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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