Macroeconomics Midterm #2

annual percentage change of real GDP

real GDP divided by the population

1) The economy might be returning to full employment in an expansion phase of the business cycle.

2) Potential GDP might be increasing

States that the number of years it takes for the level of a variable to double is approximately 70 divided by the annual percentage growth rate of the variable.

real GDP

the quantity of real GDP produced when the quantity of labour employed is the full employment quantity.

1) An aggregate production function

2) An aggregate labour market

How real GDP changes as the quantity of labour changes (when all other influences on production remain the same)

quantity of labour demanded and the real wae rate.

money wage rate divided by the price level

quantity of labour supplied and the real wage rate

When it is at the real wage rate at which the quantity of labour demanded equals the quantity of labour supplied.

At full employment

growth in the supply of labour

growth in labour productivity

-increase the supply of labour

-with no change in the demand for labour, the equilibrium real wage rate falls and the aggregate hours increase

- increase in aggregate hours increases potential GDP

(LABOUR SUPPLY CURVE SHIFTS RIGHT)

the quantity of real GDP produced by an hour of labour

GDP divided by aggregate labour hours.

upward

-increases demand for labour

-with no change in the supply of labour, the real wage rate rises

-aggregate hours increase

-physical capital growth

-human capital growth

-technological adances

the accumulation of new capital increases capital per worker and increases labour productivity.

Human capital acquired through education, on-the-job training, and learning-by-doing is the most fundamental source of labour productivity growth

Technological advances has contributed immensely to increasing labour productivity.

1) Classical Growth Theory

2) Neoclassical Growth Theory

3) New Growth Theory

It is the view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings real GDP per person back to the subsistence level.

Malthusian

It is the proposition that real GDP per person grows because technological change induces a level of saving and investment that makes capital per hour of labour grow.

All economies have access to the same technologies and capital is free to roam the globe, seeking the highest available real interest rate.

It holds that real GDP per person grows because of choices that people make in the pursuit of profit and that growth can persist indefinitely.

1)Discoveries result from choices

2) Discoveries bring profit and competition destroys profit.

current year, previous year, previous year)

China will double its standard of living first

A

expansion of product possibilities

annual percent change

divided by the population

divided; growth rate of the variable

the funds that firms use to buy physical capital

the total amount spent on purchases of a new capital and on replacing depreciated capital

the decrease in the quantity of capital that results from wear and tear and obsolescence

the change in the quantity of capital

net investment= gross investment - depreciation

the value of all the things people own

the amount of income that is not paid in taxes or spent on consumption goods and services.

Saving (the more we save) increases wealth.

-when the market value of assets rises

-causes wealth to increase

-when the market value of assets fall

-causes wealth to decrease

1) Loan Markets

2) Bond Markets

3) Stock Markets

A firm that operates on both sides of the markets for financial capital.

A borrower in one market, and a lender in another.

-Banks

-Trust and Loan Companies

-Credit Unions and Caisses Populaires

-Pension Funds

Insurance Companies

it is the toal market value of what it has lent minus the market value of what it has borrowed.

solvent ; remain in business

insolvent ; go out of busines

the interest received expressed as a percentage of the price of the asset

it is the aggregate of all the individual financial markets.

1) Household Savins (S)

2) Government budget surplus (T-G)

3) Borrowing from the rest of the worls (M-X)

it is the number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent.

it is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.

-nominal interest rate-inflation rate

3% a year

1)the real interest rate

2) expected profit

the quantity of loanable funds demanded and the real interest rate when al other influences remain the same.

decreases

increases

-amount of investment

-demand for loanable funds.

- the real interest rate

- disposable income

-expected future income

- wealth

- default risk

the quantity of loanable funds supplied and the real interest rate when all other influences remain the same.

increases

decreases

at the real interest rate at which the quantity of loanable funds demanded equals the quantity of loanable funds supplied.

volatile; stable

supply

demand

any commodity or token that is generally acceptable as a means of payment.

a method of settling dept

-medium of exchange

-unit of account

- store of value

an object that is generally accepted in exchange for goods and services.

-used sometime as a substitute for money

-barter

an agreed measure for stating the prices of goods and services

something that can be held for a period of time and later be exchanged for goods and services.

the notes and coins held by individuals and businesses.

M1

M2

currency held by individuals and businesses plus chequable deposits owned by individuals and businesses.

all of M1 plus all other deposits -non-chequable deposits and fixed term deposits.

all the items included in M1are means of payment, so they are money.

but not all items in M2 are means of payment.

something that can be instantly converted into a means of payment with little loss of value.

liquid assets.

yes

no.

a firm that takes deposits from households and firms and makes loans to other households and firms.

1) chartered banks

2) credit unions and caisse populaires

3) trust and mortgage loan companies

a private firm, chartered under the Bank Act of 1991 to receive deposits and make loans.

a cooperative organization that operates under the Cooperative Credit Association Act of 1991 and that receives deposits from and make loans to its members.

to maximize the wealth of its owners.

1) Reserves

2) Liquid Assets

3) Securities

4) Loans

1) create liquidity

2) pool risk

3) lower the cost of borrowing

4) lower the cost of monitoring borrowers

they are required to hold levels of reserves and owners capitals equal to or more than the ratios laid down by regulation

-the development of new financial products

1) economic environment

2) technology

The Bank of Canada

the public authority that regulates a nations depository institutions and control the quantity of money.

the sum of Bank of Canada notes outside the Bank of Canada, banks' deposits at the Bank of Canada, and coins held by households, firms, and banks.

the purchase or sale of government securities by the Bank of Canada from or to a chartered bank or the public

buys

sells.