakens, slowing down inflation A recessionary gap: occurs when equilibrium output falls short of potential output, and is associated with an unemployment rate above the natural rate An inflationary gap: occurs when equilibrium output exceeds potential output, and is associated with an unemployment rate below the s of Short run sts: Changes in wages, raw material prices, or energy ample: If oil prices rise, SRAS shifts left (less production at ery price level). vity: Improved technology or processes shift ht (more output at every price level). hocks: Natural disasters or unexpected events can reduce left). n, employment, and income economic recovery and expansion.  occurs when equilibrium output falls short of potential output, and is associated with an unemployment rate above the natural rate An inflationary gap: occurs when equilibrium output exceeds potential output, and is associated with an unemployment rate below the natural rate as well as increased pressure on prices 2 Stabilization Policies Fiscal and Monetary Fiscal Policy Controlled by central bank Slow It involves changes in Gov. spending and taxation to influence AD Expansionary Fiscal Policy Used during Recessions/ Contractions to stimulate economy IT, Increases Gov. Spending (G) - more spending on infrastructure, ed, healthcare increases Decrease Taxes- Reduces income taxes and corporate taxes, increasing C and (I) Contractionary Fiscal Policy Used During Inflation IT, Decreases Government Spending- cuts funding to reduce AD Increase Taxes- Higher taxes reduce disposable income, slowing consumption and investm Monetary Policy Controlled by central bank, manages money supply and interest rates Expansionary Monetary Policy Used During Recession IT, Lowers Interest Rates Increases Money Supply Contractionary Monetary Policy Used during Inflation IT, Raises interest rates Decreases Money Supply Expansionary Policies: Increase AD, stimulate growth (useful during recessions). AD ment  Raises interest rates Decreases Money Supply Expansionary Policies: Increase AD, stimulate growth (useful during recessions). Contractionary Policies: Decrease AD, control inflation (useful during economic booms, Inflation). Multiplier effect Fiscal Policy, initial spending leads to more spending my many people, spend some save some. MPC answers the q of, if income increases by X amount, how much extra will be spent on dome MPC = Change in consumption of domestic items/change in income Marginal propensity to Withdraw, MPW is the effect of a change in income on withdraws such MPW= change in total withdrawals/ change income Multiplier= 1/1-b b= Marginal propensity to consume 3 main functions of money Medium of exchange - Barter economy- econ. Without money double coincidence of wants Acts as unit account- An agreed measure for value of goods and services Store of Value Money can be held and then exchanged for money Institution: Deposit Takers: accept funds provided by savers and lend these funds to borrowers hold cash reserves to meet the needs of depositors withdrawing funds Charted Banks and Near Banks  EX. If you get $100 and spend $75 and save $25: MPC is 0.75 Called Marginal Propensity to consume (MPC) MPS is 0.25 estic goods and services? as, taxes, saving, and imports Institution: Deposit Takers: accept funds provided by savers and lend these funds to borrowers hold cash reserves to meet the needs of depositors withdrawing funds Charted Banks and Near Banks Chartered banks are deposit takers allowed by federal charter to offer a wide range of financi Near banks are deposit takers that are not chartered and have more specialized dervices and ○ Trust companies ○ Mortgage loan comp. ○ Credit unions Components of the Money Supply Money consists of Currency - bills and coins created by royal mint Deposits - bank deposits Measurement of Money M1- currency held outside of banks by individuals plus chequable deposits M2- consists of M1 plus all other deposits- non chequable deposits Money Creation -Commercial Banks create money through lending Fractional reserve system : Banks keep a fraction of deposits as reserves and use the rest to make loans The Reserve Ratio: reserves divided by deposits R/D=RR Desired reserve ratio, the fraction of its deposits that a commercial bank ideally wants to hold as reserves to satisfy Excess reserves: are reserves held by a commercial bank in excess of its desired reserves As long as excess reserves exist, more money can be created Change in MS = 1000+ 1000 (1-10%) +1000 Money Multiplier = (1/ desired reserve ratio) The actual money supply change is less than a maximum amount found using the above formula Change in Money Supply = change in excess reserves X money multiplier Money Demand The amount of money that people want to hold at any time is called the demand for money Determinates: Interest rate (doesn't shift the curve) ial services they include y anticipated withdrawal demands Change in Money Supply = change in excess reserves X money multiplier Money Demand The amount of money that people want to hold at any time is called the demand for money Determinates: Interest rate (doesn't shift the curve) Real GDP (Shifts) Price level (Shifts)