1.

Real GDP refers to the actual financial situation of a country or region, whereas potential

GDP is an estimate that is frequently reset each quarter by real GDP. Potential GDP

cannot increase further because it is dependent on a constant inflation rate, whereas real

GDP can. The output gap is the difference between the current real GDP level and the

potential GDP level. The economy is working above its sustainable capacity and is likely

to experience inflation when the production gap is positive, or when GDP is higher than

potential. The production gap is negative when GDP is below potential. When

determining the potential GDP of a country, the long-run is a theoretical concept in which

all markets are in equilibrium and all prices and quantities have fully adjusted and are in

equilibrium. The short-run, where there are certain restrictions and markets are not

completely in equilibrium, contrasts with the long-run. Real-time output, or the country's

actual GDP, takes place in the short run. Contrary to the short-run curve, which only

takes into account changes in aggregate demand and a transient shift in the total

production of the economy, the long-run curve is fully vertical. The long term is a period

of planning and execution.

2. Jan 1980–July 1980 (6 months)

July 1981–Nov 1982 (1 year 4 months)

July 1990–Mar 1991 (8 months)

Mar 2001–Nov 2001 (8 months)

Dec 2007–June 2009 (1 year 6 months)

3. Recession I of recession years wherein GDP decline (peak to trough) was −2.2%

Recession II. of recession years wherein GDP decline (peak to trough) was −2.7%

Recession III. of recession years wherein GDP decline (peak to trough) was −1.4%

Recession IV of recession years wherein GDP decline (peak to trough) was −0.3%

Recession V. of recession years wherein GDP decline (peak to trough) was −5.1%

4. Interest rates usually fall early in a recession, then later rise as the economy recovers.

This means that the adjustable rate for a loan taken out during a recession is more likely

to rise once the downturn ends. To help accomplish the recessions phase, the Fed

employs various monetary policy tools in order to suppress unemployment rates and re-

inflate prices. These tools include open market asset purchases, reserve regulation,

discount lending, and forward guidance to manage market expectations. Interest rates

typically decline during recessions as loan demand slows, bond prices rise and the central

bank eases monetary policy. During recent recessions, the Federal Reserve has cut short-

term rates and eased credit access for municipal and corporate borrowers. 

5. The Zero Bound Interest Rate (ZBIR) is a macroeconomic problem that occurs when the

short-term nominal interest rate is at or near zero, causing a liquidity trap and limiting the
central bank's capacity to stimulate economic growth. A central bank's weapons for

stimulating the economy may become ineffective if short-term interest rates are "zero-

bound," or hit zero. At least, that is the conventional wisdom, but the assumption has

been tested in the recent past and found faulty. Central Bank's action in pushing interest

rates below zero seemed to have had modest success, or at least not worsened the

situation. …For consumers and investors, these are the ultimate safe-haven investments.

They pay a minimal amount of interest but there's virtually no risk of the loss of

principal.