Cambridge International as and a level Economics Ebook

particularly in services.
Read the feature below and then answer the questions that follow.
1
What was happening to output in Latin America in 
2013?
2
Explain whether Brazil’s or Peru’s actual output was 
closer to its potential output.
3
Analyse how productivity infl uences economic 
growth.
4
Explain why productivity growth was low in Latin 
America in 2013.
0
Price level
Real GDP
Y
P
SRAS
SRAS
LRAS
AD
1
AD
1
AD
AD
Y
1
P
1
Figure 9.5 
A positive output gap
Positive output gap: 
a situation where actual output is 
above potential output.
Trade cycle: 
fluctuations in economic activity over a period 
of years.
KEY TERMS
Actual output varies around the trend growth in productive 
potential. 
Figure 9.6
 illustrates a trade cycle with 
ab
showing 
a negative output gap and 
cd
a positive output gap.
221
Chapter 9: The macroeconomy 

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and entrepreneurs. The number of workers and 
entrepreneurs may also be increased as a result of 
government policy measures. For example, a rise in 
the retirement age would increase the supply of labour 
and deregulation and privatisation may promote 
entrepreneurship.
Th
e supply of capital goods will be increased if there is 
net investment with fi rms buying more capital goods than 
are needed to replace those capital goods that are taken 
out of use.
Th
e quality of land may be increased by discoveries, for 
instance, of new oil fi elds and gold mines.