Table 10-1 In Table 10-1, if full employment occurs at $3,400 billion, then

Question

Table 10-1  In Table 10-1, if full employment occurs at $3,400 billion, then

Quizplus · Accepted Answer

Full employment occurs at the point where the potential GDP intersects with the aggregate demand curve. In this case, it occurs at $3,400 billion. The equilibrium output is at $3,525 billion, which is above the potential GDP, indicating an inflationary gap. To reach full employment, output needs to decrease by $125 billion. Therefore, the economy experiences a recessionary gap of $150 billion ($125 billion x 1.2).

Table 10-1 in Table 10-1, If Full Employment Occurs