On expenditure and investment both aected monetary

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Unformatted text preview: rt Slide 4 Monetary Policy consump.on expenditure and investment both affected Monetary policy refers particularly to changes in the stock of money in the economy or to changes in the rate of interest This is done by the Bank of Canada Changes in the rate of interest affect aggregate demand Changes in the money supply will affect the rate of interest and thus aggregate demand Greater impact on investment and consumption of expensive goods in particular © Gustavo Indart Slide 5 Key Macroeconomic Variables Aggregate output (GDP) Rate of inflation Rate of unemployment Interest rate Balance of payments Exchange rate © Gustavo Indart Slide 6 Aggregate Output Gross Domestic Product (GDP) is the value of all final goods and services produced in the economy during a given period usually one year of time Nominal GDP measures the value of output in dollar terms at the prices prevailing in the period the output is produced Changes in nominal GDP from one year to the next could be the result of higher prices, greater physical output, or a combination of both Real GDP measures the output at the prices of some base year A change in real GDP from one year to the next is exclusively the result of a change in physical output Real GDP tends to follow an increasing path over time In the short run, however, real GDP fluctuates up and down during the business cycle © Gustavo Indart Slide 7 Actual and Potential GDP Actual GDP is the output the economy actually produces Potential GDP is the output the economy could produce under full employment The difference between the actual and the potential output is called the output gap If the actual level of output is below the level of potential output, the output gap is called recessionary gap If the actual level of output is above the level of potential output, t...
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