Question

Pls help me graph rate of change in real gdp and answer those questions

Calculate the percentage change in real GDP in each of the years shown. (Hint: The percentage change in real GDP equals the change in GDP from the previous year to the current year. For example, you can calculate the percentage change for 1981 by finding the change in GDP from 1980 to 1981, dividing this change by the level of GDP in 1980, and then multiplying the result by 100%.) Once you've calculated the percentage change for each of the years, use the orange points (square symbol) to plot your results on the following graph, rounded to the nearest percent. For each year, plot the percentage change from the year before. (Hint: For example, you should plot the growth rate from 1980 to 1981 with a horizontal coordinate of 1981.)

On the first graph (showing real GDP), this contraction is seen as a period in .On the second graph (showing annual change in real GDP), this contraction is This economy experienced a contraction in the yearsY which the level of real GDP seen as a period in which the growth rate of real GDP True or False: This economy was experiencing a contraction in 1981. True False

Answer 1

Solution:

We are given the real GDP (RGDP) values for a few years. We know the formula for calculating percentage change is:

Growth rate = (Final value - initial value)*100/initial value

Thus, calculating annual percentage change change in RGDP in year t is = (RGDP_t - RGDP_t-1)*100/RGDP_t-1 where t is an indexation for year.

For example, percentage change in RGDP from 1980 to 1981 = (RGDP₁₉₈₁ - RGDP_1981-1)*100/RGDP_1981-1

= (RGDP₁₉₈₁ - RGDP₁₉₈₀)*100/RGDP₁₉₈₀

From the given table, then we know this equals: percentage change in RGDP in 1981 = (384-380)*100/380 = 1.05% (or 1% on rounding to the nearest percentage point). Going this way, we have the following filled up table (percentage converted to the nearest percentage points):

Plotting this on a graph, we have the following (please notice that horizontal figure in the below figure starts from year 1980 itself, while in the question it starts from 1981, please be careful):

For filling up the blanks, options would have been helpful, so verify closely:

Contraction simply implies that the national output in an economy has declined. Then, in terms of real GDP, it can be seen through periods where real GDP has fallen. When real GDP falls from one year to another, percentage change would be negative, due to the fall (as can be noticed from the table as well). Thus, contraction period in terms of percentage change corresponds to years when percentage change is negative. Knowing all this, we can conclude the following:

This economy experienced a contraction in the years 1985 and 1986. On the graph showing real GDP, this contraction is seen as a period in which the level of real GDP falls/declines. On the graph showing annual change in real GDP, this contraction is seen as a period in which the growth rate of real GDP is negative.

From what all we've discussed above, we can see from the figure that real GDP growth rate is positive in 1981, implying that this economy was experiencing an expansion and not contraction in 1981. So, the given statement is False.