Question

1.         Year     Nominal GDP    GDP Price deflator        Real GDP          Inflation Rate   Growth Rate    

            2008    $14,833.60             99.23                                        --                     --

            2009    14,417.90            100.00

            2010      14,779.40            101.21

            2011      15,052.40            103.20

            2012      15,470.70            105.00

            2013      15,759.00            106.59

            2014      17,420.70            108.27

            2015    18,287.20            110.01

            2016    18,905.50            112.08

            2017    19,738.90            114.27

           

            a.         Fill in the blanks in the table above and show your work.

            b.         Over this time period, does inflation exist?

            c.         How would you characterize this time period in terms of output? Is it an expansionary economy? A recession? A depression? Explain.

2.         Explain how an increase in your nominal income and a decrease in your real income might occur simultaneously.

3.         In a speech that Senator Kennedy gave when he was running for president in 1968, he said the following about GDP:

                        [It] does not allow for the health of our children, the quality of their education,

                        or the joy of their play. It does not include the beauty of our poetry or the

                        strength of our marriages, the intelligence of our public debate or the integrity

            of our public officials. It measures neither our courage, nor our wisdom, nor our devotion to our country. It measures everything, in short, except that which makes

            life worthwhile, and it can tell us everything about America except why we are proud that we are Americans.

Was Robert Kennedy right? If so, why do we care about GDP?

4.         Consider whether each of the following events is likely to increase or decrease real GDP. Identify which component in GDP changes (C, I, G or NX).

            a.         A hurricane in Florida forces Disney World to shut down for a month.

            b.         The discovery of a new, easy-to-grow strain of wheat increases farm harvests.

            c.         Increased hostility between unions and management sparks a rash of strikes.

            d.         Firms throughout the economy experience falling demand, causing them to lay off workers.

            e.         Congress passes new environmental laws that prohibit firms from using production methods that emit large quantities of pollution.

            f.          More high school students drop out of school to take jobs mowing lawns.

            g.         Fathers around the country reduce their workweeks to spend more time with their children.

5.         Presidents get more blame and take more credit for the state of the economy than they deserve. Nevertheless, presidential terms make convenient reference points for thinking about history. Calculate and display in a table the average annual rates of real GDP growth and inflation (using the GDP implicit price deflator) for each presidential term starting with Clinton in 1993.   Make another table listing the presidents from highest to lowest GDP growth and lowest to highest inflation (best to worst in each case). On the basis of these two tables, which president do you regard as most successful (or as the luckiest) economically? Explain your own balancing of real GDP and inflation as factors in your assessment.

6.         The chairs of the Federal Reserve System are often regarded as having more direct influence over the current economy than presidents. Repeat the exercise in Problem 5 substituting Federal Reserve chairs for presidents, starting with P. Volcker in 1979. On the basis of these two tables, which Fed chair do you regard as most successful (or as the luckiest) economically?

Presidents of the United States

William Clinton            1993-2001

George W. Bush            2001-2009

Barack Obama              2009-2016

Donald Trump              2016-2019

Federal Reserve Chairs in the United States

Paul Volcker                 1979-1987

Alan Greenspan            1987-2006

Ben Bernanke               2006-2014

Janet Yellen                 2014- 2016

Jerome Powell             2016- present

Answer 1

1.

Year	Nominal GDP	GDP Deflator	Real GDP	Inflation rate	Growth rate
2008	14833.6	99.23	14948.71	---	---
2009	14417.9	100	14417.9	0.78%	-3.55%
2010	14779.4	101.21	14602.71	1.21%	1.28%
2011	15052.4	103.2	14585.66	1.97%	-0.12%
2012	15470.7	105	14734	1.74%	1.02%
2013	15759	106.59	14784.69	1.51%	0.34%
2014	17420.7	108.27	16090.05	1.58%	8.83%
2015	18287.2	110.01	16623.22	1.61%	3.31%
2016	18905.5	112.08	16867.86	1.88%	1.47%
2017	19738.9	114.27	17273.91	1.95%	2.41%

Real GDP = (Nominal GDP / GDP Deflator)*100

Inflation rate = (GDP Deflator in period 2 – GDP deflator in period 1)/GDP deflator in period 1

Growth rate = (Real GDP in period 2 – Real GDP in period 1)/Real GDP in period 1

B.

Yes, inflation slowly grows from .78% in 2009 to 1.95% in 2017. It is a slow, but steady rise in inflation.

C.

It is an expansionary economy that is causing inflation to rise over a period of time from 2009 to 2017. Real GDP is fluctuating. But in most of the years, it is giving positive growth rate. So, it is a case of expansionary economy.

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