Chapter 7 introduction to economic growth and fluctuations. In this chapter you will learn: The definition and causes of economic growth, the nature and cause of the business cycle, the nature of unemployment and its measurement, the definition of inflation and how it is measured, the redistribution effects of inflation the output effects of inflation.
Introduction to Economic Growth & Fluctuations Chapter SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter In In this this chapter chapter you you will will learn learn The definition and causes of economic growth The nature and cause of the business cycle The nature of unemployment and its measurement The definition of inflation and how it is measured The redistribution effects of inflation The output effects of inflation © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution Effects of Inflation Effects of Inflation on Output © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter Economic Economic Growth Growth an increase in real GDP over some time period, OR an increase in real GDP per capita over some time period © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter Economic Economic Growth Growth Growth as a Goal Arithmetic of Growth Main Sources of Growth Growth in Canada – improved products & services – added leisure – other impacts Relative Growth Rates © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution Effects of Inflation Effects of Inflation on Output © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter The The Business Business Cycle Cycle Figure Figure 7-1 7-1 Level of real output Phases of the business cycle Time © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 7 The The Business Business Cycle Cycle Figure Figure 7-1 7-1 Level of real output Phases of the business cycle PEAK Time © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter The The Business Business Cycle Cycle Figure Figure 7-1 7-1 Level of real output Phases of the business cycle RECESSION Time © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter Canadian Recessions: Post 1945 % Decline in Annual Real GDP -0.5 -1 -1.5 Real GDP -2 -2.5 -3 -3.5 1945 1946 © 2002 McGraw-Hill Ryerson Ltd 1954 1982 1991 Macroeconomics, Chapter 10 GLOBAL PERSPECTIVE 7-3 Inflation rates in six industrial nations, 1990-2000 UK Inflation rate (percent) Canada US inflation inflation rates rates in in Canada Canada in in the the 1990s 1990s were were relatively relatively low low Germany France Japan -1 -2 1990 © 2002 McGraw-Hill Ryerson Ltd 1995 Macroeconomics, Chapter 2000 33 Types Types of of Inflation Inflation Demand-Pull Inflation – excess demand Cost-Push Inflation – per-unit production costs – supply shocks Complexities © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 34 Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution Effects of Inflation Effects of Inflation on Output © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 35 Nominal Nominal & & Real Real Income Income real income = nominal income price index % change in real income % change in nominal income – % change in price level © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 36 Who Who is is Hurt Hurt by by Inflation? Inflation? assuming unanticipated inflation Fixed-income receivers Savers Creditors © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 37 Who Who is is Unaffected Unaffected or or Helped Helped by by Inflation? Inflation? assuming unanticipated inflation Flexible-Income receivers Debtors © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 38 Anticipated Anticipated Inflation Inflation Effects are lessened to the extent inflation is correctly anticipated – COLA clauses – inflation premium on loans © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 39 Inflation Inflation Premium Premium Fig Fig 7-5 7-5 11% = Nominal Interest Rate © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 40 Inflation Inflation Premium Premium Fig Fig 7-5 7-5 11% = 5% Nominal Interest Rate © 2002 McGraw-Hill Ryerson Ltd Real Interest Rate Macroeconomics, Chapter 41 Inflation Inflation Premium Premium Fig Fig 7-5 7-5 11% = + 5% Nominal Interest Rate © 2002 McGraw-Hill Ryerson Ltd 6% Inflation Premium Real Interest Rate Macroeconomics, Chapter 42 Addenda Addenda Deflation Mixed effects Arbitrariness © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 43 Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution Effects of Inflation Effects of Inflation on Output © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 44 Effects Effects of of Inflation Inflation on on Output Output Cost-Push Inflation & Real Output Demand-Pull Inflation & Real Output Hyperinflation & Breakdown © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 45 Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution Effects of Inflation Effects of Inflation on Output © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 46 NEXT… BUILDING THE AGGREGATE EXPENDITURE MODEL © 2002 McGraw-Hill Ryerson Ltd Chapter Macroeconomics, Chapter 47 ... GDP -0 .5 -1 -1 .5 Real GDP -2 -2 .5 -3 -3 .5 1945 1946 © 2002 McGraw-Hill Ryerson Ltd 1954 1982 1991 Macroeconomics, Chapter 10 The The Business Business Cycle Cycle Figure Figure 7-1 7-1 Level... McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 25 Economic Economic Cost Cost of of Unemployment Unemployment Non -Economic Costs Regional Variations © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, ... Cyclical Impact: Durables & Nondurables © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 14 Chapter Chapter 77 Topics Topics Economic Growth The Business Cycle Unemployment Inflation Redistribution