ENGR 3360U Winter 2014

Unit 2.2.1
Macroeconomics
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01

Unit 2.2 Macroeconomics

Change Record
2014-I-01 Initial Creation

2.2-2

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Course Outline for Part 2

2.1 Microeconomics
2.2 Macroeconomics
2.3 Money and the Bank of Canada

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Roadmap
2.2.1 The Economy from 10,000 Meters
2.2.2 Measuring Economic Activity
2.2.3 Prices and Inflation
2.2.4 Economic Growth

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

2.2.1 The Economy from 10,000 Meters

2.2.1.1 Major Issues of Macroeconomics
2.2.1.2 Macroeconomic Policies

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

2.2.1.1 Major Issues of Macroeconomics

1 Economic growth and living standards
2 Production
3 Recessions and expansions
4 Unemployment
5 Inflation
6 International economic interdependency

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

1 Economic growth and living standards

The G-8 are the worlds FatKats
They have a very high standard of living
(SoL) compared to the rest of the world (or
to us 50 years ago)
High SoL longer life, better health, more
toys, more culture, more sports, more
everything
Scarcity Problem still exists but contrast
ours with a Syrians
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Output of the Canadian Economy

(STATSCAN Gross Domestic Product - GDP)

Output of the Canadian Economy, 19262003

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Last few years

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Output Per Person

One reason for growth in total output is just
the growth of the Canadian population
More workers are available to make more
output - but more people are sharing the
consumption of those goods and services

Output per person is a better indicator of the

average living standard over time
{Output per working hour is even better}
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Output per Worker/ Person

Output per Person and per Worker in the
Canadian Economy, 1926-2003

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Musings
Output has increased 16 times since 1926 and 5
times since 1950
Increase in population for sure but also increase in
productivity
Increase in toys too
87% of us own a vehicle
Most of us have several TVs
75% subscribe to cable
66% have a home computer; 50% are on the Internet
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Other Benefits
Infant mortality rate has sunk from 100 in
1,000 to 5 in 1,000
Average life expectancy grew from 59 to 79
(76 m, 82 f)
In 1950, half the population had less than
grade 9 education; 5% university
Now degrees>grade-niners
More than 50% of the degrees are female
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

2 Productivity
Average labour productivity =
$output/employed worker
Has increased 4 time since 1926
We still lag the US
Output/person
Ave Lab Prody

CDN
USA
$32,468 $42,847
$67,114 $87,278

Big political issue

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

How to Rank CDN vs. USA

There are 35 MegaCanucks
There are 310 MegaYanks
There are 7,100 MegaHumans
The 1:10:200 ratio is pretty consistent
1.25 GigaIndians
1.36 GigaChinese
174 MegaNigerians!
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

3 Recessions and Expansions

Economy changes erratically
Slowdowns are drops in the GDP
Severe slowdowns are Recessions
A major recession is a Depression (the
Great Depression of the 1930s)
Expansions are increases in the GDP
Strong expansions are Booms
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Recession (Wikipedia)
A recession is defined as a decline in a country's real GDP
for two or more successive quarters of a year (equivalently,
two consecutive quarters of negative real economic growth).
A recession may involve simultaneous declines in coincident
measures of overall economic activity such as employment,
investment, and corporate profits. Recessions may be
associated with falling prices (deflation), or, alternatively,
sharply rising prices (inflation) in a process known as
stagflation. A severe or long recession is referred to as an
economic depression.
Market-oriented economies are characterized by economic
cycles, but actual recessions (declines in economic activity)
do not always result. There is much debate as to whether
government intervention smooths the cycle (Keynesianism),
or exaggerates it.
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Trade as share of GDP in Canada

2002 Third Quarter
Exports = $ 478 Billion per year
= $40 Billion per month
41.5 % of GDP

Imports = $ 430 Billion per year

37.4 % of GDP

For Canada, trade with USA is about 85%

of total CDN Trade
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Current Monthly Economic Indicators

http://strategis.ic.gc.ca/epic/internet/ineas-aes.nsf/en/h_ra01898e.html

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

2.2.1.2 Macroeconomic Policies

Monetary policy
Determination of interest rates & money supply
Changes in the interest rate affect

National output
Employment
Inflation
Stock prices
International value of the dollar

Controlled by central bank:

In Canada - Bank of Canada [Mark Carney /Stephen Poloz]
In USA Federal Reserve Board [Ben Bernanke]

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Macroeconomic Fiscal Policy

Fiscal policy
Decisions that determine the governments
budgeted expenditures and revenues

Deficit
Expenditure > Revenue

(e.g. USA )

Surplus
Expenditure < Revenue

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(e.g. Canada in 2009 )

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Structural Macro Economic Policy

Structural Macro policy
A government policy aimed at changing the
underlying structure, or institutions, of the
nations economy
Example:
East Asian currency crisis of 1998 + ENRON +
.COM collapse of 2002
produced policies to increase Transparency and
Accountability in the financial sector

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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.2 Macroeconomics

Aggregation: Micro and Macro

Microeconomists Ground level view
Macroeconomists 10,000 meter view
Both use the basic principles of economics
Micro: Behaviour of households individually
Macro: Behaviour of households aggregated

Aggregation
The adding up of individual economic variables to obtain
economy-wide totals
In an accounting sense, macro economic aggregates are the
sum across individuals and firms of microeconomic
outcomes
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Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco