Assignment Details GDP
The file contains data on nominal gross domestic product (GDP) and the GDP Deflator for XXXXXXXXXX.
*Now that you have done the readings for this week, you understand exactly what is meant by GDP and
the GDP Deflator. You also know what is meant by ‘nominal’ versus ‘real’ from our previous lesson on
inflation.*
Note that, while the Commerce Department calculates GDP quarterly (four times a year) the data in the
file are annual (averages of the quarterly data for each year).
Data Manipulation
You should now have the spreadsheet GDP in Excel.xls open on your screen. Each of the first three
columns contains data:
● Column A contains the dates XXXXXXXXXX.
● Columns B and C contain the values of Nominal GDP and the GDP Deflator respectively for the
U.S. for each year (as reported by the Department of Commerce).
Let’s start by transforming a piece of data already in the spreadsheet. The population of the U.S. in 1960
was XXXXXXXXXXmillion (which is XXXXXXXXXXbillion). What was the level of Nominal GDP per capita (i.e., the
dollar amount of stuff produced per person) in that year? To find out, we need to divide Nominal GDP in
1960 (which according to cell B3 was 543.3 billion) by the population in 1960. To do this, go to any blank
cell (e.g., cell D3). We could type=543.3/ XXXXXXXXXX
(both are in billions). But we can also use the
cell name for the Nominal GDP in 1960 and type =B3/ XXXXXXXXXX
Try the latter. The answer,
XXXXXXXXXXor something close), should now appear in the cell.
*The dollar value of output per person in the U.S. in 1960 was $3,029.73.*
Real GDP for XXXXXXXXXX
Nominal GDP for 1960 gives us the dollar amount of stuff produced in the economy in 1960, at 1960
prices. To compare the "real" amount of stuff produced in that year to the amount produced in a more
ecent year, we need to "deflate" Nominal GDP by a price deflator such as the GDP Deflator. Real GDP is
defined as follows:
● Real GDP = (Nominal GDP/GDP Deflator) * 100
To calculate Real GDP for 1960, go to cell D3 (overwriting GDP per capita calculation) and type
=(B3/C3)*100
The answer, XXXXXXXXXX, should now appear in the cell.
*Real GDP for 1960 was about $3.1 trillion.*
Question 1: Why is Real GDP in 1960 a much larger number than nominal GDP for 1960 ($543.3billion)?
Name the new column ‘Real GDP’ in the first row and ‘(in billions)’ in the second to copy the existing
format. Now fill the rest of the column in.
Growth of Real GDP for XXXXXXXXXX
Let's keep our calculations of Real GDP, in column D, and calculate one more variable, the annual growth
ate of Real GDP, for each year. The growth rate of Real GDP for 1961 is the percent change of Real
GDP from 1960 to 1961, which you have calculated many, many times already in this class. Remember to
convert to a percentage and to include up to the hundredths place. Failure to do so will result in lost
points, as this should be second nature by this point.
The answer, XXXXXXXXXX, should now appear in cell E4.
*The economy grew by about 2.5 percent from 1960 to 1961.*
Name the column ‘GDP Growth Rate’ and fill in the rest of the column.
Economic Growth
Let’s summarize the data in a way that provides an overview for the entire time period. To do so we can
calculate the mean growth rate over the time period XXXXXXXXXX.
Question 2: What is the average growth rate for the U.S. economy since 1960?
To find this use the =AVERAGE() function.
Question 3: Has growth sped up or slowed down on average over this period?
To answer this, we can compare average growth rates for earlier and later years in this time period.
Specifically, let's split the time period and compare the average growth rates for two periods: XXXXXXXXXX,
XXXXXXXXXX.
To do this simply find the mean growth rates for the two intervals of time, XXXXXXXXXXand XXXXXXXXXX.
In general, there appears to have been a slowdown in growth over the post WWII period. If you were to
look at each decade, you would find that there was very rapid growth on average in the 1960s (about
4.29% per year), with slower average growth in the 1970s and 1980s (about 3.19% and 3.35% per yea
espectively). Growth rates rebounded in the late 1990s, prompting some economists and politicians to
speculate that we had entered a new golden age of growth (a “new economy”). The recession in 2001
ended that burst of growth, and growth was lackluster in the 2000s (average of 1.6% through 2007
followed by another recession in XXXXXXXXXXThe prospects for the pace of future growth continue to be hotly
debated.
Question 4: Is a one percentage point decline in the annual growth rate substantial? (*It is useful to think
about the sheer size of the US economy and its importance to the global economy.)
Question 5: What do you think might cause differences in growth rates over long periods of time? (*Think
ack to our lesson on the business cycle.)
Business Cycles
The U.S. economy has tended to grow over time. However, as we see in column E, growth rates have
also varied substantially from year to year. In many years the growth rate has been negative: i.e., the
amount of stuff produced in the economy has fallen rather than risen. We can call a year in which Real
GDP falls a "recession year." As we learned earlier in the semester, the semi-regular sequence of
ecessions and expansions that tend to characterize capitalist economies is called the "business cycle."
Look in column E and find all of the recession years since 1970. To be sure, even though real GDP did
not fall at an annual frequency in 2001, that year is also considered a recession year (e.g., by the
National Bureau of Economic Research, or NBER) because GDP growth slowed markedly, and
unemployment rose markedly. Similarly, the NBER dates the cu
ent recession as having started in
December of 2007, even though real GDP growth was positive on average in that year.
Graphing Growth and Business Cycles since 1970
To view the pattern of long-term economic growth and short-term business cycles, let's graph Real GDP
from XXXXXXXXXXMake sure the axes are co
ect: x-axis is dates and y-axis is dollars (in billions).
Now let's add a second variable, Nominal GDP, to the graph so that we can compare the patterns of
Nominal and Real GDP over time. Make sure to add a legend at the bottom of the graph so we know
which series is which.
Notice that Nominal GDP grows in each year, whereas Real GDP falls in some years. The difference is
due to inflation, which has, at least in the years that we are looking at, been great enough to drive up
Nominal GDP even in recession years when Real GDP has fallen. Recall that
● Nominal GDP = (Real GDP * GDP Deflator)/100
If Real GDP falls, but the GDP Deflator rises enough (specifically: by a larger percentage), then Nominal
GDP rises.
Name the graph “Real vs Nominal GDP: XXXXXXXXXX”
Copy and paste the graph you just created to make a duplicate. Now let's replace Nominal GDP with the
annual GDP Growth Rate to get a better look at the size of business cycle fluctuations. Now let's give the
growth rate a second scale (so that it isn't scrunched into the bottom of the graph)
● click the left mouse button on the actual line-plot of the growth rate (not the plot area) to select
that series
● Choose the “Format” ta
● double click on “Format Selection”
● select “secondary axis”
Rename the new graph “Real GDP and GDP Growth Rate: XXXXXXXXXX”
Now you should be able to see clearly both the overall trend and degree of fluctuations of Real GDP,
eading the level of Real GDP off of the left hand Y-Axis scale and the Growth Rate off of the right hand
Y-Axis scale.
Question 6: How smooth or volatile has economic growth been since 1970?
Graphing the Great Depression
Now let's take a look at the Great Depression, which lasted from XXXXXXXXXXGo to sheet B of the
spreadsheet (by clicking on the folder tab marked B near the bottom of the screen). This sheet contains
data on Nominal GNP and the GNP deflator for XXXXXXXXXXYou will first need to construct a Real GDP
series in column D as you did above.
Once you have done that, let’s proceed to make a graph of Real GDP for XXXXXXXXXX.
Question 7: By how much (what percentage) did Real GDP fall between 1929 and 1933? How long did it
take the economy to recover from the Depression?
Graphing Log plots
Finally, let’s look at a longer period of growth. The third sheet of the Excel workbook contains estimates
for Real GDP from 1790 to 2002. Plot this data with time on the X-axis. Now make the scale of the Y-axis
logarithmic (and also make the minimum value on the Y-axis XXXXXXXXXXDouble click on the labels for the
Y-axis of a graph to select the axis: “Format Axis” à “Axis Options” to get a menu that lets you change the
scale to “logarithmic scale.” Note that a linear (straight line) log plot indicates a constant growth rate.
Question 7: How does this change the plot?
Now add an exponential trend line. To add a trend line in a line plot, left click onto the data plot to highlight
it, then right-click the actual line on the chart and pick the trend line option. You can select linear o
nonlinear options for the trend line. Note that an exponential trend line will be linear in a logarithmic plot.
Note that, if the growth rate of real GDP were constant, the log plot of the data would lie on a straight line
(like the trend line). Name the graph “GDP XXXXXXXXXX: Log Scale”
temp notes file
1
Output, GDP, and Sectoral Balances
Output is normally measured by Gross Domestic Product (GDP), defined
as the total market value of all final goods and services produced within
an economy in a given period.
Gross domestic product (GDP). The
most common measure of total output
of an economy. It is defined as final
goods produced for the market within
the borders of the country in a given
period.
Output is normally measured by the aggregate Gross Domestic
Aggregate. A variable measured at
the level of the economy as a whole.
Common aggregates include GDP, the
consumer price index (CPI), and the
unemployment rate.
Product, or GDP. When people talk about the size of the economy