1.Explain the relationship between potential GDP and real GDP in the United States since the early 1960s. You do not need to tell what happened during any specific year; just describe the general relationship.

2.The following data are estimates describing Ireland's economy in 2006 and 2007 (in millions of euros, in constant prices):

20062007

Consumption84,00089,000

Government expenditure 24,00026,000

Investment48,00048,000

Exports142,000151,000

Imports123,000128,000

Subsidies1,8001,900

Taxes500500

Which of the following is true regarding Ireland's economy? And explain why

A) The change in GDP from 2006 to 2007 represented a peak in the business cycle.

B) GDP decreased from 2006 to 2007.

C) Net exports decreased from 2006 to 2007.

D) Consumption was 48 percent of Ireland's GDP in 2007.

3.Suppose you are watching a news report with a friend. The news report points out that a certain African nation generates a GDP per capita of only $1300 per year. Since your friend knows that Slovenia's GDP per capita is approximately $26 000, he suggests that Slovenians are materially 20 times better off than the people of the African nation.

a.Is your friend's statement accurate?

b.What general category of production is not captured by GDP in both the Slovenia and the African nation?

c.Provide some examples of this type of activity.

d.Why would the exclusion of this type of production affect the measurement of African output more than Slovenian output?

e.Does this mean that residents of the African nation are actually as well off materially as residents in Slovenia?