If current output is $Y _ { t } = \$ 12$ billion and potential output $\bar { Y } _ { t } = \$ 11.25$
Billion, then the economy is in a ________ and $\tilde { Y } _ { t }$ Is about ________.
A) boom; $- 6.7$ percent
B) recession; $- 6.7$ percent
C) recession; $- 6.2$ percent
D) boom; 6.7 percent
E) None of these answers are correct.

Question

Quizplus · Accepted Answer

The economy is in a boom because the current output exceeds potential output. The output gap $\tilde { Y } _ { t }$ is calculated as $(Y _ { t } - \bar { Y } _ { t }) / \bar { Y } _ { t } \times 100\%$, which is $(12 - 11.25) / 11.25 \times 100\% = 6.7\%$.

If Current Output Is Yt=$12Y _ { t } = \$ 12Yt​=$12

If Current Output Is $Y _ { t } = \$ 12$