CHAPTER 5: Growth, Unemployment, and Inflation

1
CHAPTER 5Growth,Unemployment, and Inflation
2
Topics

• 5.1 Economic Growth
• 5.2 The Business Cycle
• 5.3 Unemployment
• 5.4 Inflation
• 5.5 Redistribution effects
• 5.6 Inflation Output

3
Economic Growth

• Defined as
• ? in real GDP over time or
• ? in real GDP per capita over time

4
Economic Growth

• Calculated as increase
• EXAMPLE
• GDP Y1 10b GDP Y2 12b
• GDP growth (GDP2 GDP1)/GDP1 x 100
• GDP growth (12 10)/10 x 100 20

5
Economic Growth

• Sources
• Increased resources
• Increased productivity of resources
• Education, training, motivation of labour
• Reallocation to more efficient uses
• More / better capital, natural resources
• Better production methods

6
Economic Growth

• Preconditions

Fraser Institute PowerPoint
7
Phases of the Business Cycle
GDP Growth Trend
Level of real output
Time
8
Phases of the Business Cycle
PEAK
EXPANSION
Level of real output
TROUGH
CONTRACTION
Time
9

• Phases of a Business Cycle
• Expansion
• Also boom or recovery
• ? output and employment
• Prices begin to ?
• Peak
• Full employment, at or near capacity output
• May involve rapid inflation
• Turning point

10

• Phases of a Business Cycle
• Contraction
• Also called recession
• Output and employment ?
• Trough
• Economic activity at its lowest
• Recession / depression

11

• DEFINITIONS
• Recession
• Declining real output
• Two consecutive quarters
• Depression
• Severe recession

12
Recessions in Canada
13
The Business Cycle

• Reasons
• innovation
• ? investment and consumption spending
• ? ? output, employment
• productivity
• ? leads to expansion
• ? leads to recession

14
The Business Cycle

• Reasons
• money supply
• too much ? inflationary boom
• too little ? ? output and employment
• level of total spending
• immediate cause
• ? spending, businesses ? output
• ? spending, businesses ? output

15
The Business Cycle

• Effects
• Services and non-durables affected least
• not easily postponed
• ? demand for some services
• Capital goods, consumer durablesaffected most
• can postpone

16
Canadas GDP 1965 - 2002