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  We are going to use FRED data to calculate Short-run Output (SRO), also known as the Output Gap

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We are going to use FRED data to calculate Short-run Output (SRO), also known as the Output Gap.

I decided to be a nice guy and did the dirty work for you. I downloaded data for Real GDP (i.e. Y Current in billions of chained 2012 dollars) and Real Potential GDP (i.e. Y Potential in billions of chained 2012 dollars) at an annual frequency.

You need to computed the difference between current and potential GDP.

Then also compute short-run output (SRO) using the definition given in class: the difference between Current Real GDP and Potential Real GDP (as a percentage of Potential).

Fill up the table below and answer the questions. Be careful with the units in each column.

Year Y Current Y Potential Current - Potential SRO
2006 15,338.3 15,281.8 56.50 0.37
2007 15,626.0 15,579.6
2008 15,604.7 15,868.0
2009 15,208.8 16,105.7
2010 15,598.8 16,279.6

Consider year 2007. What was the difference between current real GDP and potential (Y current – Y Potential) in billions of dollars? Pick the closest value.

0.37%

37%

$56 billion

$46 billion

In year 2007, what was short-run output? Pick the closest value. *

30% of current nominal GDP

0.30% of current real GDP

0.30% of potential real GDP

30% of potential real GDP

Consider year 2008. What was the difference between current real GDP and potential (Y current – Y Potential) in billions of dollars? Pick the closest value. *\

Negative $263 billion.

Positive $263 billion.

30% of potential real GDP

30% of current real GDP

In year 2008, what was short-run output? Pick the closest value. *

$263 trillion.

Negative 1.66% of potential real GDP.

Positive 1.66% of current nominal GDP.

Negative 1.66% of current real GDP.

According to your calculations, what is the lowest short-run output between years 2006 and 2010? In what year did it happen? Pick the most accurate answer. *

In 2007. In that year SRO was negative 7.7%.

In 2009. In that year SRO was plus 5.6%.

In 2009. In that year SRO was negative 6.3%.

In 2009. In that year SRO was negative 5.6%.