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Macroeconomics Economic Indicators
Macroeconomics Definition: (from the prefix macro which means “large” + economics) the branch of economic study that deals with the performance, structure and decision making of the entire economy. Regional, national, or global
Macroeconomics In this model we study aggregate indicators like GDP, unemployment, and price indices to understand the economy as a whole. Governments use macroeconomic tools to “control” the economy.
Indicator 1: • Exchange Rate: • The value of the Canadian Dollar is very important to the economy • Most often expressed relative to the US dollar • The current rate is about $0.99 • A strong dollar makes foreign products cheaper • A strong dollar makes Canadian products more expensive
Indicator 2: • Inflation: • A consistent rise in the level of prices • Measured using the CPI or Consumer Price Index • CPI is compared to a base period to see how much prices have risen • An increase in the CPI means a rise in inflation • Inflation means less purchasing power for consumers • “Good” inflation is thought to be between 1% and 3%
Indicator 3: • Gross Domestic Product: • A measure of the productivity of the country. • The value of all goods and services produced in a country in a year. • Higher GDP means a higher standard of living. • Often measured in “per capita” basis. • Indicates if the economy is growing or shrinking.
Indicator 4: • Unemployment Rate: • Tells us how many people in the economy who are actively looking for work but unable to find any. • The economy works best when more people are working. • Unemployment is hard on the economy as it means expenditures on social programs are higher (welfare, social insurance, medical) • The current unemployment rate in Canada is about 8.2%
Indicator 5: • Monetary Policy: • There is only so much money available in the economy. • What do you think would happen if the government needed money so it just printed more? New money printed means more money in the money supply Links: More money = higher prices = inflation = lower value for the Canadian $
Indicator 6: • Minimum Wage: • This is the minimum standard for hourly payment as set by the government. Higher minimum wage = means more spending = inflation Also, it means less profits for companies = increased unemployment 2. The intended benefit of a higher min wage is to improve the financial position of the lowest wage earners in society. Often it leads to some of them getting laid off or fired.
Indicator 7: • Taxation: • Taxes pay for many of the benefits of society like schools, hospitals, roads, defence, police, fire, social programs, environmental protection, and so on. Links Higher taxes = lower income = less inflation Also = better schools, and social programs More government spending = more employment = bigger GDP
Indicator 8: • Prime Rate: • The interest rate that commercial banks charge their best customers. • Consumer interest rates are “pegged” to the prime rate so if PR goes up you will pay more for your loans. • Also “pegs” consumer spending/investing behaviour. Links Prime rate goes up = less money in the money supply = less inflation = better value for Can $ Prime rate goes down = more house and car sales = more employment = higher GDP = higher inflation = more tax revenue, and increased govnt spending.
Indicator 9: • Durable Goods/Housing Starts/Auto Sales: • Actually 3 different indicators that behave very similar to each other. • If these indicators are high or on the rise then the economy is said to be “healthy” or growing. • Some environmentalists believe this is wrong. Links These indicators rising = more employment = higher GDP = more tax revenue = more government spending = more inflation = lower Canadian $ = which would force government to tighten the monetary policy.
Leading vs. Lagging Every indicator is said to be either a “leading” indicator or a “lagging” indicator. Leading indicators are ones that are in the direct control of the government Lagging indicators are not directly in the control of the government. Governments use the leading indicators to control the lagging ones.