Assume that actual output AD is equal to potential output AS

Assume that actual output (AD) is equal to potential output (AS) in 2007q1: AD = AS at the full employment level.

a) Starting with an annual supply side growth rate of 3%, calculate the value of potential GDP that could have been realized in 2015q3. Remember that 3% is an annual growth number and we are dealing with quarterly observations when you make the calculation for 2015. You may want to take the annual growth numbers and divide by 4 to calculate compound growth for each year.

Solution

Gap will be 16414.0-14726.0 = 1688

Growth rate = 1688/14726*100 = 11.462719

Per quarter = 2.8646%