The Figure Below Plots Real and Potential GDP Between 1971

question 139

Essay

The figure below plots real and potential GDP between 1971 and 1977. Given the data in the corresponding table, can changes in the rate of inflation over this period be explained by the percent deviation between real and potential GDP? Do these data support or refute the validity of the assumptions about the IA line? $$\begin{array} { | c | c | } \hline \text { Year } & \begin{array} { c } \text { GDP Price } \\\text { Deflator }\end{array} \\\hline 1971 & 37.10 \\1972 & 38.80 \\1973 & 41.30 \\1974 & 44.90 \\1975 & 49.20 \\1976 & 52.30 \\1977 & 55.90 \\\hline\end{array}$$

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Definitions:

Balance Of Trade

The difference in value between a country's imports and exports over a certain period.

Gross Domestic Product

GDP is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Intermediate Goods

Products used in the production process to make other goods, but are not part of the final product.

Double Counting

The mistake of including both the value of intermediate products and the value of final products in calculating gross domestic product; counting the same production more than once