Question: A report from the Congressional Budget Office (CBO) notes, Potential GDP is CBO's estimate of the maximum sustainable output of the economy. In early 2015,

A report from the Congressional Budget Office (CBO) notes, "Potential GDP is CBO's estimate of the maximum sustainable output of the economy." In early 2015, the CBO estimated that the gap between real GDP and potential GDP would fall from 2.9 percent in 2014 to zero in 2017. In 2014, real GDP was $16.3 trillion, and the CBO's estimate of potential GDP was $16.8 trillion. The CBO forecast that potential GDP would increase to $17.5 trillion.

a. Why does the CBO include the word "sustainable" in its definition of potential GDP?

b. Draw an aggregate demand and aggregate supply graph to illustrate the macroeconomic situation in 2014 and in 2017 (you do not have to show on your graph the situation in 2015 or 2016). Be sure that your graph contains LRAS curves for 2014 and 2017, SRAS curves for 2014 and 2017, and AD curves for 2014 and 2017, and that it shows equilibrium real GDP and the price levels for both years.

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