2. Economic fluctuations and growth The following table shows data on a hypothet

Question

2. Economic fluctuations and growth The following table shows data on a hypothetical country's real GDP from 1980 through 1988: Real GDP (Billions of Dollars) Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 372 380 384 404 400 388 392 400 404 The green line on the following graph shows the economy's long-term growth trend Use the blue points (circle symbol) to plot the real GDP in each of the years listed. (Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.) Next, place the black point (plus symbol) on the graph to indicate the point on the real GDP curve that definitely represents a peak. Finally, place the grey point (star symbol) on the graph to indicate the point on the real GDP curve that definitely represents a trough

Explanation / Answer

Percentage change in real GDP

Year

Real GDP

Percentage change in real GDP

1980

372

0

1981

380

{(380 – 372) / 372} × 100 = 2.15%

1982

384

{(384 – 380) / 380} × 100 = 1.05%

1983

404

{(404 – 384) / 384} × 100 = 5.21%

1984

400

{(400 – 404) / 404} × 100 = -0.99%

1985

388

{(388 – 400) / 400} × 100 = -3%

1986

392

{(392 – 388) / 388} × 100 = 1.03%

1987

400

{(400 – 392) / 392} × 100 = 2.04%

1988

404

{(404 – 400) / 400} × 100 = 1%

The economy experienced a contraction in the years 1984 and 1985, since the real GDPs for these two years are declining below their corresponding previous years.

This contraction is seen as a period in which the level of real GDP declines.

This contraction is seen as a period in which the growth rate of real GDP becomes negative, since the percentage change in real GDP becomes negative for these two years.

True: The economy is experiencing an expansion in 1981, since the real GDP and the percentage change in real GDP both are increasing in that year.

Year

Real GDP

Percentage change in real GDP

1980

372

0

1981

380

{(380 – 372) / 372} × 100 = 2.15%

1982

384

{(384 – 380) / 380} × 100 = 1.05%

1983

404

{(404 – 384) / 384} × 100 = 5.21%

1984

400

{(400 – 404) / 404} × 100 = -0.99%

1985

388

{(388 – 400) / 400} × 100 = -3%

1986

392

{(392 – 388) / 388} × 100 = 1.03%

1987

400

{(400 – 392) / 392} × 100 = 2.04%

1988

404

{(404 – 400) / 400} × 100 = 1%

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