Question

1. RDGP

FREDA — Real Personal Consumption Expenditures + Real Gross Private Domestic Investment + Real Government Consumption Expenditures and Gross Investment + (Real Exports of Goods and Services (DISCONTINUED) - Real imports of goods and services (DISCONTINUED)) 5,600 5,200 4,800 4,400 4,000 Bil. of Chn. 2009 $ + Bil. of Chn. 2009 $ + Bil. of Chn. 2009 $ + (Bil. of Chn. 2009 $ - Bil. of Chn. 2009 $) 3,600 3,200 2,800 2,400 2,000 1,600 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 Shaded areas indicate U.S. recessions Source: US. Bureau of Economic Analysis myf.red/g/iq77

2. RGDP Equation and RGDP

3. YOY Percent Change

1. What is the base year used to compute GDP in these data series?

2. What do the grey columns on your graphs represent? Explain how the gray columns are related to the RGDP data in your three graphs. Do you see any pattern?

3. Explain any discrepancy seen in your RGDP Equation and RGDP graph between the two lines you plotted.

4. Explain what it means when Year-on-Year Percent Change goes below 0%. What is happening to Real GDP?

Answer 1

1. On the Y-axis of all the graphs, we see the GDP of the country. Now, this GDP is represented as Billions of Chained 2009 dollars [Bil. of Chn. 2009] which means that the GDP of a country in a particular year is calculated by taking the year 2009 as a base year since the prices are adjusted according to dollar value in 2009.

2. The grey columns in the graphs represent recession periods in US economy. During these periods the real GDP is seen to fall down which happens to be the usual trend for an economy facing recession.

3. The RGDP is the existing GDP of a country whereas the RGDP equation gives only an estimate of the GDP of a country. The RGDP [blue] will always be greater the RGDP [red]. This discrepancy is seen because of the limitations of the equation of GDP which is unable to calculate any illegal and out of market transactions. These transactions are not reflected in Equation and thus it always estimates a lower value than RGDP.

4. When an economy's YOY change percent change falls below 0% it means that the Real GDP is falling as compared to the previous year. This signifies that there is a negative growth taking place. Two consecutive quarters of negative economic growth is termed as a recession. Hence we can see that at the grey areas the YOY percent change is below 0%