Macroeconomics: The study of phenomena, inflation, unemployment and economic growth

Monetary Policy
1. The bank of Canada has the power to increase or decrease the ,number of dollars in the Economy
2. Real vs Potential Output
  1. The Output is the quantity of goods and services actually produced within a given time period
  2. Potential Output: highest potential refers to the real Gdp within a close period
3. Aggregate Demand: The demand for a GDP of a country
4. Reserve: Deposits the banks recieved but cannot loan out
  1. Banks don't hold 100 percent reserves because then it wont influence the supply of money
  2. Increase: Must hole reserves means they loan out less of each dollar that is deposited
  3. Raises reserve Ratio: lowers the money multiplier and decreases money supply
  4. Decrease in Reserve Ratio: Raises the money multiplier and increases money supply
5. Open Market Operations: Purchase of sale of government bonds by the bank of Canada
  1. Increase the supply of money in circulation: by buying something
  2. Demand Increases: Higher level of prices
  3. Decrease: The supply of money by: seliing something
6. Sterilization: The process of offsetting foreign exchange market operations with open market operations so the effect on money supply is cancelled out
7. Overnight Rate: The rate of interest on very short term loans between commercial banks
  1. Raising: reduces the money supply
  2. Lowering: Increases the money supply
8. Money Supply Imperfect: banks loan out money some of their deposits which increases the money in the economy
9. Counterfeit Bills: Will increase the money supply which will increase spending, employment, nations GDP, rate of inflaion and Bank of Canada may raise overnight rate
10. Keyness Effect: Higher Price level implies lower real money supply meaning higher interest rates which means lower investments spending, new capital,lower quantity of goods being demanded
11. Multiplier Effect: Circulation of money
Macroeconomics Measures
1. Consumer Price Index
  1. Prices paid by consumers (households) over periods of times to compare
  2. CPI does not consider subsitution
2. Macroeconomics: Measures the total income of everyone in the economy and the expenditure of the economic output of goods and servi es
3. GDP: market value of all final goods and services within a country during a period of time
  1. Includes: Final Goods, Intermediate goods when sold as is, Goods and Services and Exports and Imports (Consumption), Business investment in equipment (Investment), Government expenditure of final goods and services-weapons (Government)
  2. Not Included: Intermediate goods because its already included in the final sale, the resale of an item, Items produced in different country, exchanges of items, Non-market transactions, Welfare, Exchanges in Stock and Bond, Black Market Transactions
  3. Real GDP: The measure of an amount produced that is not affected in the changes of prices, how it prevailed in the past
  4. Nominal GDP: The production of goods and services valued at current prices
  5. Net Exports: Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
  6. GDP Deflator: The measure of the price level calculated by the ratio
    1. Nominal GDP/Real GDP * 100
4. Inflation: Increase of the overall price level or erosion in economy currency
  1. If inflation increases by 10% consumers will buy 10% less goods
  2. Inflation Rate :(B-A)/B*100
  3. Inflation not considered in CPI
    1. Helped: Companies who can raise prices without raising wages and borrowers who are repaying debt with less valuable money
  4. Hurt by Inflation: Workers those on a fixed income and people who are saving money
Fiscal Period
1. Expansionary Policy: a policy of increasing the money supply and reducing interest rates
  1. Decreases taxes (injection) leads to more consumption, employment, output, more gov't spending
2. Contractionary Policy: A policy of decreasing the money supply and increasing interest rates to dampen economy
  1. Inflation: Increase taxes (leakage) decrease in spending, decrease gov't spending (leakage)
3. The use of government taxation and spending policies(expenditure, borrowing) to influence the circular flow of income and to acheive macroeconomic goals and alter direction of the economy
4. Keyness Proposed
  1. Injection: Government Spending
  2. Leakage: Taxes
5. Stagflation: stagnating economic growth high unemployment and high inflation
  1. Cause: (short Term) Supply shock
6. Limitations
  1. TIme Lags, Government having difficulties changing spending and taxation, conflicts between governments
7. In the 1930s economists thought recessions were apart of life and could not be fixed ("Lassiez faire" theory began functions well on its own gov't invovlvment unnecessary)

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Macroeconomics: The study of phenomena, inflation, unemployment and economic growth

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