percent in 2016 to 0.3 in 2018. In 2016, real GDP was
$16.7 trillion, and the CBO’s estimate of potential GDP
was $16.9 trillion. The CBO forecast that potential GDP
would increase to $17.4 trillion in 2018.
a. Why does the CBO include the word sustainable in its
definition of potential GDP?
b. Draw an aggregate demand and aggregate supply
graph to illustrate the macroeconomic situation in
2016 and in 2018. (You do not have to show on your
graph the situation in 2017.) Be sure that your graph
contains LRAS curves for 2016 and 2018, SRAS curves
for 2016 and 2018, and AD curves for 2016 and 2018,
and that it shows equilibrium real GDP and the price
levels for both years.
Sources: Congressional Budget Office, “The 2017 Long-Term Budget
Outlook,” March 2017, p. 9; and Congressional Budget Office, “The
Budget and Economic Outlook: 2017 to 2027,” January 24, 2017.