output gaps

Question 1

what is a negative output gap and what can it alsp be called

Answer 1

when the actual level of output is below the potential level of output
-can be called a deflationary/recessionary gap

Question 2

negative output gap (classical an Keynesian)

Answer 2

-this would be where the LRAS is further to the right than the macroeconomic equilibrium for classical
-this would be where AD is lower than Yfe for Keynesian

Question 3

positive output gap, what is it called and when can it occur

Answer 3

-where the actual level of output is greater than the potential
-can also be called an inflationary gap
-since Yfe is where all the factors of production are being used to their maximum potential at SUSTAINABLE LEVELS, the fop may not be at sustainable levels i.e. workers working overtime

Question 4

positive output gap classical and Keynesian

Answer 4

classical: where the LRAS is further to the left
keynesian: AD is at the top of the Yfe curve

Question 5

evaluation of a rise in growth using output gaps

Answer 5

-with a rise in AD: there may not be inflation if there is a lot of spare capacity in the economy, resources may not be that scarce, this is for both

-classical: if there is not enough AD in the economy, the rise in LRAS may not lead to economic growth shown by shift too far to the right in LRAS
-keynes: same as classical just Yfe shifts too far to the right