Assume Initially That Real GDP Is Equal to Potential GDP

question 37

Essay

Assume initially that real GDP is equal to potential GDP. Explain carefully whether each of the following would cause real GDP to rise above or fall below potential GDP.
(A) Many of the peaple wha grew up in the 193Ds, because they Jrew up in the Great Depression, heve much higher rates of saving than the curent generations. Suppose many of these wealthy Depression-era peaple bepin ta pass awry and leave their accumulated wealth to their heirs.
(B) The Eurapean economies exgerience a surge in yrarth as a result of the weak eura, which has stimulated exports and hence production in the Eurapean cauntries.

---

Definitions:

Net Credit Sales

The total revenue from sales made on credit, minus returns and allowances, during a specific period.

Times Interest Earned Ratio

A financial ratio that measures a company’s ability to meet its debt obligations based on its current earnings.

Income Before Taxes

The earnings of a business before income tax expense has been deducted.

Interest Expense

The financial charge an entity experiences for borrowing money over a specific period.