Using the accompanying graph demonstrate an economy whose output declines by 4 percent in year 2 and returns to its trend the following year.

a. By what dollar amount did output decline during the recession?

b. By what percent does the economy need to expand to return to trend by year 3.

c. How does your answer to b compare to the initial percentage decline?

d. What accounts for your answer to c?

Transcribed Image Text:

3% 20 3 Year Real output