2.0

Question 1

Output gap

Answer 1

Output gap is to do when we are not at long run economic equilibrium

Question 2

What happens if real GDP is above full employment level

Answer 2

We say there is a inflationary gap or a positive output gap

Question 3

What happens if real gdp is below full employment level

Answer 3

We say there is a deflationary gap or a negative output gap

Question 4

What is a business cycle

Answer 4

An economic cycle or business cycle is the natural variation in economic activity (real GDP) over time

Question 5

What is a full business cycle composed of ?

Answer 5

Recession,recovery, boom and slowdown phase

Question 6

What is a recession ?

Answer 6

It is a fall of real GDP accompanied by unemployment. A recession is defined in the UK as two quarters of falling real GDP. A deep recession would be a situation where actual output remains below potential output for servers quarters.

Question 7

What is the recovery phase

Answer 7

The economy is still in a negative output gap but real GDP is steadily rising and unemployment may start to go down

Question 8

What is a “boom”?

Answer 8

Actual output is above potential output. Real GDP is increasing at a faster rate than the trend rate of growth. The price level tends to rise rapidly (inflation)

Question 9

What is the “slowdown phase”

Answer 9

There is still a positive output gap but it is shrinking as the growth rate of real GDP starts to fall

Question 10

What is short run economic growth ?

Answer 10

Short run economic growth is an increase in real GDP of an economy at a given period of time, using current resources and technology.
Short run economic growth is actual economic growth.
Short run equilibrium real GDP can increase due to an increase in either aggregate demand or short run aggregate supply.

Question 11

What is long run economic growth

Answer 11

Increase in an economy’s potential level of real output over time (an increase in the productive capacity of an economy)

Question 12

Causes of long run economic growth

Answer 12

Anything which increase the quantity or quality of factors of production will increase long run aggregate supply

Question 13

Meaning of productivity

Answer 13

Output per unit of factor input in a given period of time.

Question 14

What is infrastructure

Answer 14

This is the large scale capital that is necessary for economic activity to take place
The majority of large scale capital is funded/provided by the government

Question 15

Meaning of institutions

Answer 15

This refers to the established system of rules which facilitate socio-economic interactions