Lesson 21 - Equilibrium + Output Gap Flashcards

1
Q

When does equilibrium occur?

A

Quantity r.GDP demanded = Quantity r.GDP supplied

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2
Q

What are the 3 types of equilibrium?

A

Full employment equilibrium
Deflationary equilibrium
Inflationary equilibrium

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3
Q

What is deflationary equilibrium?

A

Below full employment equilibrium

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4
Q

What is inflationary equilibrium?

A

Above full employment equilibrium

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5
Q

What is the Output Gap?

A

Difference between actual and expected potential level of GDP

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6
Q

When + why does a negative gap occur?

A

Actual < Est. Potential
Resources under utilised

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7
Q

What are the main problems associated with a negative gap?

A

High unemployment
Possible deflation risk

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8
Q

When + why does a positive gap occur?

A

Actual > Est. Potential
Resources working beyond usual capacity

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9
Q

What are the main problems associated with a positive gap?

A

Rising inflationary pressure
Primarily demand pull + cost push

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