Key terms pt4

Question 1

LRAS

Answer 1

Shows productive capacity of an economy / potential level of output of an economy. It refers to the amount of real GDP that an economy will produce if it was using all factors efficiently.

Question 2

Usual causes of LRAS shifts

Answer 2

Changes in technological advances
Changes in productivity levels
Changes to education and skill levels
Changes to healthcare

Question 3

Output gaps

Answer 3

Difference between actual and potential GDP (Y-Yf)

Question 4

Positive gaps

Answer 4

Actual GDP > Potential GDP. The economy is outperforming expectations. Growth is above the trend rate

Question 5

Negative Gaps

Answer 5

Potential GDP > Actual GDP. The actual economic output is below the economy’s normal capacity for output

Question 6

Macroeconomic equilibrium

Answer 6

If the price level is too high, there is an excess supply of output (unsold stock)- a signal to cut back on production. If the price level is below equilibrium, there is excess demand in the short run (stock run down)- a signal to expand production.

Question 7

Demand shock

Answer 7

Sudden/considerable shifts in pattern of spending e.g. crashes in stocks or house prices.

Question 8

Supply shocks

Answer 8

Makes production more difficult, disrupts supply chain and higher COP e.g. change in oil prices, natural disasters, war

Question 9

Real living wage

Answer 9

Minimum income necessary for a worker to meet their basic needs. It is voluntary and based of what people need to live (cost of living). Voluntarily paid by nearly 7000 UK businesses who believe their staff deserve a wage which meets everyday needs (e.g. groceries)

Question 10

Supply

Answer 10

The quantity of a good or service that producers are willing and able to supply at a given price in a time period.