Explain the concept of potential output and why actual output can differ from potential output? (2 marks) Potential output is the amount of output that an economy can produce when using its resources such as capital and labour, at normal rates. Potential output is not a fixed number but grows over time, reflecting increases in both the amounts of available capital and labour and their productivity. As capital and labour can be utilised at greater than normal rates, at least for a time, a country's actual output can exceed its potential output. Identify two factors that might cause a change in the level of potential output. For each factor briefly explain why they can affect potential output. (2 marks) Unfavourable weather …show more content…
(Price level and the interest rate, are held constant). Increased saving, decreases consumption hence drops Y=PAE (C+I(p)) and increases withdrawals and hence saving curve increased. Equilibrium GDP would increase if there were an increase in exports (raises PAE, raising whole line therefore equilibrium point is higher) PAE=C+I(p) +G+X-M Explain what is meant by the multiplier? Why, in general, does a one dollar change in exogenous expenditure produce a larger change in short-run output? (4 marks) EXAMPLE The multiplier, otherwise known as the income-expenditure multiplier, is the effect of a one-unit increase in exogenous expenditure on short-run equilibrium output. The multiplier arises because a given initial change in spending changes the incomes of producers, which leads them to adjust their spending, changing the incomes and spending of other producers, and so on. Ultimately, these successive rounds of declines in spending and income may lead to a decrease in planned aggregate expenditure, and output that is significantly greater than the change in spending that started the process. Explain the role played by the marginal tax rate in determining the size of the multiplier. Other things equal, how does a cut in the marginal tax rate affect the size of the multiplier? (2 marks) PAGE 214 If the government sets a high tax rate, a change in domestic income
The sequential headlines of chapter nine were “The Determination of Equilibrium Output (Income)” and “The Savings/Investment Approach to Equilibrium.” The equilibrium output equation as listed by Case, Fair, and Oster was that of Y = C + I + G and the “savings/investment approach to equilibrium” was S + T = I + G. The second heading defined S and T as “leakages” and I and G as “injections” (p. 170). Once these two equilibrium approaches were listed on page 170, the government spending multiplier was defined by Case, Fair, and Oster as this: “the ratio of the change in the equilibrium level of output to a change in government spending” (p. 171). This term was also
The multiplier is the ratio of a change in GDP to an initial change in spending. The amount of spending affects total output of the economy. Mass layoffs by large companies are a concern to the citizens and leaders where those firms are located because this loss of jobs will lead to a decrease in spending because those who are unemployed are not able to spend as much money on goods and services. This unemployment will also cause local businesses to
14. (The Long-Run Industry Supply Curve) A normal good is being produced in a constant-cost, perfectly competitive industry. Initially, each firm is in long-run equilibrium. Briefly explain the short-run adjustments for the market and the firm to a decrease in consumer incomes. What happens to output levels, prices, profits, and the number of firms?
Economics growth is, it the short run an increase in real GDP and in the long run an increase in the productive capacity of an economy (the maximum output that the economy can produce). GDP stands for Gross Domestic Product which is the country’s production of goods and services valued at market price in a given time period. Real GDP is when these figures are corrected for inflation using a base year (The UK uses 2003 as its base year). It can be measured in three different ways; the output measure is the value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government. The
28. Double counting in the value added approach to GDP refers to: counting the total
A nation’s wealth is determined by its increase in long-term economic growth. It is an increase in the potential gross domestic product, GPD. The growth is displayed by an outward shift in a nation’s long-term aggregate supply curve (Riley, 2016). The United States as a developed nation, transformed by technology long-run economic growth is the advancement in innovations, quality natural resources and human capital. The long-term growth produce goods and services in output indicating the nation’s standard of living example employments, spending, saving, and investment. As we learned, from the week’s lesson notes, output increases the market aggregate demand and a company’s scale of production for specialization and division of labor with the
Death. It is something that we all must face at one point in our lives. It is either a death of a friend, or even a loved one. Sometimes it’s the devastation from natural causes and disasters. No matter what makes us face the idea of death it is how we handle this reality that truly matters. When Gilgamesh is faced with the dreadful loss of his dear friend and comrade Enkidu, he begins to fear death. In Gilgamesh’s youth he was dignified without the fear of death pondering through his mind, it is not until he watches his friend die that his own morality becomes a fear. It seems as though the death of Enkidu was a test for Gilgamesh, from the gods to see whether or not he would truly change for the greater good of his life, and the people he led, but because of the death of his close
-The effects of international trade on gross domestic product (GDP), domestic markets and foreign students
The Multiplier Effect is the expansion of a country’s money supply. Low-wage workers tend to spend all their earning to meet basic needs, whereas the wealthy can afford to put their money away to save. So, the multiplier model shows that every extra dollar going into the low-wage workers’ pockets adds about $1.21 to the national economy. By contrast, every extra dollar going into the pockets of wealthy peoples only adds $0.39 to the GDP (Anderson, 2014). When money is being put back into the pockets of the people who are spending the money it expands the economy because it’s a cycle. Every extra dollar a low-wage worker earns is being spent on more things needed, whereas an extra dollar to a high-wage worker is being put away and not spent on the
Keynes established the theory of the multiplier effect. Keynesians believe that, because prices are somewhat predictable, variations in spending, such as consumption, investment, or government expenditures, cause output to fluctuate. For example, if government spending increases and all other components remain constant, then output will increase. The multiplier effect is defined as “output increases by a multiple of the original change in spending that caused it.”(3) This means, that if the government were to increase their spending by ten billion dollars, it could cause the total output to rise by fifteen billion dollars (a multiplier of 1.5) or by five billion (a multiplier of 0.5). Thus the money that gets injected into the economy creates a multiplier effect and promotes more circulation of money by creating
Body image has been something women are highly conscious of for years. The way the world presses this image of what a “perfect” body is onto women isn’t natural. The perfect body is always changing. From the early 2000’s to around 2015 skinny girls with long legs, perfect skin, and toned abs are what was seen as perfect. The famous Barbie doll toy has been around since 1959 when it came out and has been intoxicating the homes of young girls ever since. Barbie is a plastic toy that represents a perfect caucasian woman. Her unrealistic body proportions have had a negative effect on women for years and press them to look like her. The unrealistic anatomy of Barbie dolls affects the global image of what a female’s body should look like by planting
Meningitis the infectious disease that is an “Inflammation (swelling) of the protective membranes covering the brain and spinal cord known as the meninges”(Laboratory Information). Meningitis first appeared in 1768 by Edinburgh physician Sir Robert Whytt in a posthumous report. The first meningitis outbreak was recorded in 1805 Geneva. The first ever outbreak in Africa was in 1840 and after that a bunch of epidemics had become more common in the 20th century. Meningitis has many symptoms, it has a treatment but no cure, and meningitis can cause some issues for a person.
IS-LM stands for investment-savings and liquidity-money, and can be represented graphically by a downward sloping curve for IS and an upward sloping curve for LM. In the IS curve, anywhere along the curve represents a point where interest rate and income satisfy that total spending equals the economy’s total output (real income). Total spending/demand is determined by adding together consumer expenditure, investment, government expenditure, and net exports (investment being the only endogenous variable among the four). In this equation, the assumptions are that; consumer spending is increasing with more disposable income, investment is increasing as interest rates increase, and exports are increasing with
The concept of the multiplier process became important in the 1930s when John Maynard Keynes suggested it as a tool to help governments to achieve full employment. This macroeconomic “demand-management approach”, designed to help overcome a shortage of business capital investment, measured the amount of government spending needed to reach a level of national income that would prevent unemployment.
This is Because: a) The ability of the economy to a production increase of more limited when Compared to the ability of developed countries. b) pattern of economic life in developing countries are very different from Reviews those in developed countries items, namely in developing countries control most of the traditional sectors of economic activity, Reviews These two factors are the most important cause that results in a multiplier process can not be run properly. According to the theory of the multiplier, the Increased expenditure made by the public will increase of the income class of society. This latter class of people who will be using most of the income for consumption. This expenditure will lead to a party other communities and they will receive income Also use part of the revenue to buy goods for mereka.proses will continue causing public revenue number is created Several times higher than the first increase of spending once created. In circumstances where the ability to increase of the rate of production is very limited, increase of public spending that is too big it will cause in an increase of