Suppose that in year 1 an economy is at full employment, has a potential and actual real GDP of $3000 billion, and has an unemployment rate of 5.5%.

Compute the GDP gap in year 1 and enter it in the table below.

Year

Actual GDP

Potential GDP

GDP gap

1

$3000.0

$3000

$_____

2

3724.0

3800

_____

3

3712.5

4125

_____



The actual and potential real GDPs in years 2 and 3 are also shown in the table. Compute and enter into the table the GDP gaps in these 2 years.

In year 2, the actual real GDP is ______% of the potential real GDP. (Hint: Divide the actual real GDP by the potential real GDP and multiply by 100.)

The actual real GDP is ______% less than the potential real GDP.

Using Okun’s law, the unemployment rate will rise from 5.5% in year 1 and be ______% in year 2.

In year 3 the actual real GDP is ______% of the potential real GDP.

The actual real GDP is ______% less than the potential real GDP.

The unemployment rate, according to Okun’s law, will be _____%.

(Would also like if you can include your calculations for each one!)