Question

Macroeconomic models of the short run focus on the departure of current GDP from its potential level, Yₜ. This departure is defined as:

a) Yₜ-Yₜ/ Yₜ
b) Yₜ- Yₜ/ Yₜ
c) Yₜ+ Yₜ/2
d) Yₜ / Yₜ

Answer 1

In macroeconomic models, the variation of current GDP from its potential level indicates the economy's position in the business cycle, influencing unemployment rates and overall economic health.option a.

Step-by-step explanation:

The notion of current GDP departing from its potential level, Yt, in macroeconomic models of the short run, is important for understanding economic fluctuations such as recessions and periods of growth. In macroeconomics, the short-run focuses on how the actual or current GDP deviates from the potential GDP, which is an indicator of an economy operating at full capacity and efficiency, with natural unemployment rates. This deviation can be formulated as (a) Yt - Yt/Yt, though the question seems to contain a typo in its rendering of the mathematical expression.

Macroeconomic models assess this departure to understand the business cycle, and how it correlates with levels of unemployment and economic performance. During a recession, the equilibrium level of real GDP is substantially below the potential GDP, whereas in times of economic expansion, the equilibrium level is close to the potential GDP. The AD/AS diagram (Aggregate Demand/Aggregate Supply) or the Keynesian Cross Diagram are tools used to illustrate these economic conditions and their relation to unemployment and GDP.