Question

f9acee53a337a637f2fc4a72067988d31a2502/MyFiles/Downloads/2020W%20ECON1200%20A2.pdf 2/3 4) Check the appropriate cell to indicate whether the economic event in the short-run) occur in an inflationary (I) gap or a recessionary (R) gap. (8 marks) Economic Event (short-run) Price levels are falling Unemployment is on the decrease Businesses have difficulty finding the workers with skills they need Capacity is decreasing in existing factories across the whole country Shortage of inputs is increasing costs for businesses More people are becoming unemployed Seems as though prices have decreased since last year Economic events are happening and factory capacity is increasing EN Dalnu inn vinlaholed aranh renresenting a fictious business cycle over time. Label

Answer 1

In Recessionary Gap, the real output is below the potential output level and employment level is below the full employment level.

While in Inflationary gap, the real output is above the potential output level and employment level is above the full employment level.

Price Levels falling means there is a recessionary gap as demand goes down due to unemployment hence the prices.

Unemployment is on decrease means there is inflationary gap as demand is going up, hence employment is going up to meet increased demand,

Business having difficulty in finding skilled workers means there is inflationary gap as employment level is high as there is shortage of workers

Capacity is decreasing means there is recessionary gap, as demand is less supply is getting reduced by firms.

Shortage of inputs means there is inflationary gap, as demand is more for input goods there is shortage of supply.

Unemployment is increasing means there is a recessionary gap, as demand is less firms are not demanding labor to decrease supply

Price are decreasing means there is a recessionary gap as demand goes down due to unemployment hence the prices.

Capacity is increasing means there is inflationary gap, as demand is more supply is getting increased by firms.

Answers are as follows:

Economic Event (short-run) Price levels are falling Unemployment is on the decrease Businesses have difficulty finding the workers with skills they need Capacity is decreasing in existing factories across the whole country Shortage of inputs is increasing costs for businesses More people are becoming unemployed Seems as though prices have decreased since last year Economic events are happening and factory capacity is increasing