Midterm 1 Eco Notes

What is the current annual rate of real GDP growth in Canada?
1%
What is the approximate current level of nominal, current dollar GDP in Canada? $3 trillion
What is the current, actual rate of unemployment? Is that considered to be favourable or

unfavourable by historical standards? 5.8 %; that is unfavourable by historical standards. It is
the highest since jan 2022
What is the current, actual rate of inflation? Is that considered to be favourable or

unfavourable by historical standards? 6.3%: that is quite unfavourable by historical
standards. It is the highest level since the mid-1980s.
GDP per capita? 80% of US level and falling: favourable living standards.
What is the purpose of the two following items? (8 points)

national accounting → It is to measure the size of the economy in terms of aggregate output
or GDP. Not only do we measure the total amount of economic activity, but we track the
activity and categorize it.
the circular flow model → To display the structure of the macroeconomy - a blueprint or a
skeleton of it. It shows the relationships between the major components of the
macroeconomy.
Paradigm → A perspective regarding, or a way of thinking about, how the economy works
Stagnation → state of not flowing or moving
Macroeconomic institutions → Abstract structure created by humans to govern daily affairs.

Eg common law or the napoleonic code, banking and monetary system, social welfare state
Macroeconomic policy → Explicit, concerted attempt on the part of governments to alter
economic outcomes
Scarcity → the demand for a good or service is greater than the availability of the good or
service
3 primary markets of macroeconomics → output, money, input/labour
- A flow quantity is an amount per unit of time

- A stock is an amount observed at a point in time
*foreign sector → The part of a country's economy that is concerned with external trade
(imports and exports) and capital flows (inward and outward).*
TWO approaches to national accounting

Expenditure → Consumption spending, Investment spending, Net export spending (Exports
minus imports = trade balance), Government spending
- GDP = C+I+G+X – Imports
- NX = X - Imports is NET EXPORTS
Income → focus is on income EARNING activity
National Income = factor payments + indirect taxes - subsidies
- Factor payments include: salaries and wages to labour, rent to property owners,
Interest, dividends, and capital gains to investors, profits to entrepreneurs
Ex. Wages, salaries, and other labour income + gross operating surplus + gross mixed
income + indirect taxes – subsidies = 970 + 525 + 180 + 100 = $ 1,755 billion
Compare these two figures, and why that relationship (either one being greater than the
other, or both being equal in magnitude) makes sense.
They are equal in magnitude, which should be the case. Every single $ that circulates
in the macroeconomy has a dual identity of being both an expenditure and an
income. One $ of spending necessarily represents one $ of income to be shared
among the factors of production, and one $ of income earned necessarily represents
one $ of spending. ← circular flow model
Price deflator measures inflation

real GDP = (Nominal GDP / deflator) * 100
- take logs of both sides and
differentiate this in order to obtain
the expression below
In a nutshell, what is the essence of the difference between the field of microeconomics and
the field of macroeconomics?
Microeconomics involves analyzing the choices that are made by micro units, such
as consumers, firms, workers, and investors. Macroeconomics involves analyzing the
behaviour of variables and equilibrium at the global, aggregate level, such as GDP,
unemployment, or the interest rate.
The distinction between GDP per capita and the growth rate in real GDP
The growth rate in GDP is a macroeconomic indicator that measures performance.
GDP per capita expresses the level of GDP in per person terms, and it is a widely
used indicator of living standards of the economy.
Core inflation
The core rate of inflation is calculated using a distinct basket of goods and services
compared to the overall inflation rate. It excludes highly volatile items like food and
energy commodities from the market basket used in the overall Consumer Price
Index (CPI). The core inflation rate represents the growth in prices of a selected set
of goods and services, providing a more stable indicator of overall cost-of-living
trends that are not influenced by fluctuating prices.
The principle of diminishing returns
Early-stage developing countries can achieve high growth rates with increased
capital investment. However, as a country advances economically, the productivity
gains from additional capital per worker diminish, leading to lower economic growth
in advanced industrialized nations like Canada compared to recently industrialized
countries.
Measure of economic welfare is GDP

● the underground economy: activity is not reported (all untaxed, but not all illegal)
● non-market activities: activity might be reported, but is not traded and not valued
GDP is composed of goods and services produced for sale in the market and also includes
some nonmarket production, such as defense or education services provided by the
government.
CPI as of Dec 2023: 157.4
Identify and give the significance of substitution bias

Substitution bias in inflation measurement occurs when consumers switch to cheaper
alternatives in response to rising prices. Its significance lies in potentially
overestimating the true inflation rate, impacting economic decisions and
policy-making.
Significance of compounding
- Rule of 70 (divide % per year by 70 ex. 70/3 for 3% per year)
Consider the following list of points regarding economic growth: physical capital, human
capital, technological knowledge, and natural resources. What do they have in common?
These are the four factors that DETERMINE the level of productivity and its rate of
growth. Productivity is measured in terms of output per hour.
Consider the following list of points regarding economic growth: investment and savings,
education, health and nutrition, property rights and political stability, and research and
development. What do they have in common?
They all refer to public policy regarding productivity
Define the term productivity and how it relates to living standards. You should explain how
and why it is so important.
Most broadly, it is output divided by input. If productivity is rising, the level of output
can rise without increasing the costs of production. Workers can receive higher
wages without firms having to raise output prices. (If output prices were to rise, the
wage gains would eventually be gobbled up by inflation.) Higher levels of real pay
translate directly into higher living standards.
There are some ways in which the official national accounts, as generated by Statistics
Canada, might understate Canada’s actual level of economic welfare. In other words, taking
account of these factors, we might actually be better off than the national accounts indicate.
1) It does not take account of the existence of non-market labour market activity, such
as volunteer activity, household production, caring for friends and relatives, etc. They
generate a lot of economic well-being. If somehow these activities were assigned a
monetary value, the official values of GDP would be far higher.
2) It does not take account of the existence of the underground economy (not all of
which is illegal). Some of them do generate economic well-being. These activities do
have monetary values (because they are traded), but Statistics Canada does not
observe them. If somehow the values of these activities were known by Statics
Canada, the official values of GDP would be far higher.

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What is the current annual rate of real GDP growth in Canada?

What is the current, actual rate of unemployment? Is that considered to be favourable or

What is the current, actual rate of inflation? Is that considered to be favourable or

What is the purpose of the two following items? (8 points)

Macroeconomic institutions → Abstract structure created by humans to govern daily affairs.

3 primary markets of macroeconomics → output, money, input/labour

- A flow quantity is an amount per unit of time

TWO approaches to national accounting

Price deflator measures inflation

Measure of economic welfare is GDP

CPI as of Dec 2023: 157.4

Identify and give the significance of substitution bias

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