The data in the table below are for the economy of Merton, which has a natural rate of unemployment of 5%.What is the size of the GDP gap for each of the three years? Enter your responses rounded to two decimal places, in the final row of the table.   2018 2019 2020Real GDP ($billions) $765 $850 $925Unemployment rate 6.0% 8.0% 7.0%GDP Gap (billions) $ $ $

To calculate the GDP gap, we first need to understand what it is. The GDP gap is the difference between the actual GDP and the potential GDP of an economy. The potential GDP is the level of output that an economy can produce at a constant inflation rate when it is fully employed, which in this case is when the unemployment rate is at the natural rate of 5%.

The GDP gap can be calculated using the following formula:

GDP Gap = Actual GDP - Potential GDP

However, we don't have the potential GDP given directly in the problem. But we can estimate it using the given unemployment rates and the natural rate of unemployment.

The Okun's law states that for every 1% increase in the unemployment rate, a country’s GDP will be roughly an additional 2% lower than its potential GDP.

So, we can estimate the potential GDP for each year using the given unemployment rates and the natural rate of unemployment:

For 2018: Unemployment gap = Actual unemployment rate - Natural rate of unemployment = 6.0% - 5.0% = 1.0% So, the GDP is 2% lower than its potential, which means the actual GDP is 98% of the potential GDP. Therefore, Potential GDP = Actual GDP / 0.98 = $765 billion / 0.98 =$780.61 billion So, GDP Gap = Actual GDP - Potential GDP = $765 billion -$780.61 billion = -$15.61 billion

For 2019: Unemployment gap = 8.0% - 5.0% = 3.0% So, the GDP is 6% lower than its potential, which means the actual GDP is 94% of the potential GDP. Therefore, Potential GDP = Actual GDP / 0.94 = $850 billion / 0.94 =$904.26 billion So, GDP Gap = Actual GDP - Potential GDP = $850 billion -$904.26 billion = -$54.26 billion

For 2020: Unemployment gap = 7.0% - 5.0% = 2.0% So, the GDP is 4% lower than its potential, which means the actual GDP is 96% of the potential GDP. Therefore, Potential GDP = Actual GDP / 0.96 = $925 billion / 0.96 =$963.54 billion So, GDP Gap = Actual GDP - Potential GDP = $925 billion -$963.54 billion = -$38.54 billion

So, the GDP gaps for the years 2018, 2019, and 2020 are -$15.61 billion, -$54.26 billion, and -$38.54 billion respectively.