Measuring Yt and Yt : A real-world problem faced by policymakers,
Now fill in the remaining columns of the table by answering the following questions.
(a) What is potential output in 2018? You could call this a trick question, since there’s no way for you to know the answer! In a way, that’s the main point: fundamentally, we have to take some other measurements and make some assumptions. Suppose your research assistant tells you that in 2018, business surveys,
(b) Assume potential output grows at a constant annual rate of 2.5%, and complete the remainder of the table.
(c) Comment on the state of the economy in each year. When does the economy enter a recession? When does the recession end?
(d) How is your answer in part (c) related to the growth rate of actual output in the last column of the table?
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