Académique Documents
Professionnel Documents
Culture Documents
Macroeconomics
Chapter 1 + Intro
Macro variables
Inflation
Interest rates
Technology
GDP
Exchange Rates
Unemployment
In context
GDP
Growth Rates
10
11
12
Business Cycles
13
t 200
14
15
Macro Models
Models are used to try to explain growth,
unemployment, inflation, etc.
They usually are simplified in some way and
are expressed in mathematical and
graphical form.
Once the models are developed, we will try
to solve for the equilibrium. Quite often we
will assume competitive equilibriumfirms
and household are price-takers.
16
Micro Principles
The macroeconomy ultimately consists of
many consumers and firms.
Macro behaviour results from many
microeconomic decisions.
Govt policies may affect behaviour in
ways that are virtually impossible to model
at the aggregate level.
We now deal with rational expectations
models, which emphasize micro
foundations.
17
Various Theories
18
19
Productivity
Total factor productivity (TFP): captures the
level of productivity of all factors of prodn
Growth in TFP leads to growth in living
standards.
20
21
Government Budgets
22
Inflation
The percentage increase in the average or
general price level.
We can use the Consumer Price Index
(CPI) to measure or the GDP Deflator. The
CPI is more widely used.
Inflation has fluctuated considerably over
the years.
In 1991 the Bank of Canada started
targeting the rate of inflation to between 1
and 3 %, averaging around 2%.
The higher is inflation, the more distortion
there is in the economy.
23
Interest Rates
Interest rates affect many decisions such as
borrowing and lending.
The nominal interest rate: interest rate in
money terms.
The real interest rate
= nominal interest rate expected or
actual rate of inflation
Nominal interest rates rise with inflation.
24
25
26
Unemployment
27
28
29
30
31
Sources
All numbers unless otherwise indicated are
taken from the Williamson text and
instructor resources.
1) source: www.OECD.org and
www.conferenceboard.ca and
www.worldbank.org.
32