Introduction to Economic Principles

1. Introduction to Economic Principles

2. What is Economics? The study of the production, distribution and consumption of wealth in human society Consists of 2 categories: Microeconomics The study of economics at the level of individual consumers, groups of consumers, or firms 2. Macroeconomics Macroeconomics considers the performance of the economy as a whole

3. Economic Systems • How a country organizes its resources and distributes goods and services to its citizens • Often it is closely linked to a country’s style of government United North States Canada Sweden Korea Market Economy Mixed Economy Command Economy • Some freedoms but subject to government intervention • Government controls all elements of the economy and establishes how income is distributed • Decisions of what/how to produce driven by market needs/wants • Free of government regulation

4. Gross Domestic Product (GDP) • GDP: total value of all goods and services produced within a country for a specific period of time • Measures health of a country’s economy • GDP per capita (Total GDP / population) is best to compare countries • A higher GDP usually = higher standard of living

5. Economic Development • United Nations (UN) and the International Monetary Fund (IMF) classifies countries by their level of economic development • Development is measured on the Human Development Index (HDI) • Life expectancy • Literacy rate • Standard of Living

6. Human Development Index • More industrialized nations generally have a higher HDI

7. Business Cycle • Business cycle is measured by changes in real GDP • The duration of a business cycle can vary from one cycle to the next Peak • Decreasing prices • Increasing unemployment • Decreasing production • Lower incomes Recovery/ Expansion Recession/ Contraction • Rising prices • Increasing employment • Rising production • Rising incomes Trough

8. Economic Indicators • An indicator is used to predict future financial or economic trends • 3 types • Leading - signal future events (ie: stock market returns, housing starts, money supply) • Lagging - follows an event (ie: unemployment, consumer price index, prime rate charged by banks) • Coincident - occur at approximately the same time as the conditions they signify (ie: GDP, retail sales)

9. Bank of Canada – Global Outlook • More competition as emerging markets experience significant growth Source: http://www.bankofcanada.ca/wp-content/uploads/2011/06/presentation_230611.pdf

10. Government Debt • Governments borrow when spending exceeds revenue • They can issue: • Bonds – represents longer term borrowing (ie: Canada Savings Bond for 1 yr, 5 yrs etc.) • Treasury Bills – short term loans (ie: 90 days, 120 days) • Individuals, businesses, and foreign investors can buy; get paid interest on the funds

11. Questions • Under what type of economic system would a country be most likely to prosper? Why? • What is the Canadian Composite Leading Indicator? Go to http://cansim2.statcan.gc.ca/cgi-win/cnsmcgi.exe?LANG=e&ResultTemplate=CST&CORCMD=GETEXT&CORTYP=1&CORRELTYP=5&CORID=1601. What are the main categories that are included? • Many economists say that Canada tends to follow the same business cycle as the US. Explain why this happens. If this is so, why has Canada been better able to avoid the deep recession that the US just experienced? • Find a newspaper article that talks about the state of Canada’s economy. Based on the facts stated, what stage of the business cycle is Canada currently in (or what you foresee in the near future?) • In the business cycle, what is the definition of a recession? A depression?

12. Resources • http://cfee.org/cgi-bin/go.cgi?lang=en&file=/en/progres.shtml • www.bankofcanada.ca • http://www.bankofcanada.ca/wp-content/uploads/2011/06/presentation_230611.pdf