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According to the Solow model, two chief influences on real GDP, in the long-run, are the savings rate, s, and the capital-labour ratio, k. Because s and k are not exogenous to the model, factors that affect these variables also influence real GDP (including but not limited to: technology, capital depreciation, real investment, population growth, and inflation).
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What is potential GDP?
The level of real GDP in the long run is called Potential GDP.
In the US business cycles have occurred against a backdrop of a long-run trend of?
rising-real GDP
How is real GDP effect price levels supply and demand In a short-run macroeconomic equilibrium?
In a short-run macroeconomic equilibrium, real GDP affects price levels through the interplay of aggregate demand and aggregate supply. When real GDP increases, it often leads to higher demand for goods and services, which can push up price levels if the aggregate supply does not keep pace. Conversely, if real GDP decreases, demand contracts, potentially lowering price levels if supply remains unchanged. This dynamic illustrates how fluctuations in real GDP can influence inflationary or deflationary pressures in the economy.
Why real GDP is inversely related to interest rates in the short run?
Using taxes and spending to control the level of GDP in the short run is known as _________ policy.
In the long run potential growth in the economy and a rise in real GDP per capita might occur from all except?
growth in population
What is potential GDP?
The level of real GDP in the long run is called Potential GDP.
In the US business cycles have occurred against a backdrop of a long-run trend of?
rising-real GDP
How is real GDP effect price levels supply and demand In a short-run macroeconomic equilibrium?
In a short-run macroeconomic equilibrium, real GDP affects price levels through the interplay of aggregate demand and aggregate supply. When real GDP increases, it often leads to higher demand for goods and services, which can push up price levels if the aggregate supply does not keep pace. Conversely, if real GDP decreases, demand contracts, potentially lowering price levels if supply remains unchanged. This dynamic illustrates how fluctuations in real GDP can influence inflationary or deflationary pressures in the economy.
Why real GDP is inversely related to interest rates in the short run?
Using taxes and spending to control the level of GDP in the short run is known as _________ policy.
In the long run potential growth in the economy and a rise in real GDP per capita might occur from all except?
growth in population
What is the difference between aggregate supply in the short and long run?
In the long run (ceteris paribus), aggregate supply is perfectly inelastic, represented by a vertical line. No matter the inflation or deflation, there will be constant real product. However, in the short run, aggregate supply is much more elastic (and, according to Keynes, can become perfectly elastic (horizontal) if the economy gets into a rut). The real GDP will change because of the price level. But by definition, in the long run real variables are resistant to nominal changes, so real GDP will not be influenced by price level while in the short run it is not constant.
Keynes considered full employment GDP to be?
The level of GDP where all labour is employed (that is, long-run unemployment is minimised).
What is most commonly used to monitor short-run changes in economic activity?
Real GDP
In the long run the real interest rate is determined by?
In the long run the real interest rate is determined by?
How is GDP related to aggregate supply and demand?
Temporary or short run changes in input prices and resource costs will shift the SRAS curve without changing the full employment level of real GDP and shifting the LRAS curve.
What will happen to the equilibrim price level and real GDP if aggregate demand and aggregate supply both increase?
If aggregate demand increases at every price level than the demand curve shifts to the right. In the short-run the new equilibrium forms from an increase in willingness to spend, thus higher prices and higher real GDP or quantity of output. If short-run aggregate supply increases at every price level than the supply curve shifts to the right. From the short-run to the long-run the new equilibrium forms from an increase willingness to sell, thus prices reduce to original equilibrium and output increases further. Recap: Prices stay constant while real GDP or total quantity of output increases.
Why is the long run aggregate supply LRAS curve vertical?
The Long-Run Aggregate Supply Curve is vertical at full-employment GDP with respect to the price level. In the long-run the quantity of output supplied depends on the economy's resource endowment, technology, and its governing institutions. The price level does not affect these variables in the long-run.
