Output Gap

• What determines the price level and real output/GDP in an economy?

  Where AD equals AS
• How do movements in AS/AD affect the economy?

  They change the price level and real output/GDP
• What is essential to understand in macroeconomic equilibrium?

  • Identify factors impacting SRAS/AD
  • Explain their impact on price level
  • Explain their impact on real output/GDP
• What happens during a movement along the demand curve?

  People's demand preferences remain unchanged
• What causes a change in quantity demanded during a contraction or extension?

  A change in price caused by a shift in SRAS
• What indicates a shift in the demand curve?

  People demand a different amount at the same price
• How might an improving job market affect consumer behavior?

  People may spend more on goods immediately
• What does a movement along the short-run supply curve indicate?

  Firms are increasing utilization of production factors
• Why can't firms change factors of production in the short-run?

  They cannot build new factories or hire more staff
• What must firms do to respond to increased demand in the short-run?

  Utilize more of what they currently have
• What is the most impactful factor for a shift in SRAS?

  A change in the costs of production
• What happens when production costs increase?

  SRAS shifts to the left (decreases)
• What factors impact costs of production in the short-run?

  • Changes in costs of raw materials
  • Changes in energy costs
  • Changes in exchange rates
  • Changes in tax rates
• What is the focus of future notes in this theme?

  Factors causing a shift in LRAS