[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

A
11,000
1960–1961
recession
1969–1970
recession
1974–1975
recession
1980–1982
back-to-back
recessions
1990–1991
recession
2001
recession
10,000
9,000
BILLIONS OF 2000 DOLLARS
8,000
7,000
6,000
5,000
4,000
Potential
GDP
Real GDP
3,000
2,000
1960 1965
1970 1975 1980 1985
1990 1995 2000
6
B
12
OUTPUT GAP (%)
4
2
0
–2
–4
–6
–8
Unemployment
Output gap
10
8
6
4
2
UNEMPLOYMENT RATE (%)
–10
1960 1965 1970 1975 1980 1985 1990 1995 2000
0
Figure 29.1
ECONOMIC FLUCTUATIONS:
OUTPUT AND EMPLOYMENT
Panel A shows how real GDP from 1960 to 2003 has moved above and below potential
GDP. Panel B compares the percentage deviations of GDP from potential (the output
gap) with the unemployment rate. When the output gap is positive, unemployment
tends to be low, and when the output gap is negative, unemployment tends to be high.
The relation between the output gap and unemployment, as we learned in Chapter 22,
is called Okun’s Law.
SOURCES: Economic Report of the President (2004) and Congressional Budget Office, The Budget
and Economic Outlook (January 2004).
ECONOMIC FLUCTUATIONS ∂ 639