Module 19

Question 1

short run economic equilibrium

Answer 1

where AD and SRAS intersect

Question 2

demand shock

Answer 2

an event that shifts the AD curve, causing PL and rGDP to move in same direction

Question 3

causes of demand shock

Answer 3

change in expectations, change in wealth, size of existing inventory, use of govt policy

Question 4

supply shock

Answer 4

an event that shifts the SRAS

Question 5

negative supply shock

Answer 5

raises production costs, and therefore reduces the number of producers willing to supply at any given price

Question 6

positive supply shock

Answer 6

decreases production costs, and therefore increases the number of producers willing to supply at any given price

Question 7

stagflation

Answer 7

stagnation + inflation

inflation and falling rGDP

Question 8

Long run equilibrium

Answer 8

when the SRAS, LRAS, and AD intersect

Question 9

recessionary gap

Answer 9

when aggregate output is below potential output, causing high unemployment
caused by negative demand shock
eventually self correcting as nominal wages fall

Question 10

inflationary gap

Answer 10

when agg output is above potential output
caused by positive demand shock
eventually self correcting as nominal wages rise

Question 11

output gap eq

Answer 11

actual output - potential output / potential output x 100%

Question 12

self correcting

Answer 12

shocks to aggregate demand effect agg output in the short run, but not in the long run