Economics Powerpoint - Winston Knoll Collegiate

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Oct 28, 2013 (4 years and 11 days ago)

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Economics

What is it?

Why should I care?

Types


Macroeconomics


Looks at the economy as a
whole concentrating on things like interest rates,
inflation and unemployment


Microeconomics


Looks at individual people
and businesses attempting to explain where and
how we spend our money or save it

The Big Picture

GDP


Gross Domestic Product
(GDP) calculates the value
of all goods and services in a
given country in a given
time period


In simple terms this is the
measure of a nation’s
wealth


Inflation


Inflation is the situation in which the general
level of prices in the economy are rising.


Inflation is caused by a money supply that grows
too quickly


So if the supply of money increases (i.e. The
government prints more) than prices go up.


How much will prices go up if more money is
printed? In general terms if the supply of money
is doubled than prices will double

Causes of Inflation


Since inflation is primarily caused by
governments printing more money, why would
they print more money?


Governments can’t raise enough tax revenue to
pay their obligations


Governments feel pressure from debtors who
want inflation so they repay their debts using
less valuable money


Governments want to try to stimulate the
economy in a recession

Measuring Inflation


Because inflation is a general increase in prices
you can’t just watch the prices of 1 or 2 items you
need to look at a large selection


The Consumer Price Index (CPI) is a basket of
goods that a typical family of four would buy in a
month and because it covers such a wide range
of goods it is considered a good measure of
inflation

Inflation Good and Bad


No inflation or its opposite deflation may seem
good but in fact economists consider it as bad as
high inflation


Having said that high inflation is equally bad for
the following reasons:


Inflation weakens the value of stored money


Inflation discourages people from lending money


Worst case scenario money is no longer an
effective means of exchange

Historic
Inflation


What is a good level of
inflation?


Economists tend to
think that an inflation
rate between 3 to 5
percent is optimal.


At this level the
economy is going
strong and yet people
are not being
significantly hurt by it.

Value of the Dollar


In recent years we have seen notable changes in
the value of the Canadian dollar the question is
why?


The reason for the changing value includes the
following:


Business activity in Canada


International investment in Canada


Speculative trading of the dollar


How much money is available

A High Canadian Dollar

The Good

The Bad


Cheaper to buy foreign made
goods


Travel to other countries is
cheaper


Increased foreign investment
in Canadian companies
leading to improvements


Canadian manufactured goods
cost more and therefore will
sell less


Fewer tourists coming to
Canada


Increased foreign investment
in Canadian companies
leading to more foreign
ownership / loss of control

Business Cycle


Recession


periods of
time where output
decreases


Recoveries


periods
of time where output
increases

Definitions


Recession:
A period of slow or
negative economic
growth, usually leading
to widespread
unemployment.
Economists define
a recession either as a
period when
the economy is growing at
less than
its long
-
term rate of
growth,
or more
specifically as two
consecutive quarters
of the year when the
Gross Domestic
Product (GDP) has
fallen below
zero
.


Depression:
A severe and
prolonged recession.


National Debt:

The
total amount of money a
country’s
government
has raised that has not
been paid
off
.


Deficit:

When a country’s
government spends more
in
a
given year than it collects from
taxes and
other sources
of revenue.

What Causes a Recession?


In very simple terms recessions are caused by
notable decreases in demand.


This loss in demand causes business to need to drop
their prices but they may not be able to do so
because it costs them to much to make the product.


The primary cost for most products is wages, so this
leads companies to either cut employee wages or
just fire employees.


In turn this means that the employees have less
money to spend so demand drops lower resulting in
more changes to wages and a vicious negative wage
cycle has begun.

How do you get out of a Recession?


The simplest way is if businesses are able to deal
with the drop in demand by changing inventory
or some other factor instead of wages.


If this is not possible then governments tend to
get involved by:


Spending money


Lowering interest rates

The details

Monopolies and Oligopolies


Monopoly is where a firm has no competitors in
its industry


Examples: Power / Energy industry, Licensing


Oligopoly is where there is an industry with only
a small number of firms in it


Examples: Soft Drinks, Gas Stations

Monopolies

The Good

The Bad


They encourage companies to
invest in research and
development by protecting
patents


Reduces unneeded
competition


Can lead to services being
provided where competition
wouldn’t provide it


They produce less of their
product than competitive firms
do


They sell their product at
higher prices than competitive
firms do


They are less efficient in
making their product than
competitive firms are