Week 6 — Gap Report: How Far From Normal, and Who Calls a Recession? — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 6 of the term — measure two output gaps, explain what each one means, and tell a neighbor how a recession is really dated.

This week you learned to trace the business cycle, to measure a recessionary and an inflationary gap in billions of dollars and as a percentage of potential output, to read each gap off the AD–AS diagram, to explain self-correction through short-run aggregate supply, and to tell how U.S. recessions are really dated. In Week 3 you met cyclical unemployment, in Week 4 you met potential output, and in Week 5 you built the AD–AS diagram. In this assignment you work four short problems, interpret each one, and explain to a neighbor what a recession headline does and does not say. This week's lecture tutorial, quiz, discussion, and Model Workshop practice the same ideas from other angles.

The task

This report uses the week's illustrative output-gap economy, constructed for this course and not real data: potential output of 1,000 billion dollars, actual output of 950 billion dollars in a recession year, and actual output of 1,040 billion dollars in a boom year.

Work these four problems, showing every step on its own line:

1. In the illustrative output-gap economy, potential output is 1,000 billion dollars and actual output is 950 billion dollars. What is the recessionary gap, in billions of dollars?
2. In the same recession case, with potential output of 1,000 billion dollars and actual output of 950 billion dollars, what is the recessionary gap as a percentage of potential output?
3. In a boom year, the illustrative output-gap economy has potential output of 1,000 billion dollars and actual output of 1,040 billion dollars. What is the inflationary gap, in billions of dollars?
4. In the same boom year, with potential output of 1,000 billion dollars and actual output of 1,040 billion dollars, what is the inflationary gap as a percentage of potential output?

Beside each figure, add one brief interpretation in plain words. For problem 1, say what the gap means for the economy's workers and machines, and what it means for unemployment, naming cyclical unemployment. For problem 2, say what a gap of that share of potential output means; your message for the neighbor below is the second part of problem 2. For problem 3, say what the gap means for workers, machines, and prices, and which side of the vertical long-run aggregate supply line the crossing sits on. For problem 4, say what a gap of that share means, and which curve shifts as the economy self-corrects with no new policy, in which direction, and what happens to the price level.

Explain it to a non-expert

A neighbor who drives for a delivery service hears a radio host say, "Two quarters of shrinking GDP in a row means we are officially in a recession," and asks you whether that is how it works. Write a 3–5 sentence message your neighbor could follow: how U.S. recessions are actually dated, what a recessionary gap would mean for someone whose hours depend on the economy, and one honest limit, such as how late official dates arrive or the fact that potential output has to be estimated. Explain any technical term in everyday words. More than one good limit can be defended.

For a different, ungraded example, imagine a friend who coaches a youth soccer team and hears that "two losses in a row means a team is officially in a slump." Model message: "Two losses in a row is an easy thing to notice, but it is not how the league decides a team is struggling. The league looks at how badly the team is losing, how many parts of its game are slipping, and how long the trouble lasts. A team can lose twice to strong opponents and still be playing well. The catch is that this careful kind of judgment takes time, so the verdict comes after the season has moved on."

Use that pattern for the radio host's claim, with your own explanation.

Here is one honest note about scope: every number in this assignment is illustrative, so do not add a real GDP figure or a real recession date from the news. The same reasoning, though, is what lets you read the next recession headline with a clear head.

How to work

1. Draft all four figures, the four brief interpretations, and your message for the neighbor.
2. Check your draft against the attached scoring criteria, criterion by criterion: is every gap subtracted in the direction that keeps it positive, is every percentage divided by potential output, and is every figure explained in plain words?
3. Revise at least one calculation or explanation, and write two or three sentences on what you changed and why.

Deliverables

Submit your gap report with all four figures, their brief interpretations, your message for the neighbor, and your two or three sentences on the revision. You may submit it written, recorded as audio or video with a transcript, or as a labelled sketch of the two crossings and the vertical long-run line with a short note; every form is graded by the same scoring criteria.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, reasoning, and explanations must be your own work. This version is built to be completed without any AI tool, and no part of it requires one. Use the chapter, your notes, and a calculator or spreadsheet, and show every step so your work can be checked. Do not copy another student's figures or wording.

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