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Lecture 11 - ECO100 - ECO 100Y ECO 100Y Introduction to...

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ECO 100Y Introduction to Introduction to Economics L 11 Lecture 11: Introduction to Introduction to Macroeconomics © Gustavo Indart Slide 1
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The Study of Economics Microeconomics is concerned with the study of the choice problem faced by the economic agents: households and firms ¾ Microeconomics, for instance, examines how the equilibrium price for a particular commodity is determined Macroeconomics is concerned with the study of the economy h l as a whole ¾ For instance, macroeconomics examines how the general level of prices is determined (and not the price of any particular commodity) © Gustavo Indart Slide 2
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Growth vs. Fluctuations The main concern of government economic policy is to: ¾ Facilitate the smooth working of the economy in the short run ¾ Promote the growth of the economy in the long run The economy goes through periods of expansion and period of i d i h i ll d h b i l contraction during what is called the business cycle ¾ During period of expansion demand might grow too fast and inflation might occur ¾ During periods of contraction demand might fall too much and unemployment might grow The government might attempt to smooth these changes in the The government might attempt to smooth these changes in the economy in order to prevent the negative effects of high inflation and high unemployment © Gustavo Indart Slide 3 The government can use two main types of economic policies: fiscal policy and monetary policy
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Fiscal Policy Fiscal policy refers particularly to changes in the level refers particularly to changes in the level of government expenditures on goods and services and in the level of taxes the government collects ¾ Short-run: it affects the general level of aggregate demand ¾ Long-run: it might affect investment and thus economic growth © Gustavo Indart Slide 4
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Monetary Policy Monetary policy refers particularly to changes in the k f i h h i h stock of money in the economy or to changes in the rate of interest ¾ Thi i d b h B k f C d This is done by the Bank of Canada ¾ Changes in the rate of interest affect aggregate d d demand ¾ Changes in the money supply will affect the rate of i d h d d interest and thus aggregate demand ¾ Greater impact on investment and consumption of i d i i l © Gustavo Indart Slide 5 expensive goods in particular
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Key Macroeconomic Variables
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