May 7 2016

Grade 12 Economics

Dom, John & Nolla

Introduction to Macroeconomics & Unemployment

Notes
Macroeconomics
- The study of the economy as a whole
- All of the markets which create the big picture of our economy
Measuring Performance
3 macroeconomic measures that receive the most attention:
1. Output
2. Employment levels
3. Price stability
The importance of measuring economic performance
Government

Citizens

Unions and wage

earners

Deciding on tax policies/ Comparing their

Making contract
spending priorities
economy to that of other negotiations
countries
Measuring the effect of
policies

Individuals and
businesses
Making investment
decisions

Identifying the role/

impact of specific
industries

Gross National Product (GNP)

- Method used by Canada to measure output until 1986
- Total value of final goods and services produced by Canadian-owned factors of production in
Canada and worldwide
Example of invalidity concerning GNP:

May 7 2016

Grade 12 Economics

Dom, John & Nolla

Gross Domestic Product (GDP)

- Total market value of all final goods and services produced within a country in one year
- Measures economic growth and compares living standards of countries
- Only the final value, and not the components (i.e. full value of car, not individual costs of tires,
engine, seats, etc.), to avoid multiple counting
Calculating GDP
2 ways to calculate GDP, both resulting in the same amount:
1. Expenditure approach add up total that is spent on final goods and services in one year
GDP: C + G + (X - M)
*C: Consumption (amount that households spend on
goods/services)
*G: Government purchases (expenditure on goods/
services)
*I: Investment (purchase of new capital goods)
* (X - M): Value of net exports in Canada
**X: Exports from Canada
**M: Imports into Canada
2. Income approach Add of all of the income earned by factors of production (i.e. wages,
rent, interest profit) in producing the final goods and services
Example:
Buying a car, where the entire economy activity for one country is the selling of one car for
$50,000
- Expenditure approach: the GDP is the money spent to purchase the car ($50,000)
- Income approach: the GDP is the income earned by those who made/sold the car ($50,000)
Real GDP Growth Rate
- Change in GDP figures for 2 successive years in terms of a % of growth
- Real GDP Growth Rate: (Real GDP in Year 2 - Real GDP in Year 1) x 100
Real GDP in Year 1
Drawbacks to GDP
1. Population size misleading if population has changed significantly; can be fixed by finding
capita GDP by dividing the GDP by the population
2. Non-market production is not measured does not count output that has no dollar value
3. Underground economy does not count the hidden economy of illegal activities
4. Types of goods produced inclusion of all types of goods/services produced weakens the
GDP as a measure of well-being
5. Leisure does not take leisure hours into account
6. Environmental degradation does not consider negative effects of economic production
7. Distribution of income does not consider how evenly the countrys income is distributed
Consumer Price Index (CPI)
- Measure inflation (by Statistics Canada)
- Monitors consumption of 600+ goods/services in different Canadian cities
- Determines spending habits of households
- Uses representative basket of goods/services, according to the spending of an urban
household of 4

May 7 2016

Grade 12 Economics

Dom, John & Nolla

Inflation Rate
- Annual % by which the CPI has risen, between two consecutive years
- Inflation Rate: (CPI in Year 2 - CPI in Year 1) x 100
CPI in Year 1
Example:
- In September 2000, the CPI of Canada was 114.4, yet it was 117.4 in September 2001
- The prices rose 2.6%, therefore the inflation rate was 2.6%
Indexing
- Using the CPI to judge how wage/pension payments should be adjusted to offset year-to-year
price increases
Example:
- The sale of a chocolate bar goes up from $1 to $2
- If your wage increases from $1 to $2 also, you are now in the same situation than you were
initially and are able to buy the chocolate bar
Drawbacks to CPI
1. Weighting of categories, and the items included not every households spending habits
reflect the index weights of the CPI
2. Family size not every family is urban and consists of 4 members
3. Individual items in the base year basket products may have modernized since (i.e.
computer)
entire purchases may have changed (i.e. VHS to
DVD to BluRay to Netflix)
4. Cultural diversity multicultural cities have different consumption patterns
Unemployment
Major Job Losses

Monitoring Employment & Unemployment

- Monthly, Statistics Canada surveys 50 000 random households of individuals aged 15+
- National Figures are projected according to data collected
- Employed those who work part-time or full-time during the month
those who have jobs but didnt work that month due to personal circumstances
Labour Force
Includes all employed and unemployed individuals, except:

May 7 2016
1.
2.
3.
4.
5.

Grade 12 Economics

Dom, John & Nolla

Full-time military personnel

Inmates of penal institutions
Full-time students
Retired workers
Homeworkers

Employment Rates
Employment Rate = Employed x 100
Labour force
Unemployment Rate = Unemployed x 100
Labour force
Seasonal adjusted rate
- Eliminates short-term/seasonal fluctuations
Example:
Noticeable rise in unemployment each winter when many are employed in:
1. Farming
2. Fishing
3. Construction
4. Seasonal industries
Participation Rate
Participation Rate =

Labour force
x 100
Population aged 15+ (excluding
institutional residents)

Unemployment
6 types:
1. Frictional short-term, between jobs, maternity leave, finding a higher-paying job, etc.
2. Seasonal during specific periods each year, less significant today than in the past
3. Structural natural resources, direct effect on economy, some industries grow while others
decline
4. Technological automation technology that replaces jobs
5. Replacement cost-effective foreigners that replace jobs
6. Cyclical during economic decline/downturn (i.e. Great Depression), demand decrease
leads to less products consumed which results in less workers needed
Full Employment
- Highest reasonable expectation of employment
- Impossible to obtain 100% full employment
- Includes frictional and structural, yet excludes cyclical and seasonal
Negative Impacts of Unemployment
Unemployment negatively impacts:
- Individuals stress, financial hardship, discouragement, self-esteem
- The economy
- Social unrest towards the government and immigrants

May 7 2016

Grade 12 Economics

Dom, John & Nolla

Demand-pull Inflation & Cost-push Inflation

Demand-pull inflation:
- When the rate of general products and
services increases and the purchasing
power decreases
Cost-push Inflation:
- When there is a decrease in the volume of
supplies and goods caused by a higher
production cost

Fluctuations in the Canadian Economy

4 business cycles of Canada since 1929:
Business Cycles
Cycle

Description

Peak

Beginning and end of an economic cycle; highest

level in economy

Contraction

Decrease in economic growth; increase in

unemployment

Trough

Increase in employment and production; lowest

point in economy

Expansion

Increase in both economic flow and prices

Keynesian Theory
The government needs to be involved in the economy in order for it to grow and function
properly.
Statements:
1. Wages are a reflection of the increase or decrease in the supply and demand.
2. Changes in demand have a great short-term effect on the economy.
3. The change in demand is caused by private and public economic decisions.
Phillips Curve
- Direct relationship between inflation rates and unemployment
Stagflation:
- Production slows down and the unemployment and inflation rates increase
Collective Bargaining
- Firms cut employee pay to save costs

May 7 2016

Grade 12 Economics

Dom, John & Nolla

- More funds are allocated to machines and technology rather than to people, as it lasts longer/
evolves while employees get older/lose skill
Collective Bargaining:
- When employers and employees gather to discuss the salary that they should receive in
order to avoid this occurrence

The hardest work in the world is having no work at all. Whitney Young, Jr.

May 7 2016

Grade 12 Economics

Dom, John & Nolla

Review
Macroeconomics
1.
What is macroeconomics?

2.

What are the 3 measure that receive the most attention?

1.

2.

3.
3.

4.

Why is measuring economic performance important for:

a.
Government

b.

Citizens

c.

Unions and wage earners

d.

Individuals and businesses

What is Gross National Product (GNP), and why was it deemed inaccurate?

May 7 2016

Grade 12 Economics

5.

What is Gross Domestic Product (GDP)?

6.

What are the two ways of calculating GDP?

1.

2.

7.

What is Real GDP, in reference to GDP?

8.

What is Real GDP Growth Rate, and how is it calculated?

9.

What are the 7 drawbacks to GDP?

1.

2.

3.

4.

5.

6.

7.

Dom, John & Nolla

May 7 2016

Grade 12 Economics

10.

What is Consumer Price Index (CPI)?

11.

What is inflation rate, and how is it calculated?

12.

What is indexing?

13.

What are the 4 drawbacks of CPI?

1.

2.

3.

4.

Unemployment
1.
When were the two major job loss periods?
1.

2.

2.

How is employment and unemployment monitored in Canada?

Dom, John & Nolla

May 7 2016

Grade 12 Economics

3.

Who is included and excluded in the labour force?

4.

How are employment and unemployment rates calculated?

5.

What is seasonal adjusted rate?

6.

What is participation rate, and how is it calculated?

7.

What are the 6 types of unemployment?

1.

2.

3.

4.

5.

6.

8.

What is full employment?

Dom, John & Nolla

May 7 2016

Grade 12 Economics

9.

What are the negative impacts of unemployment?

10.

What is demand-pull inflation, versus cost-push inflation?

11.

What are the 4 business cycles and their descriptions?\

1.

2.

3.

4.

12.

What is the Keynesian theory?

13.

What does the Phillips Curve represent?

14.

What is collective bargaining?

Dom, John & Nolla