IFY - Business cycle and output gaps

1. Consider the following data for a hypothetical economy. Calculate the growth rate of real GDP over the year.

• 2%

• 2.8%

• 3.6%

• 4.2%

1. Economists calculate Real GDP per capita as which of the following?

• 1. The GDP in real terms

• 1. C+I+G+(X-M)

• 1. The amount of savings divided by the population

• 1. The value of economic output of a nation divided by the population

What is the real GDP per capita of an economy that has 200 people and real GDP of $1,000,000?

• 1. $5,000

• 1. $50,000

• 1. $200,000,000

Real GDP per capital will increase when a real GDP grows faster than the (a)   .

Economic growth occurs when there is an increase in the productive potential of an economy.

• This is demonstrated by an (a)   shift of the PPF.

A negative output gap is the amount by which

• Actual real GDP exceeds potential GDP.

• Actual real GDP is less than nominal GDP.

• Actual real GDP is less than potential GDP.

In a boom:

• Unemployment is likely to fall

• Prices are likely to fall

• Businesses may experience a rise in production costs (including wages), prompting prices to rise.

• Imports are likely to fall

In a recession, GDP:

• grows negatively

• grows slowly

• grows by 0%

• grows rapidly

The positive output gap is:

• The difference between this year's and last year's output

• The difference between this year's and next year's output

• when actual GDP is above the productive potential of the economy

• when actual GDP is below the productive potential of the economy