Please write 500 words of theories and concepts learned in Macroeconomics to explain a real-life economic situation.

An exampleis included as below:

During the past year and in particular recently, I found prices in Canada, and more specificallyfood prices, have been risingquite fast. Based on what I learned in Macroeconomics this semester, I can explain that by the following:

1. The equation of exchange M*V=P*Q, and the derivative formula: inflation rate=money supply growth rate-real GDP growth rate. (chapter 12). Money supply in Canada grew 20% in Feb 2021 compared with same period last year (source: Bank of Canada); real GDP for the year 2020 dropped 5.5% (source: Statistics Canada). assuming money velocity does not change much, inflation rate = 20% - (-5.5%) = 25.5%. Based on that, I expect inflation rate will go even higher for the rest of the year.

2. Food prices have increased even more than general prices since foods are non-durable goods. We learned non-durable goods consumption generally does not drop much even in a recession such as the one we are in right now. (chapter 6). Therefore, the demand ofnon-durable goodssuch as food remains high while the demand ofdurable goodssuch as cars and computers will drop dramatically during a recession. Therefore, the increase in the price of food far exceeds the increase in the price of cars and computers.