Injections and withdrawls and Equilibrium levels of real national output [2.4.2 & 2.4.3] Flashcards
What happens when demand increases at LRAS?
Output will increase up until the maximum capacity this will then push price up.
What is the output gap?
The output gap is the difference between the actual level of GDP and its estimated potential usually expressed as a of GDP
What is equilibrium in Macro?
Macroeconomic equilibrium occurs when the quantity for real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD and AS curve.
What are the 3 types of equilibrium in macro?
Full employment equilibrium
Below full employment equilibrium (deflationary)
Above full employment equilibrium (inflationary)
What does equilibrium look like with short and long run AS?
Using SRAS and LRAS, can analyse relationship between current level of AD and the SRAS and LRAS and show the short run equilibrium in relation to the long run of an economy.
In an economic cycle when would the economy be operating in a positive and negative output gap?
What does insufficient demand or a negative output gap look like on an equilibrium diagram?
Diagram shows insufficient demand in the economy because AS and AD are at equilibrium at a point where Y is much lower than the potential of the economy
What is the negative output gap?
When the level of actual GDP is less than potential GDP
Some factor resources are under utilized like demand deficient unemployment
Main issue likely to be higher unemployment and possible deflation risk
What does inflationary demand or positive output gap look like on a equilibrium graph?
Diagram shows a situation where AD is so high that the economy is operating beyond the sustainable level of real GDP.
What is the positive output gap?
Actual GDP is greater than the estimated potential GDP
Some resources working beyond their usual capacity
Main problem being rising demand pull and cost push inflationary pressure
What does an output gap suggest about the efficiency of the economy?
Operating at an insufficient level/rte either over working or under utilising resources available
What economic policies are used when output gap is negative?
Monetary policy to stimulate the economy boosting demand
Fiscal policy to encourage demand
What economic policies are used when the output gap is positive?
Increasing interest rates to cool down spending reducing demand and inflationary pressure fiscal lowers spending and increasing taxes.
How is potential output measured and why is there uncertainty about this?
Statistical short term ups downs in balance with L/T tend estimate production function output for number of inputs
There have been lots of fluctuations due to uncertainties in the economic cycle
What are the injection within the economy
Gov spending
Investment
Exports
What are withdrawals or leakages?
Taxes
Savings
Imports
