ECON 319 Lecture Notes - Output Gap, Potential Output, Keynesian Cross
22 Nov 2012
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Document Summary
Us recession and recovery is the worst in the last 15 years. The range of recovery from recession is far greater than the us current cycle. Big 5 modern financial crises: spain (1977), norway (1987), finland (1991), sweden (1991), and japan (1992) Potential output grows as the labour force and technology grows. Potential output grew at a faster rate than the current rate of output. Canada is growing at about 1% gdp per year. What drives potential gdp: labour force growth, capital accumulation, productivity growth. Demand shocks relate to households wanting to buy goods. Supply shocks relate to producers being able to create goods. Fiscal expansion is an injection of demand by the government to stimulate the economy (or changing of tax rates) Tend to alter demand not supply. Output gap is the difference between actual and potential gdp: low output gap = higher unemployment rate.
