Check out this graph (Links to an external site.) looking at the history of potential vs actual GDP (what they refer to as “real” GDP) in the US. The graph is actually part of this article (Links to an external site.) regarding potential GDP you might find interesting and may help a some with the questions, but is not directly part of the assignment.
1. Explain the difference between potential and actual GDP. Relate each of them to the long run and short run models we’ve learned about.
2. Since 1980 there have been 5 recessions. Roughly what years did they occur?
3. Compare/contrast each one with respect to severity and length of time to return to potential.
Compare the GDP graph to the Federal Funds Rate (Links to an external site.) over that time period.
4. For each recession what was the federal funds rate heading into it and what was it coming out of it?
5. What differences do you observe regarding the FFR for each recession?
6. Can you draw any connections between the FFR and the response to GDP from previous sessions vs our more recent ones? (Here’s a hint (Links to an external site.))
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