Suppose the real GDP of an economy is $560 billion dollars andits unemployment rate is...

Suppose the real GDP of an economy is $560 billion dollars and its unemployment rate is 8%.

If the natural rate of unemployment is estimated at 5%, what is the value of the country’s potential GDP (LAS) in billions of dollars? Enter your response below rounded to 1 decimal place.

Expert Solution

The value of country's potential GDP is equal to the value of GDP when the unemployment rate is equal to the natural rate of unemployment.

And we know the country's natural rate of unemployment is equal to 5% but currently the unemployment rate is equal to 8% and the value of GDP is equal to $560 billion.

So we need to find the value such that if we subtract 3% of its value since the current unemployment rate is 3% higher than natural rate of unemployment we must get the value of $560 billion. Let the potential GDP of the country be $X.

Then it must be true that, as discussed above

X - 3/100 × X = $560

X - 0.03X = $560

X(1 - 0.03) = $560

X (0.97) = $560

X = $560/0.97

X = $577.31 billion

And since we are asked to round the answer to one decimal points then the answer should be,

Potential GDP of the country = $577.3 billion.

Rahul Sunny answered 2 years ago

Suppose the economy produces real GDP of $40 billion when unemployment is at its natural rate.

5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The size of the labor force The quantity of physical capital The price level The inflation rate Suppose the economy produces real GDP of $40 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the...

Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate.

5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The inflation rate The quantity of physical capital The size of the labor force The price level Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond...

Suppose the hypothetical economy of Curlyoria produces real GDP of $40 billion when unemployment is at its natural rate.

2. The long-run aggregate supply curve Suppose the hypothetical economy of Curlyoria produces real GDP of $40 billion when unemployment is at its natural rate. Use the purple line (diamond symbols) to plot the economy's long-run aggregate supply (LRAS) curve in the following graph. Then place a black point (X symbol) on the point representing the equilibrium price and output level The long-run equilibrium level of output is determined by _______ ; Therefore it will _______ if the aggregate demand curve shifts...

Assume the economy has a GDP of $11,500 billion. The unemployment rate is at 7.3% and...

Assume the economy has a GDP of $11,500 billion. The unemployment rate is at 7.3% and has been slowly rising for the last 6 months. Inflation was at 2.3% one year ago but has since dropped to near 0%. The MPC in the economy is .80 and the Natural Rate of Unemployment is 4.5%. The target rate for inflation is 2%. Why would it be better for government to solve the problem using government purchases (part c above) rather than...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. a. Illustrate the short-run effects on the macroeconomy by using the aggregate demand / aggregate supply...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases the money supply by 6%. a. Illustrate the short-run effects on the macroeconomy by using the aggregate demand / aggregate supply...

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate...

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate is 3.5%. The current inflation rate is 2.5%. How would you describe this economy? In a recessionary gap where current income and production are below the full employment level In an inflationary gap where current income and production are above the full employment level At a long-run equilibrium

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate...

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate is 3.5%. The current inflation rate is 2.5%. How would you describe this economy? In a recessionary gap where current income and production are below the full employment level In an inflationary gap where current income and production are above the full employment level At a long-run equilibrium

Suppose Country A and Country B each have a GDP equal to $440 billion and $560...

Suppose Country A and Country B each have a GDP equal to $440 billion and $560 billion respectively. Country A has 100 million people and Country B has 175 million people. In this situation, per capita GDP is: A) higher in Country A. B) higher in Country B. C) the same in both countries. D) Country B has a higher inflation rate. A system of well enforced private property rights: retards economic growth by limiting the options of people who...

Suppose that an economy currently has 10% unemployment, a real interest rate of 2%, and a...

Suppose that an economy currently has 10% unemployment, a real interest rate of 2%, and a real GDP growth rate of 6%. According to the Quantity Theory, an increase in the money supply of 8% would prices to change by _ %. Enter a negative sign (-) if your answer requires it. Do not put a % sign in your answer. 2. Suppose that an economy currently has 10% unemployment, a real interest rate of 4%, and a real GDP...

Question

Suppose the real GDP of an economy is $560 billion dollars andits unemployment rate is...

Solutions

Expert Solution

Related Solutions

Suppose the economy produces real GDP of $40 billion when unemployment is at its natural rate.

Suppose the economy produces real GDP of $60 billion when unemployment is at its natural rate.

Suppose the hypothetical economy of Curlyoria produces real GDP of $40 billion when unemployment is at its natural rate.

Assume the economy has a GDP of $11,500 billion. The unemployment rate is at 7.3% and...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...

.Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment...

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate...

Suppose real GDP grew at a rate of 4% last year and the current unemployment rate...

Suppose Country A and Country B each have a GDP equal to $440 billion and $560...

Suppose that an economy currently has 10% unemployment, a real interest rate of 2%, and a...