Gap between real gdp and potential gdp

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Q1. A U.S. resident can earn 6 percent interest on a one-year bank deposit of $100,000 at home. Alternatively, she can convert the $100,000 into euros and earn 4 percent on a one-year bank deposit in Germany. If the exchange rate is initially 1.5 euros per dollar and then changes to 1.45 euros per dollar in one year, which deposit would have given the U.S. resident a higher return?

Q2. While referring to the "EYE on YOUR LIFE" section on page 340 of the textbook, form a view about where the U.S economy is heading based on the economic concepts of the Aggregate Supply - Aggregate Demand Model. Based on the articles in the textbook chapter, what do you see as the main pressures on aggregate supply and aggregate demand? In which directions are they pushing or pulling the U.S. economy? Also, do you think the gap between real GDP and potential GDP will widen or narrow?

Reference no: EM136972

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