The last major business downturn in the United States occurr

The last major business downturn in the United States occurred in the early 1980s. Consider the data on real GDP and the prince level in Table 20-2. a. For the years 1981 to 1985, calculate the rate of growth of real GDP and the rate of inflation. Can you determine in which year there was a steep business downturn or recession? b. In an AS-AD diagram like figure 20-6 (page 416), draw a set of AS and AD curves that trace out the prince and output equilibria shown in the table. How would you explain the recession that you have identified?

Solution

year Real GDP (2000=100) Rate of GDP growth(%) Price level Rate of inflation(%) 1980 5161.7 …. 54.1 …. 1981 5291.7 2.51855009 59.1 9.242144177 1982 5189.3 -1.935105921 62.7 6.091370558 1983 5423.8 4.518913919 65.2 3.987240829 1984 5813.6 7.186843173 67.7 3.834355828 1985 6053.7 4.129971102 69.7 2.954209749 Steep business downturn was in 1982.