93394
Over 2012/13, to what extent was
the output gap a cause for
concern?
- Output Gap
- The difference between actual and
potential output. When actual output
exceeds potential output, the gap is
positive. When actual output is less than
potential output, the gap is negative
- The difference between actual and
potential output. When actual output
exceeds potential output, the gap is
positive. When actual output is less than
potential output, the gap is negative
- PPF
- Assumes that all resources
are used efficiently
- Technology determines the position
of the potential output line, results in
movements on the ppf
- We can't be on the line in reality: due
to lack of knowledge and inefficiencies
- Assumes that all resources
are used efficiently
- Business Cycle
- Actual growth tends to
fluctuate, and could be a
result of the business cycle
- 4 Stages:
Upturn,
Expansion,
Peak,
Recession
- Actual growth tends to
fluctuate, and could be a
result of the business cycle
- Since the recession of 2008, the
UK has lost a significant amount
of potential output due to the
prolonged nature of the recession
- This leaves a
negative output
gap, however it is
difficult to assess
the amount
- This leaves a
negative output
gap, however it is
difficult to assess
the amount
- Factors that influence an output gap
- Unemplyment,
Fall in Real
Wages, Spare
Capacity,
Inflation,
Labour
Productivity
- Unemployment is seen as an indicator to
show lost potential output. In 2012, the
rate was 7.9% which was lower than
expected. If people are not working it is
difficult to grow in an economy and
therefore to reduce the output gap
- Increase in PT jobs as opposed
to FT (Labour Productivity).
Unemployment is still high, but it
is gradually decreasing.
Recession has made it difficult
for firms to be able to supply jobs
- Increase in PT jobs as opposed
to FT (Labour Productivity).
Unemployment is still high, but it
is gradually decreasing.
Recession has made it difficult
for firms to be able to supply jobs
- Spare Capacity: measures the
extent to which an industry or an
economy is operating below the
maximum sustainable level of
production. Expect inflation to
decrease, but in the UK it hasn't
decreased much
- As unemployment
rises, its harder for
workers to bargain
for higher wages,
unemployment
should reduce wage
inflation
- Unemployment is seen as an indicator to
show lost potential output. In 2012, the
rate was 7.9% which was lower than
expected. If people are not working it is
difficult to grow in an economy and
therefore to reduce the output gap
- Unemplyment,
Fall in Real
Wages, Spare
Capacity,
Inflation,
Labour
Productivity
- Liquidity Trap
- Keynesian Economics: when
injections of cash into the
private banking system by a
central bank fail to lower
interest rates and hence fail
to stimulate economic growth
- Caused when people hoard cash
because they expect an adverse event
such as deflation and insufficient
aggregate demand
- Keynesian Economics: when
injections of cash into the
private banking system by a
central bank fail to lower
interest rates and hence fail
to stimulate economic growth
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