Chapter 1: Problem 1 Suppose that real GDP is currently $97 billion per year and natural...
Chapter 1: Problem 1
- Suppose that real GDP is currently $97 billion per year and natural real GDP is currently $100 billion. Measured as a percentage, what is the GDP gap?
- Suppose natural real GDP is growing by $4 billion per year. By how much must real GDP have risen after two years to close the GDP gap?
Homework Answers
A) GDP gap is the deviation of gdp from full employment level GDP or potential GDP or natural real GDp.
GDP gap=100-97=3 billion
GDP gap as percent=3/100*100=3%
B) natural GDP Increases by 4 billion each year ,so after two year natural GDP will increase by 8 billion.
And new natural GDP=100+8=108 billion.
New GDP gap=108-97=11 billion
So real GDP has rise by 11 billion to close the GDP.
So growth of real GDP in two years to close the GDP gap=11/97)*100=11.34%
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