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Economics 12

Economics 12. Ms. Park. Next Presenters. Serena. 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

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Economics 12

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  1. Economics 12 Ms. Park

  2. Next Presenters • Serena

  3. 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

  4. 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

  5. Handout #3 • Your mother buys a new car imported from Sweden • Your mother’s car rental business buys a new car imported fro Sweden

  6. Textbook #5 • 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

  7. Capital stock • Page 220 • Capital stock: the total value of assets that provide a flow of revenue • Net investment: gross investment – depreciation

  8. Textbook #1c 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

  9. Expenditure • Is GDP Expenditure method calculated using Net Investment or Gross Investment? • Expenditure approach = Consumption + Government Expenditure + Net Exports (Exports – Imports) + GROSS INVESTMNET

  10. Inflation • Inflation:General increase in the prices of goods and services in an entire economy over time. • Deflation: General decrease in the level of prices

  11. Q&A: • 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%.

  12. CPI • 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.

  13. Example • 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.

  14. Q&A: • If the CPI rose from 100 in 2010 to 115 in 2011, what is the inflation rate over the year?

  15. 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

  16. Example • 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?

  17. Q&A: • What would be some limitations of CPI?

  18. Due Today • 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.

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