Assume Initially That Real GDP Is Equal to Potential GDP

question 112

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 people who grew up in the 1930s,because they grew up in the Great Depression,have much higher rates of savings than the current generations.Suppose many of these wealthy Depression-era people begin to pass away and leave their accumulated wealth to their heirs.
(B)The European economies experience a surge in growth as a result of the weak euro,which has stimulated exports and hence production in the European countries.

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Definitions:

Volcanic Ash

Fine particles of rock and mineral matter expelled from a volcano during eruptions, which can have significant effects on climate, air quality, and aviation safety.

Radiocarbon Dating

A method for determining the age of an object containing organic material by using the properties of radiocarbon, a radioactive isotope of carbon.

Sedimentary Layer

A layer of material, often deposited by water, wind, or ice, that forms part of the sedimentary rock sequence.