Question

Consider the data in the following table for 1969 and 1970 (where the values for real GDP and potential GDP are in 2009 dollars). a. In 1969 , actual real GDP was greater than potential GDP. Briefly explain how this is possible. b. Even though real GDP in 1970 was slightly greater than real GDP in 1969 , the unemployment rate increased substantially from 1969 to $1970 .$ Why did this increase in unemployment occur? c. Was the inflation rate in 1970 likely to have been higher or lower than the inflation rate in $1969 ?$ Does your answer depend on whether the recession that began in December 1969 was caused by a change in a component of aggregate demand or by a supply shock?

          Consider the data in the following table for 1969 and 1970 (where the values for real GDP and potential GDP are in 2009 dollars).
a. In 1969 , actual real GDP was greater than potential GDP. Briefly explain how this is possible.
b. Even though real GDP in 1970 was slightly greater than real GDP in 1969 , the unemployment rate increased substantially from 1969 to $1970 .$ Why did this increase in unemployment occur?
c. Was the inflation rate in 1970 likely to have been higher or lower than the inflation rate in $1969 ?$ Does your answer depend on whether the recession that began in December 1969 was caused by a change in a component of aggregate demand or by a supply shock?

Added by Brooke B.

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