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Treasury Notes

 Our Graph of the Year

By: Erika Gudmundson

With just a few days left before we turn the page on 2011, the Atlantic is featuring  what they believe to be the most important graphs of the year - ones that offer "a bright light of information and a small confidence that the world can be summed up between two axes." At Treasury, we have no shortage of good material in this area. In fact, a piece we posted earlier today had five graphs. So we were delighted to submit to the Atlantic another chart of ours for their "best of" list - our graph on U.S. Actual vs. Potential Output, which they published alongside graphs from economists across the spectrum :

US Actual and Potential Output.png

Assistant Secretary for Economic Policy Dr. Jan Eberly explained the significance of the graph here: “The economy suffered a severe shock during the recession, with the result that economic activity, represented by the blue line, contracted sharply. Since then, GDP has recovered at a steady pace and now stands above its pre-recession level. However, GDP growth has merely kept pace with its trend (or potential) rate, the red line, which is a function of population growth, changes in labor supply, and productivity growth.  As a result, the gap between what our economy is producing and what it could produce if it were operating at the level implied by the trend has not closed much. The green bars show this unused capacity to have equaled 7.4% – or more than $1 trillion – of potential output in Q3 2011. This unused capacity represents workers who cannot find jobs, idle machinery, and foregone opportunities for growth; in this challenging economy, this chart underscores why we must continue to focus attention on investments in the economic recovery and long-run growth.”

Posted in:  Economic Policy
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