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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
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.
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
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.
What is equilibrium GDP?
In the short run, equilibrium GDP is the level of output at which output and aggregate expenditure are equal
What is full employment level of output?
The quantity of real production or real aggregate output (or better yet, real gross domestic product) produced by the macro-economy when resources are at full employment. For all practical purposes, full-employment real production is real GDP produced when unemployment is at it's natural level, the combination of frictional and structural unemployment that can be maintained without inflation (or deflation either). For the aggregate market analysis, this is the level of real production achieved and maintained in the long run. The long-run aggregate supply curve is vertical at full-employment real production.
