2.5 economic growth

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9 Terms

1
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Classical and Keynesian view on output gap

Keynesian: negative output gap can exist in short and long run

Classical: positive and negative output gap can only exist in short run

2
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Business cycle diagram

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3
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What perspective prioritises inflation

Classical, as unemployment will fix itself in the long run

4
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What perspective believe in sticky wages

Keynesian

5
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Classical belief if SRAS shifts in

In the short run GDP is reduced

In the long run:

  • firms reduce wages as SL>DL, giving firms power

  • Firms pass on lower costs to consumers

  • AD shifts out

6
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Classical belief if AD shifts in

In the short run GDP is reduced

In the long run:

  • Lower output and GDP

  • Price level has fallen

  • SRAS shifts out as costs of FOPs is lower

7
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9
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