Download Econ 102—Chapter 24 Review February 25, 2008 When actual

Econ 102—Chapter 24 Review
February 25, 2008
1.
When actual GDP is higher than potential GDP, we say that there is a(n) ______________ gap.
Draw a graphical example of this gap below.
2. When actual GDP is higher less than potential GDP we say there is a(n) ______________ gap.
Draw a graphical example of this gap below.
3.
An inflationary gap leads to excess demand for labor, which causes wages and thus ________
costs to rise. Firms require higher ____________ in order to supply any level of output, and so
the AS curve shifts _____________.
4. A recessionary gap leads to excess supply of labor, which causes wages and thus ________ costs
to fall. Firms reduce __________ for any level of output supplied, and so the AS curve shifts
__________.
5. The downward adjustment in of wages in response to a recessionary gap is much ____________
than the upward adjustment of wages in response to an ______________ gap. Economists refer
to this phenomenon as _________________.