25407389
Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
over 3 years ago
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| Question | Answer |
| Actual output is the same thing as... | Real GDP. |
| Actual Output (Y) does not alway equal... | potential output (Y*). |
| Where does the 'growth trend line', 'potential output' or 'normal output' fit into the market fluctuations diagram? | |
| What is the formula for potential output? | Y* = AF (K*, L*) L* = full employment |
| How is the 'output gap' calculated? | Actual output = potential output Y - Y* |
| How is the 'recessionary gap' calculated? | potential output less actual output (-) Y* > Y |
| How is the 'expansionary gap' calculated? | Actual output less potential output (+) Y > Y* |
| Why 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 |
| Why 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 |
| What is 'full employment'? | u* The rate of unemployment when the economy is producing its potential output - does not mean unemployment is zero! |
| 'Actual unemployment' (u) does not always equal... | The 'natural rate of unemployment' (u*) |
| What are the three types of unemployment? | 1. Frictional - short term 2. Structural - long term 3. Cyclical - associated with business cycles |
| What is the formula for total unemployment (u)? | (u) = F + S + C Frictional + Structural + Cyclical |
| What is the formula for the natural rate of unemployment (u*)? | (u*) = F + S There is no C because there is no fluctuations. C = 0. |
| How do you calculate cyclical unemployment? | Total unemployment - natural rate of unemployment u - u* |
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