to Ỹ: A real-world problem faced by policymakers, forecasters, 7. Measuring Y, and and businesses every day is how to judge the state of the economy. Consider the table below, showing hypothetical measures of real GDP in the coming years, starting at a level of $18.0 trillion in 2018. Year 2018 2019 2020 2021 2022 2023 2024 Actual output Y₁ 18.00 18.60 19.00 18.90 19.00 20.00 20.90 Potential output Y₁ Y₁ - Y₁ Short-run output Y₁ Growth rate of actual output %AY 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, unemployment reports, and recent years' experience sug- gest that the economy is operating at potential output. So go ahead and write 18.0 for potential in this year. (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?
to Ỹ: A real-world problem faced by policymakers, forecasters, 7. Measuring Y, and and businesses every day is how to judge the state of the economy. Consider the table below, showing hypothetical measures of real GDP in the coming years, starting at a level of $18.0 trillion in 2018. Year 2018 2019 2020 2021 2022 2023 2024 Actual output Y₁ 18.00 18.60 19.00 18.90 19.00 20.00 20.90 Potential output Y₁ Y₁ - Y₁ Short-run output Y₁ Growth rate of actual output %AY 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, unemployment reports, and recent years' experience sug- gest that the economy is operating at potential output. So go ahead and write 18.0 for potential in this year. (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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The answer should be typed.
Transcribed Image Text:locka
to the U.S. economy.
7. Measuring Y, and Ỹ,: A real-world problem faced by policymakers, forecasters,
and businesses every day is how to judge the state of the economy. Consider
the table below, showing hypothetical measures of real GDP in the coming
years, starting at a level of $18.0 trillion in 2018.
Year
2018
2019
2020
2021
2022
2023
2024
Actual
output
Y₁
18.00
18.60
19.00
18.90
19.00
20.00
20.90
Potential
output
Y₁
Y₁ - Y₁
Short-run
output
Y₁
Growth rate
of actual
output %4Y
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, unemployment reports, and recent years' experience sug-
that the economy is operating at potential output. So go ahead and
write 18.0 for potential in this year.
gest
(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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