Economics 12

Ms. Park

Serena

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Consumption expenditures = $600 Exports = $75 Government purchases of goods and services=

$200 Construction of new homes = $100 Imports = $50 Beginning of year inventory = $100 End of year inventory = $125 Business fixed investment = $100 Government payments to retirees = $100 Household purchases of durable goods = $100

Assignment: Handout #4

Consumption expenditures = $600 Exports = $75 Government purchases of goods and services= $200 Construction of new homes = $100 Imports = $50 Beginning of year inventory = $100 End of year inventory = $125 Business fixed investment = $100 Government payments to retirees = $100 Household purchases of durable goods = $100

Assignment: Handout #4

Your mother buys a new car imported from Sweden

Your mother’s car rental business buys a new car imported fro Sweden

Handout #3

A student is paid for shovelling a neighbour’s sidewalk

Unemployed carpenter receives an employment insurance payment

A wealth-holder sells 1000 shares issued by a Canadian corporation

Textbook #5

Page 220 Capital stock: the total value of assets

that provide a flow of revenue Net investment: gross investment –

depreciation

Capital stock

Q: How much is Metrica's capital stock expanding or contracting in 2001?

Look at depreciation ($79 billion) Look at gross investment ($157 billion) Metrica is investing $157 billion BUT $79

billions are lost in repairing or replacing durable assets

Net investment = $157 billion - $79 billion = $78 billion

Textbook #1c

Is GDP Expenditure method calculated using Net Investment or Gross Investment?

Expenditure approach = Consumption + Government Expenditure + Net Exports (Exports – Imports) + GROSS INVESTMNET

Expenditure

Inflation: General increase in the prices of goods and services in an entire economy over time.

Deflation: General decrease in the level of prices

Inflation

If Canada has an annual inflation rate of 3%, are all the prices rising?

Inflation does not mean all the prices are rising. Some prices are rising, while other prices constant or even decrease. It is that OVERALL prices are rising in 3%.

Q&A:

Consumer Price Index (CPI): a measure of price changes for a typical “shopping basket” of consumer products.

To determine what typical Canadian households buy, Statistics Canada surveys consumers’ buying habits every few years.

CPI

Suppose the shopping basket includes only two items: pizzas and colas. Survey in 2000 shows that, each month, an average consumer buys 20 hamburgers at $2 each, and 20 bottles of Cola at $1 each.

Example

If the CPI rose from 100 in 2010 to 115 in 2011, what is the inflation rate over the year?

Q&A:

What is the difference between nominal income and real income?

Nominal income: income expressed in current dollars

Real income: income expressed in constant base-year dollars

Q&A:

Real income = nominal income/ CPI in hundredths

EX. Nicole’s income rises from 40,000 to 45,000 during a year when the CPI rises from 100 to 110. If the consumer’s own monthly purchases roughly correspond to those in the representative “shopping basket,” what’s Nicole’s personal impact of inflation?

Example

What would be some limitations of CPI?

Q&A:

Textbook Question #1 Exit Slip:

Christine’s income rises from $34,000 in 2012 to $35,000 in 2013. Inflation rate over the year is 6%.

a) What is Christine’s real income? b) Explain whether following statement is

true or false: Since Christine’s income rose, she has a higher standard of living.

Due Today