In Beyonceland, real GDP fell continuously from $200 billion in 2015 to $160 billion in 2016. Potential GDP remained constant at $180 billion. Between 2015 and 2016, Beyonceland
A) had a growth rate of -20 percent.
B) had a contraction and a recession.
C) went from an inflationary gap to a deflationary gap.
D) went from a positive output gap to a negative output gap.
E) had all of the above.

Question

Quizplus · Accepted Answer

A) The growth rate is calculated as the change in GDP divided by the initial GDP. The change is $160 billion - $200 billion = -$40 billion. The growth rate is -$40 billion / $200 billion = -0.2 or -20%. B) A contraction in the economy is indicated by a decrease in real GDP, and a recession is typically defined by a continuous decline in GDP over two or more quarters. C) An inflationary gap occurs when actual GDP is above potential GDP, and a deflationary gap occurs when actual GDP is below potential GDP. The economy moved from being above potential GDP ($200 billion > $180 billion) to below potential GDP ($160 billion < $180 billion). D) A positive output gap occurs when actual GDP exceeds potential GDP, indicating an economy operating above its sustainable capacity. A negative output gap occurs when actual GDP is less than potential GDP, indicating underutilization of resources. The transition from $200 billion to $160 billion while potential GDP remained at $180 billion shows this shift.

In Beyonceland, Real GDP Fell Continuously from $200 Billion in 2015