1. macroeconomics Key aggregates 1

2.  Macroeconomics  Study of the PPF  Lose the details  Study of aggregates  Lose the details  Key aggregates  GDP, (national) income  Growth (rate)  Labour force, employment, unemployment (rate)  Productivity  Price level, inflation (rate)  \Interest rate  Exchange rate  Trade volume 2

3.  National income  = Y  = all the incomes  = all the output  Measured in …  $$$$$$$$$$  Nominal Y  Real Y  GDP 3

4.  How does GDP over time look like?  Actual (real/nominal) GDP  (long-term) growth  (short-term) fluctuations  Business cycle  Potential (full-employment) output  Output gap  Recessionary gap  Inflationary gap  GDP roughly reflects how well off we are 4

5.  Labour force  Not people but people who could make stuff  That is, a resource  Employment = number of adults who work  Unemployment = number of adults who want to work but don’t work  Unemployment rate = U/(E+U)  = U/L  Frictional unemployment  Structural unemployment  Frictional + structural = natural  People CAN find jobs  Takes time to match  Would be foolish to lower this number?  Full employment  Cyclical unemployment 5

6.  How does labour force/employment/unemployment over time look like?  trend  (short-term) fluctuations  Unemployment rate roughly reflects wasted resource  Productivity  = GDP/E  = GDP/hr  Cause-effect direction and importance of productivity 6

7.  Price level  index  (weighted) average price of all  Inflation  Increase in price level  Deflation  Hyperinflation  CPI  example  GDP deflator 7

8.  How does CPI over time look like?  trend  (short-term) fluctuations  Inflation redistributes  Inflation = risks, so it lowers investments 8

9.  Interest  Payment to lender to…  postpone consumption now  Interest rate  = Interest/Loan  Nominal interest rate  Real interest rate = nominal interest rate – inflation rate (roughly)  Interest rate roughly reflects cost of investment  Growth vs current consumption 9

10.  Trade  Exports  Imports  Exchange rate (CA$/US$1)  Depreciation = increase in exchange rate  News – the opposite  Appreciation = decrease in exchange rate  News – the opposite  Exchange rate is a big deal for exports/imports 10