if the economy in the US is currently at the trough of a business cycle then whats the relationship between real GDP and potential GDP? Is it likely that the real GDP will stay in this relative position got a long period of time? (like 15 yrs)
I think no but im not 100% sure
My crystal ball is a little cloudy, but optimistically, the real GDP will rise in the next 15 years.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=353
this is a hypothetical question...what are you guys talking about...i want to know whts the rel b/w the real gdp and potential gdp and if the real gdp would likely stay in this position for along time
I gave you my hyptothetical answer.
*hypothetical
To understand the relationship between real GDP and potential GDP during the trough of a business cycle, let's first define these terms:
Real GDP: It represents the total value of all goods and services produced in an economy, adjusted for inflation. It is a measure of economic output.
Potential GDP: It refers to the level of real GDP an economy could achieve if all resources (labor, capital, technology, etc.) were fully utilized. It represents the economy's long-term trend growth rate.
During the trough of a business cycle, the economy is experiencing a period of low economic activity and output. At this point, real GDP typically falls significantly below potential GDP.
The relationship between real GDP and potential GDP during the trough is that real GDP is below potential GDP. This indicates that the economy is not operating at its full production capacity, and there are unused or underutilized resources within the economy.
As for the second part of your question, whether real GDP will stay in this relative position for a long period of time (like 15 years) after reaching the trough, it depends on various factors:
1. Economic policies: Government policies, such as fiscal and monetary measures, can influence the pace of economic recovery and how quickly real GDP can approach potential GDP.
2. External factors: The performance of the global economy, international trade dynamics, geopolitical conditions, and technological advancements can also impact the duration of the trough period.
3. Business and consumer confidence: The willingness of businesses to invest and consumers to spend can influence the speed of economic recovery. If confidence remains low, it could prolong the time until real GDP reaches potential GDP.
While it is possible for a trough in the business cycle to extend for a long period, like 15 years, it is not typical. Economic cycles are known for their fluctuations, and eventually, real GDP tends to move towards potential GDP over time as the economy recovers. However, the specific duration and pace of recovery can vary based on the aforementioned factors.