Edexcel A Level Economics A:复习笔记2.5.2 Output Gaps

Actual Growth & Long-term Growth

  • Actual growth can be differentiated from the idea of long-term trends in growth rates
  • A long-term growth trend is the underlying trend rate of economic growth over a longer period of time
    • This is determined by the constant increases in the productive capacity of an economy (aggregate supply)
      • The increase in productive capacity is illustrated by a rightward shift of the long-run aggregate supply curve (LRAS)
    • Use of long-term growth trends can reduce the impact of outliers in the data

Positive & Negative Output Gaps

  • An output gap is the difference between the actual level of output (real GDP) and the maximum potential level of output
    • A positive output gap occurs when real GDP is greater than the potential real GDP
    • A negative output gap occurs when the real GDP is less than the potential real GDP
      • There is spare capacity in the economy to produce more goods/services than are being produced
  • It is difficult to measure output gaps accurately
    • This is because it is hard to know exactly what the maximum productive potential of an economy is
    • Rapidly rising prices can indicate a positive gap is developing
    • Rising unemployment and slowdown in economic growth can indicate that a negative gap is increasing

A Negative Output Gap

2-5-2-negative-output-gap_1

2-5-2-negative-output-gap_2

An Keynesian (top) and Classical (bottom) diagram illustrating an economy that has a negative output gap (Y1- YFE) and is currently producing less than its potential output

 

Diagram Analysis

  • The potential output of this economy is at YFE
  • The economy is in a short-run equilibrium at AP1Y1
    • A negative output gap exists at Y1 - YFE
      • This effectively gives the economy sparer capacity in the short-term
    • One cause of this may be that the AD has recently decreased due to a fall in consumption
    • The Classical view is that the output will return to YFE  in the long-run, but at a lower average price level
    • The Keynesian view is that an economy may be stuck in a negative output gap for a long period of time

 

A Positive Output Gap

2-5-2---positive-output-gap

An AD/AS diagram illustrating an economy that has a positive output gap (YFE - Y1) and is currently producing more than its potential output

 

Diagram Analysis

  • The potential output of this economy is at YFE
  • The economy is in a short-run equilibrium at AP1Y1
    • A positive output gap exists at YFE - Y1
      • This effectively gives the economy more productive capacity in the short-term
    • One cause of this may be that workers are willing to work overtime once full capacity is reached
      • It is not sustainable and the Classical view is that the output will return to YFE, but at a higher price level

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