Questions: Refer to the following table. What was the approximate output gap in 1974 ?

The answer is the second one: $-6.5\%$.

To determine the output gap, we use the formula:

\[ \text{Output Gap} = \frac{\text{Real GDP} - \text{Potential GDP}}{\text{Potential GDP}} \times 100\% \]

For the year 1974:

• Real GDP = $100$ billion
• Potential GDP = $107$ billion

Plugging these values into the formula:

\[ \text{Output Gap} = \frac{100 - 107}{107} \times 100\% \] \[ \text{Output Gap} = \frac{-7}{107} \times 100\% \] \[ \text{Output Gap} \approx -6.54\% \]

Rounding to one decimal place, the output gap is approximately $-6.5\%$.

Explanation of options:

• $3.3\%$: Incorrect, as it does not match the calculated output gap.
• $-6.5\%$: Correct, as it matches the calculated output gap.
• $6.1\%$: Incorrect, as it does not match the calculated output gap.
• $2.1\%$: Incorrect, as it does not match the calculated output gap.

In summary, the approximate output gap in 1974 was $-6.5\%$.