If potential GDP for the first quarter of 2013 = $75.8 billion,nominal GDP for the first quarter of 2013 = $80.3 billion,and the GDP deflator = 109,then the output gap was

Question

Quizplus · Accepted Answer

The output gap can be calculated using the following formula:

Output gap = (Potential GDP - Real GDP) / Potential GDP x 100

We first need to calculate real GDP using the GDP deflator:

Real GDP = Nominal GDP / GDP deflator x 100 = $80.3 billion / 109 x 100 = $73.7 billion

Now we can calculate the output gap:

Output gap = ($75.8 billion - $73.7 billion) / $75.8 billion x 100 = -2.8%

Therefore, the answer is A, -2.8%.

If Potential GDP for the First Quarter of 2013 =