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 -25 percent.
B) had a contraction but not a recession.
C) went from a deflationary gap to an inflationary gap.
D) went from a negative output gap to a positive output gap.
E) had none of the above.

Question

Quizplus · Accepted Answer

The real GDP fell from $200 billion to $160 billion, indicating a contraction. However, since potential GDP remained constant at $180 billion, Beyonceland went from a positive output gap to a negative output gap, which is not described by any of the given options.

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