Lesson 21 - Equilibrium + Output Gap Flashcards
When does equilibrium occur?
Quantity r.GDP demanded = Quantity r.GDP supplied
What are the 3 types of equilibrium?
Full employment equilibrium
Deflationary equilibrium
Inflationary equilibrium
What is deflationary equilibrium?
Below full employment equilibrium
What is inflationary equilibrium?
Above full employment equilibrium
What is the Output Gap?
Difference between actual and expected potential level of GDP
When + why does a negative gap occur?
Actual < Est. Potential
Resources under utilised
What are the main problems associated with a negative gap?
High unemployment
Possible deflation risk
When + why does a positive gap occur?
Actual > Est. Potential
Resources working beyond usual capacity
What are the main problems associated with a positive gap?
Rising inflationary pressure
Primarily demand pull + cost push