3.5: Equilibrium in the AD-AS

Question 1

What can the AD, SRAS and LRAS be used to show?

Answer 1

An economy at full employment output

Question 2

What are the 3 places the economy be at a time?

Answer 2

Negative Output Gap

Full Employment

Positive Output Gap

Question 3

What does the actual GDP equal to at full employment?

Answer 3

Potential GDP growth

Question 4

Recessionary Gap (Negative Output Gap)

Answer 4

Output low and unemployment is greater than NRU (natural rate of unemployment)

Actual GDP is below potential GDP