In the fourth quarter of 1982, economic statistics showed the following: Real GD

ID: 2495828 • Letter: I

Question

In the fourth quarter of 1982, economic statistics showed the following:

Real GDP: $5,189.8 billion

Unemployment rate: 10.7%

Inflation rate: 4.4%

The conceptual variables corresponding to these data are:

Potential output: $5,640.3 billion

Natural rate of unemployment: 6.1%

Ideal inflation rate: 1.0%

a) Calculate the output gap.

b) Calculate the unemployment gap.

c) Calculate the inflation gap.

d) Calculate the output loss and inflation loss.

e) Calculate the total loss in the fourth quarter of 1982 if the relative weight on inflation loss equals 2.

f) Calculate the total loss in the fourth quarter of 1982 if the inflation loss is weighted 6 times of the weight on the output loss.

a) Output gap = (5,189.8 - 5,640.3)/5,640.3 = -0.08

b) Unemployment gap = (10.7 - 6.1)/6.1 = 0.75

c) Inflation gap = 5,189.8 - 5,640.3 = -450.5

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