If current output is $Y _ { t } = \$ 10$ billion and potential output $\bar { Y } _ { z } = \$ 10.5$
Billion, then the economy is in a ________ and $\tilde { Y } _ { t }$ Is about ________.
A) recession; -4.7 percent
B) boom; 4.7 percent
C) boom; -4.7 percent
D) recession; -5 percent
E) boom; 5 percent

Question

Quizplus · Accepted Answer

The economy is in a recession because current output is less than potential output. The output gap $\tilde { Y } _ { t }$ is calculated as $(Y_t - \bar{Y}_z) / \bar{Y}_z \times 100\%$, which is $(10 - 10.5) / 10.5 \times 100\% = -4.7\%$.

If Current Output Is Yt=$10Y _ { t } = \$ 10Yt​=$10

If Current Output Is $Y _ { t } = \$ 10$