Flashcards
L17 - Output Gaps
Cards in this deck (15)
- 1Actual output is the same thing as...Real GDP.
- 2Actual Output (Y) does not alway equal...potential output (Y*).
- 3Where does the 'growth trend line', 'potential output' or 'normal output' fit into the market fluctuations diagram?
- 4What is the formula for potential output?Y* = AF (K*, L*)
L* = full employment - 5How is the 'output gap' calculated?Actual output = potential output
Y - Y* - 6How is the 'recessionary gap' calculated?potential output less actual output (-)
Y* > Y - 7How is the 'expansionary gap' calculated?Actual output less potential output (+)
Y > Y* - 8Why is a recessionary gap not a good thing? (2)1. Capital and labour resources are not fully utilised
2. Output and employment are below normal levels - 9Why is an expansionary gap not a good thing? (3)1. Higher output and employment than usual
2. The demand for goods exceed the capacity to produce them at normal rates making prices rise
3. Higher inflation reduces economic activity - 10What is 'full employment'?u*
The rate of unemployment when the economy is producing its potential output - does not mean unemployment is zero! - 11'Actual unemployment' (u) does not always equal...The 'natural rate of unemployment' (u*)
- 12What are the three types of unemployment?1. Frictional - short term
2. Structural - long term
3. Cyclical - associated with business cycles - 13What is the formula for total unemployment (u)?(u) = F + S + C
Frictional + Structural + Cyclical - 14What is the formula for the natural rate of unemployment (u*)?(u*) = F + S
There is no C because there is no fluctuations. C = 0. - 15How do you calculate cyclical unemployment?Total unemployment - natural rate of unemployment
u - u*
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- ECON112
- Created by
- Sophia Lynch · Sep 2020
- Updated
- Sep 6, 2020
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