Business Cycle Flashcards
1
Q
What is the straight diagonal line called in the business cycle diagram?
A
trend potential growth
(in long run real GDP does increase due to improvements in technology)
2
Q
Axis for business cycle
A
y-axis - real GDP
x-axis - time
3
Q
What is fluctuating line called in business cycle diagram?
A
actual GDP
4
Q
What does a negative output gap mean?
A
economy producing below potential - not using all resources efficiently
5
Q
What does a positive output gap mean?
A
economy producing above potential - overusing resources
6
Q
In Neoclassical diagrams there are no…
A
long run output gaps
7
Q
How to show output gaps with neoclassical diagram
A
- positive = LRAS line before equilibrium
- negative = LRAS line after equilbrium
8
Q
In Keynesian diagrams there are no…
A
positive output gaps
9
Q
Characteristics of a boom
A
- high animal spirits (confidence= investment/consumption)
- high economic growth
- demand-pull inflation
- low unemployment (derived demand)
- improve budget deficit (more rev, less benefits spending, due to employment)
10
Q
Characteristics of a bust
A
- low animal spirits (low confidence= no investment/consumption)
- negative economic growth
- low inflation/deflation
- high unemployment (low derived demand)
- worsened budget deficit (less rev, more benefits spending, due to unemployment)
