ECO102H1 Lecture Notes - Potential Output, Output Gap, Investment Goods

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5 Sep 2012
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ECO102H1 Full Course Notes
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ECO102H1 Full Course Notes
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Chapter 25: the difference between short run and long one macroeconomics. The simplest illustration of the distinction between short run and the long-run changes in economic activity is the behavior of them real gdp over time. Actual gdp is measured by statistics canada. Potential gdp is a level of output that the economy produces when all factors of production are being utilized at their normal rates. But statistics canada can"t tell us the value of potential gdp because it is not an observed variable it to muster the estimated. When studying long-run trends in gdp, economists focus on the change in potential output. When studying long-run fluctuations, economists focus on the change in the output gap. In our micro model, output is determined in the short run by the ad and as curve but in the long-run only by the level of y*.

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