LRAS

Question 1

LRAS

Answer 1

Shows productive capacity of economy/Potential level of output (GDP) of an economy is all factor was used efficiently. Price level can change in the long run but output doesn’t because capacity has already been reached. Also shows full employment

Question 2

The LRAS graph

Answer 2

A straight, vertical graph. Economies of scales in the LR can produce more efficiently. When the potential output increases, the LRAS shifts right and vice versa. the PPF would also shift outwards too.

https://docs.google.com/document/d/1527JHoBoYx9Vh6RoUk9jrhrAnspzH3jkCJkHyRzYaeU/edit

Question 3

Axis

Answer 3

X-axis= Real national output (Yf, Yf1…)
Y-axis= Price level (PL, PL1…)

Question 4

Usual causes of LRAS shifts

Answer 4

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

Question 5

Yf

Answer 5

Potential output/ output at full employment

Question 5

Output gaps

Answer 5

Difference between actual and potential output.
Actual output=Y
Potential output=Yf
Output gaps= Y-Yf

Question 6

Positive gaps

Answer 6

Actual output > Potential output. The economy is outperforming expectations and growth is above trend rate

Question 7

Negative gaps

Answer 7

Potential output > Actual gaps. Actual economic output is below the economy’s normal capacity for output.