In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n)________ gap equal to ________ percent of potential GDP.
A)expansionary; 8
B)expansionary; 4
C)recessionary; −8
D)recessionary; −4

Question

Quizplus · Accepted Answer

Since Macroland's actual GDP is less than its potential GDP, it has a recessionary gap. The size of the gap is [(Y − Y*)/ Y*] × 100, or [($19.2 billion − $20 billion)/ $20 billion] × 100 = −4 percent.

In Macroland Potential GDP Equals $20 Billion and Real GDP