Lesson 21 - Equilibrium AD and AS

Question 1

When does macroeconomic equilibrium occur?

Answer 1

Macroeconomic equilibrium occurs when the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and AS curve.

Question 2

What are the three types of equilibrium?

Answer 2

Full employment equilibrium
Below full employment equilibrium (deflationary)
Above full employment equilibrium (inflationary)

Question 3

Define the term output gap?

Answer 3

The output gap is the difference between the actual level of GDP and its estimated potential level. It is usually expressed as a percentage of the level of potential output.

Question 4

Define the term negative output gap?

Answer 4

When the level of actual GDP is less than the potential GDP.

Question 5

What is the main problem associated with a negative output gap?

Answer 5

The main problem is likely to be higher unemployment and a possible deflation risk.

Question 6

Define the term positive output gap?

Answer 6

When the Actual GDP is greater than the potential GDP.

Question 7

What is the main problem associated with a positive output gap?

Answer 7

The main problem is rising cost-push and demand-pull inflationary pressures.