EconEdLink | Focus on Economic Data: U.S. Real GDP Growth, May 29, 2008

This lesson focuses on the May 29, 2008, report on Real Gross Domestic Product (Real GDP), produced by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. This lesson will also raise questions the impact of the current level of growth on the economy and individuals.

This lesson focuses on the May 29, 2008, preliminary estimates of Real Gross Domestic Product (Real GDP)for the first quarter of 2008, produced by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. This lesson will also raise questions about the potential for a recession in the United States in 2008.

The Bureau of Economic Analysis (BEA) announcement: May 29, 2008: GROSS DOMESTIC PRODUCT: FIRST QUARTER 2008 (PRELIMINARY)

'Real gross domestic product' the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.9 percent in the first quarter of 2008, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.6 percent.

The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 0.6
percent.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) for services, exports of goods and services, federal government spending, and private inventory investment that were partly offset by negative contributions from residential fixed investment and PCE for durable goods. Imports, which are a subtraction in the calculation of GDP, decreased.

The small acceleration in real GDP primarily reflected an upturn in inventory investment that was partly offset by a deceleration in PCE.

Final sales of computers contributed 0.06 percentage point to the first-quarter growth in real GDP after contributing 0.16 percentage point to the fourth-quarter growth. Motor vehicle output subtracted 0.35 percentage point from the first-quarter growth in real GDP after subtracting 0.86 percentage point from the fourth-quarter growth.'

The BEA announcement included this footnote: 'Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent changes are calculated from unrounded data and are annualized. 'Real' estimates are in chained (2000) dollars. Price indexes are chain-type measures.'

What is the Bureau of Economic Analysis (BEA)?

'BEA is an agency of the Department of Commerce. Along with the Census Bureau and STAT-USA, BEA is part of the Department's Economics and Statistics Administration.

BEA produces economic accounts statistics that enable government and business decision-makers, researchers, and the American public to follow and understand the performance of the Nation's economy. To do this, BEA collects source data, conducts research and analysis, develops and implements estimation methodologies, and disseminates statistics to the public.'

Source: www.bea.gov/about/mission.htm ^[1]

The Bureau of Economic Analysis (BEA) announcement: May 29, 2008: GROSS DOMESTIC PRODUCT: FIRST QUARTER 2008 (PRELIMINARY)

'Real gross domestic product' the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.9 percent in the first quarter of 2008, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.6 percent.

The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 0.6
percent.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE) for services, exports of goods and services, federal government spending, and private inventory investment that were partly offset by negative contributions from residential fixed investment and PCE for durable goods. Imports, which are a subtraction in the calculation of GDP, decreased.

The small acceleration in real GDP primarily reflected an upturn in inventory investment that was partly offset by a deceleration in PCE.

Final sales of computers contributed 0.06 percentage point to the first-quarter growth in real GDP after contributing 0.16 percentage point to the fourth-quarter growth. Motor vehicle output subtracted 0.35 percentage point from the first-quarter growth in real GDP after subtracting 0.86 percentage point from the fourth-quarter growth.'

The BEA announcement included this footnote: 'Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise specified. Quarter-to-quarter dollar changes are differences between these published estimates. Percent changes are calculated from unrounded data and are annualized. 'Real' estimates are in chained (2000) dollars. Price indexes are chain-type measures.' to -$98.7 billion), compared with a decrease of $49.1 billion.'

Measuring the Nation's Output

Gross National Product (GNP) vs. Gross Domestic Product(GDP)

GNP measures the total value of goods and services produced by workers from a country regardless of where they produce them. GNP includes such items as corporate profits that multinational firms earn in overseas markets. If an American firm operates a plant in Mexico, the firm's profits are included in the U.S. GNP.

In comparison, GDP measures the total amount of goods and services that are produced within a country's borders. The production of the American company's plant in Mexico is included in Mexico's GDP.

Current dollar or Nominal vs. Real or Chained GDP

Current-dollar or Nominal GDP in the First Quarter of 2008

Current-dollar GDP, the market value of the nation's output of goods and services, increased 3.5 percent, or $121.4 billion, in the first quarter to a level of $14,195.6 billion. In the fourth quarter,
current-dollar GDP increased 3.0 percent, or $103.7 billion.

Revisions from the Advance Estimates

According to the BEA announcement, 'the preliminary estimate of the first-quarter increase in real GDP is 0.3 percentage point, or $8.8 billion, higher than the advance estimate issued last month. The upward revision to the percent change in real GDP primarily reflected a downward revision to imports and upward revisions to nonresidential structures and to PCE (personal consumption expenditures) for nondurable goods that were partly offset by downward revisions to private inventory investment, to exports, and to PCE for services.' The previous announcement underestimated spending on nonresidential structures and nondurable goods and overestimated imports, inventory investment, exports and consumer purchases of services.

How is GDP Measured?

Is the economy growing? How fast is the economy growing? Is it speeding up or slowing down?

The Bureau of Economic Analysis produces the national income and product accounts (NIPAs), several measurements of the growth of the economy. The primary measurement is gross domestic product (GDP), which measures the value of the goods and services produced by the U.S. economy in a given time period. It is one of the most comprehensive and closely watched economic statistics.

What does the BEA measure?

'GDP includes market production and some non-market production. GDP is composed of goods and services that are produced for sale in the 'market,' the generic term referring to the forum for economic transactions, and of nonmarket goods and services, those that are not sold in the market, such as the goods and services provided by the governments, services provided by nonprofit institutions serving households and housing services provided by and for persons who own and live in their home.

Not all productive activity is included in GDP. Some activities, such as the care of one's own children, unpaid volunteer work for charities, or illegal or black-market activities, are not included because they are difficult to accurately measure and value.' (Source: www.BEA.gov ^[2] )

Market Prices

'Whenever possible, GDP is valued at market prices. The NIPAs value market goods and services using prices set by the market. Using market values also facilitates the analysis of the impacts on the economy of events such as the implementation of government programs or the occurrence of natural disasters.

In some cases, market prices do not fully reflect the value of a good or service, and may include some types of services where an actual exchange has not occurred. In these cases, the value of the good or service produced is “imputed” from similar market transactions. Examples of imputed measures in the NIPAs include the value of compensation-in-kind (such as meals provided by employers) and the value of owner-occupied housing.' (Source: www.BEA.gov ^[2] )

Current Production

GDP is a measure of current production, not sales. In the NIPAs, output measures when a good or service is produced, not when that good or service is sold. For example, an automaker may produce a car in one period and sell it in a later period. In the first period, the production of the car is recorded in GDP as an addition to inventories, a component of investment. In the later period, the sale of the car is recorded as a consumer expenditure and is offset by the withdrawal of the car from inventory.

Final Goods and Services

GDP includes the value of 'final' goods and services only. In the measurement of GDP, final products are those that are consumed and not used in a later stage of production, those that are sold to foreign residents, those that are durable goods and structures used to produce other goods and last more than a year, and those that may be inventoried for future consumption.

When considering the production process for the entire economy, intermediate products, that is, goods and services that are later used as inputs in the production process are excluded, so that the measure of output is not duplicated in the total.

Methods of Measurement

GDP can be measured in three different ways.

First, GDP can be measured as the sum of expenditures, or purchases, by final users. This is known as the expenditures approach, illustrated by the formula GDP = C+I+G+X-M (Consumption + Investment + Government spending + eXports – iMports) and is used to identify the final goods and services purchased by persons, businesses, governments, and foreigners.

U.S. GDP First Quarter 2008, Preliminary Estimate, May 29, 2008
(Annual Rate, Billions)

Current Dollars Chained Dollars

+ C (Consumption) $10,046.2 $8,369.7
+ I (Investment) $2,041.3 $1,757.9
+ G (Government) $2,824.7 $3,053.3
+ X (Net Exports) -$716.6 $480.2
= GDP $14,195.6 $11,701.9

*Figures may not equal the total due to rounding.

Second, because the market price of a final good or service will reflect all of the incomes earned and costs incurred in production, GDP can also be measured as the sum of these charges. This is known as the income approach and is used to examine the purchasing power of households and the financial status of business income.

Third, GDP can also be measured either as total sales less the value of intermediate inputs or as the sum of the “value added” at each stage of the production process. The value-added approach to measuring GDP is central to the U.S. industry accounts and is used to analyze the industrial composition of U.S. outputs.

Output produced in the United States

GDP is a measure of the goods and services produced by labor and property located within the United States (50 states and the District of Columbia). GDP includes the output of U.S. offices or establishments of foreign companies located in the United States, and it excludes the output of foreign offices or establishments of U.S. companies located outside the United States.

GDP is a 'Gross' Measurement

GDP reflects production in a given time period, regardless of whether that production is used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets. Economic depreciation, or the consumption of fixed capital (CFC), is a measure of the capital needed to cover the aging, wear and tear, accidental damage, and obsolescence of existing fixed assets.

Net Domestic Product

Subtracting CFC from GDP leaves 'net domestic product.' Net domestic product is a measure that indicates how much of the nation’s output is available for consumption or for adding to the nation’s wealth.

Want More Detailed Information about GDP?

The Bureau of Economic Analysis publishes an online guide to 'Measuring the Economy: A Primer on GDP and the National Income and Product Accounts: www.bea.gov/national/pdf/nipa_primer.pdf ^[3] .

What happens to the measurement of real GDP during a quarter?

The May 29, 2008, BEA announcement referred to the 'preliminary' estimate of real GDP. The BEA online guide refers to the revisions as 'advance' estimates, based on source data that are incomplete or subject to further revision by the source agency, are released near the end of the first month after the end of the quarter; as more detailed and more comprehensive data become available, 'preliminary' (May) and 'final' (June) estimates are released near the end of the second and third months, respectively. The 'latest' estimates reflect the results of both annual and comprehensive revisions.

The components used to determine GDP include:

Personal Consumption (C): Durable and nondurable goods, services

Investment Spending (I): Nonresidential, residential, and business inventories

Government Expenditures (G): Defense, highways, schools, etc.

Net Exports (X): Exports are added to GDP. Imports are subtracted from GDP

Formula: GDP = C + I + G + X

Real Per Capita GDP

The meaning of GDP may be more meaningful when expressed relative to nation's population, called Real Per Capita GDP. China, for instance has a large GDP compared to most nations. But, when China's GDP is expressed 'per capita,' it is much smaller than many nations.

For example, the U.S. GDP of $14,195 billion provides about $45,600 per capita (per person). China has a GDP of $2.7 billion, which is only about $2,500 per capital. When viewed only as a total number, GDP have a very different meaning than when measured per person. China's GDP is approximately 19 percent of the U.S. GDP. China's per capital GDP is only 5.5 percent of U.S. per capita GDP.

The chart below shows the nominal and real per capital GDP's of the United States, the European Union, Japan and China. Notice the relationship of nominal GDP to per capital GDP. China, for instance has a large GDP compared to other developing nations. But, when China's GDP is expressed 'per capita,' it is much smaller than many nations. While China's nominal GDP growth is increasing relative to the U.S., it's real per capita GDP as a measure of standard of living may not be as significant.

GDP Data Trends

Following the 2001 recession, growth in real GDP increased by 1.6 percent in 2002, 2.5 percent in 2003, and 3.6 percent in 2004. The annual rate of growth decreased slightly to 3.1 percent in 2005 and 2.9 percent in 2006. Growth in the first quarter of 2007 was very slow, but increased over the next two quarters to 3.8 and 4.9 percent. The 0.6 percent rate of growth in the fourth quarter of 2007 was the lowest since the fourth quarter of 2002. In the first quarter of 2008, growth of 0.9 percent was a slight improvement.

The reports of the rates of growth over the last twelve months have been erratic, from slightly less than one percent in the first-quarter to 4.9 percent in the third quarter. 2007 ended with the slowest growth of any twelve-month period since 2002-2003. Figure 1 illustrates recent changes in US real GDP growth, 1990-2008.

According to the May 29, 2008, BEA report:

'Real personal consumption expenditures increased 1.0 percent in the first quarter, compared with an increase of 2.3 percent in the fourth. Real nonresidential fixed investment decreased 0.2 percent, in contrast to an increase of 6.0 percent. Nonresidential structures increased 1.1 percent, compared with an increase of 12.4 percent. Equipment and software decreased 0.9 percent, in contrast to an increase of 3.1 percent. Real residential fixed investment decreased 25.5 percent, compared with a decrease of 25.2 percent.

Real exports of goods and services increased 2.8 percent in the first quarter, compared with an increase of 6.5 percent in the fourth. Real imports of goods and services decreased 2.6 percent, compared with a decrease of 1.4 percent.

Real federal government consumption expenditures and gross investment increased 4.4 percent in the first quarter, compared with an increase of 0.5 percent in the fourth. National defense increased 5.6 percent, in contrast to a decrease of 0.5 percent. Nondefense increased 1.8 percent, compared with an increase of 2.8 percent. Real state and local government consumption expenditures and gross investment increased 0.6 percent, compared with an increase of 2.8 percent.

The real change in private inventories added 0.21 percentage point to the first-quarter change in real GDP, after subtracting 1.79 percentage points from the fourth-quarter change. Private businesses decreased inventories $14.4 billion in the first quarter, following a decrease of $18.3 billion in the fourth quarter and an increase of $30.6 billion in the third.

Real final sales of domestic product, GDP less change in private inventories, increased 0.7 percent in the first quarter, compared with an increase of 2.4 percent in the fourth.

Why are Changes in Real Gross Domestic Product Important?

The measurement of the production of goods and services produced each year permits us to evaluate our monetary and fiscal policies, our investment and saving patterns, the quality of our technological advances, and our material well-being. Changes in real GDP per capita provide our best measures of changes in our material standards of living.

While rates of inflation and unemployment and changes in our income distribution provide us additional measures of the successes and weaknesses of our economy, none is a more important indicator of our economy's health than rates of change in real GDP.

Changes in real GDP are discussed in the press and on the nightly news after every monthly announcement of the latest quarter's data or revision. This current increase in real GDP will be discussed in news reports as a positive sign of the strength of the current economy.

Real GDP trends are prominently included in discussions of potential slowdowns and economic booms. They are featured in many discussions of trends in stock prices. Economic commentators use decreases in real GDP as indicators of recessions. A popular definition of a recession is at least two consecutive quarters of declining real GDP.

Long-term Trends

Economic growth, as measured by average annual changes in real GDP, was 4.4 percent in the 1960s. Average rates of growth decreased during the 1970s (3.3%), the 1980s (3.0%), and the first half of the 1990s (2.2%). In the last five years of the 1990s, the rate of growth in real UGDP increased to 3.8 percent, with the last three years of the 1990s being at or over 4.1 percent per year. Growth slowed in the beginning of the 2000s, but rebounded and averaged 3.5 percent on an annual basis. for the 2003 through 2006 period. The rate of growth declined in 2007.

The upward trend in economic growth over the past decade has been accompanied by increases in the rates of growth of consumption spending, investment spending, and exports. Productivity increases, expansions in the labor force, decreases in unemployment, and increases in the amount of capital have allowed real GDP to grow at the faster rates. Figure 2 shows the history of growth since the 1970s. Figure 2 also shows the average annual rate of growth of 3.1 percent since 1970. Note the recent downturn in the growth rate.

The longer run rate of growth of 3.1 percent has most recently been caused by a one percent increase in the number of people working and about a two percent increase in productivity of each worker. During the periods prior to the 1990s, the productivity increase contribution was slightly less than two percent and the labor force growth part slightly higher than one percent.

What is the relationship between GDP and Unemployment?

Full employment real GDP

Economists define the approximate unemployment rate, at which there are not upward or downward pressures on wages and price, as full employment rate of unemployment. If unemployment falls to level below the full employment rate, there will be upward pressure on wages and prices. If unemployment rises to a very high rate, there will downward pressure on wages and prices or wages and prices will remain steady. In the middle is a level, or more likely a range, where there is not pressure on wages and prices to rise or fall.

The level of real GDP that can be produced at that rate of unemployment is described at the full employment level of real GDP. Sometimes it is described as the potential level of real GDP. It is the highest level that an economy can produce at any given time without causing significant inflation.

The potential output or potential gross domestic product of a nation is the highest level of real GDP output that can be achieved with the nation's productive resources. One constraint on output is the level of employment. If the nation's economy is at its full potential, the unemployment rate is the NAIRU or the 'natural rate of unemployment.' Unemployment above this natural level will reduce output.

The relationship of unemployment and GDP growth is often identified by the statistical relationship known as 'Okun’s law.' Developed by economist Arthur Okun in 1962, the 'law' relates a decrease in the unemployment rate to increases in output growth and an increase in the unemployment rate to a decrease in output.

Professor Okun theorized that a 1 percentage point decline in the unemployment rate was, on average, associated with additional output growth of about 3 percentage points. Okun’s law is now commonly stated that a 1 percentage point decrease in the unemployment rate means additional output growth of about 2 percent.

Look at past and watch for the future EconEdLink lessons on employment and GDP to track this relationship.

How can we stimulate growth?

Economic Policy Options

There are two type of policies government can use to stimulate the economy (or slow it down). Policy actions to stimulate growth are referred to a 'expansionary' policies. Policy actions to slow the economy are referred to a 'contractionary' policies.

Monetary Policies

Monetary policies are those that influence the supply of money or interest rates in the economy. These policies are tools of the Federal Reserve System. The Federal Reserve determines policies through the Federal Open Marker Committee (FOMC). The FOMC consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.

Open Market Operations- the buying or selling of government securities in the 'open market.'

Discount Rate- the interest rate charged by the Federal Reserve Banks to member banks.

Reserve Requirements- The percentage of deposits banks must keep on reserve in their vaults or in accounts in the federal Reserve Banks. A banks ability to make loans is increases when it has more excess reserves.

A Note on the Federal Funds Rate

In the news, you will read that the Federal Reserve has set a target for the federal funds rate or desired quantity of reserves.

Using its monetary policy tools, the Federal Reserve can influence the demand and supply of balances that depository institutions hold at Federal Reserve Banks. This will alter the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Changes in the federal funds rate affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.

Fiscal Policies

Fiscal policies are the use of government revenues (spending or taxes) to expand or contract the economy.

Spending- The Federal government can increase spending to stimulate the economy or decrease spending to slow it down.*

Taxes- The federal government can increase taxes to slow the economy or decrease taxes to stimulate the economy.

What can be done?

In a time when the economy is slow, the Federal Reserve can:

Economic Stimulus Act of 2008

The BEA announcement also commented on the impact of the Economic Stimulus Act of 2008 on business and output.

'The Economic Stimulus Act of 2008 provided for a first-year bonus depreciation of 50 percent for qualifying property purchased and put in place in 2008.' This provided an incentive for businesses to increqase investment.

It concluded that the impact on busienss was that 'first-quarter profits tax liability was reduced by $37.8 billion, and profits after tax were reduced by $102.0 billion.' The tax liability of businesses decreased as a result ot the act.

A Recession in 2008?

Real GDP trends are prominently included in discussions of potential slowdowns and economic booms. They are featured in many discussions of trends in stock prices. Economic commentators use decreases in real GDP as indicators of recessions. A popular definition of a recession is at least two consecutive quarters of declining real GDP.

The National Bureau of Economic Research Business Cycle Dating Committee determines and reports on U.S. business cycles. The NBER identifies the dates of peaks and troughs that identify economic recessions or expansions.

The NBER defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.'

To identify trends, the NBER committee looks closely at two monthly measures of economic activity:

Personal income less transfer payments, in real term, employment. In addition, the committee looks at two indicators of manufacturing and goods:

Industrial production, the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes.
How Can We Increase Economic Growth Over Time?

Economic growth is a function of the technological innovation and the amount and quality of labor and capital in the economy.

As more people are employed, the amount of capital increases, education levels increase, the quality of capital changes, or the technology increases, the productive capacity of the economy increases. Therefore, the economy can increase its output giving consumers more disposable income, promoting an increase in consumption spending, and providing resources for business to use for further investment and government to use to provide public goods and services.

Increased labor force participation increases output. Expanded, improved education creates more productive workers. Business and government spending on research and development enhance our abilities to produce and allow each worker to become more productive, increasing incomes for all.

To achieve a higher level of GDP in the future, consumers should limit consumption spending and increase savings, permitting businesses to invest more in capital goods. If resources are invested into building an economy now, future generations will enjoy a higher level of economic growth; our businesses will produce more goods and consumers can purchase more goods. Expansion of output at rates faster than our population growth is what gives us the opportunity to enjoy higher standards of living.

U.S. real gross domestic product growth is slowing and employment growth is slowing. What policy options are available to the government to increase output and employment?

[The student answers should:

1. Identify monetary policies that are intended to stimulate the economy, such as selling government securities, reducing the discount rate and/or reducing bank reserve requirements.

2. Identify fiscal policies that are intended to stimulate the economy, such as tax cuts or rebates, and increased government spending.

3. Identify the intended impact of these policy as an increase in employment, spending and/or investment.]

Next, have the students click here to test their knowledge on the GDP Lesson. The questions are below with the answers and explanations in italics.

1. How does the May 29, 2008, preliminary rate of real GDP growth for the first quarter of 2008 compare to the advance rate that was announced on April 30, 2008?

a. Slight increase

[Real GDP increased at an annual rate of 0.9 percent in the first quarter of 2008, according to May preliminary estimate. The advance estimate i April was 0.6 percent.]

2. How does the rate of real GDP growth for the first quarter of 2008 compare to the rate of real GDP growth in 2007?

b. Decrease

[For the year 2007, real GDP increased at a rate of 2.2 percent. The annualized rate int he first quarter of 2008 was only .9 percent.]

3. Which of these components of GDP makes smallest contribution to the total U.S. GDP?

c. net exports

[Net exports, due to the trade deficit, actually reduce the total of GDP. Investment and government spending are positive numbers.]

4. Consumption expenditures make up approximately what percentage of U.S. GDP?

c. 70 percent

[Consumption makes up approximately 70 percent. Government spending makes up approximately 19 percent. Investment makes up approximately 17 percent. Net exports reduce GDP by approximately 6 percent because imports have exceeded exports in recent years.]

5. Consider this scenario. In year 1 a nation's nominal GDP was $10 trillion. In year 2, the nation's GDP was $11 trillion. From year 1 to year 2, the rate of inflation in the nation was 6 percent. What was the nation's rate of real GDP growth from year 1 to year 2?

a. 4 percent

[The 10 percent nominal increase in GDP included 6 percent inflation. The real rate of increase in GDP was 4 percent.]

6. If the economy is operating at full employment real GDP, which of these factors can increase real per capita GDP growth over time?

b. Increased investment

[GDP can increase with a net gain in the total of consumption, investment, government spending and net exports. Any of the four components of GDP can contribute to an increase in the total as long as it is not offset by decreases in the others. Remember if there is a trade deficit, net exports will be a negative number.]

7. Which of these factors, if all other factors remain constant, will NOT result in an increase in real GDP per capita?

a. An increase in the population

Have the students discuss this prompt:

The rate of growth of U.S. real GDP is slowing. Output is increasing very slowly and unemployment has increased in recent months. What does this mean to you?

[Answers:

1. Students should be able to identify the relationship between slower growth and higher unemployment trends.

2. Students should be able to explain how these trends impact the number of opportunities for employment for themselves and others.]

Go to the BEA Interactive Tables at www.bea.gov/interactive.htm ^[6] .

Compare the growth rate of your city, region or state with other cities, regions or states.

1. ^{^} "BEA: Mission, Vision, and Values" - (www.bea.gov) The Bureau of Economic Analysis (BEA) promotes a better understanding of the U.S. economy by providing the most timely, relevant, and accurate economic accounts data in an objective and cost-effective manner.
2. ^{^} ^{^} "Bureau of Economic Analysis" - (www.BEA.gov) The Bureau of Economic Analysis (BEA) promotes a better understanding of the U.S. economy by providing the most timely, relevant, and accurate economic accounts data in an objective and cost-effective manner.
3. ^{^} ^{^} "Measuring the Economy: A Primer on GDP and the National Income and Product Accounts" - (www.bea.gov) This BEA article introduces new users to the basics of U.S. national income and product accounts.
4. ^{^} "Real GDP Growth" - (www.bea.gov) This BEA news release contains the most recent information on real GDP growth.
5. ^{^} "Overview of the U.S. Economy: Perspective from the BEA Accounts" - (www.bea.gov) This page provides an overview of current economic data.
6. ^{^} "Interactive Tables" - (www.bea.gov) There are several interactive tables on this site dealing with national economic data, industry economic data, international economic data, and regional economic data.

Insert a comment, suggestion or review of this lesson here. The comments will not appear immediately due to a time delay to allow for a review by a member of our staff.

Current Key Economic Indicators as of May 19, 2010
Inflation	On a seasonally adjusted basis, the U.S. Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.2 percent before seasonal adjustment. (May 19, 2010)
Employment and Unemployment	U.S. non-farm payroll employment rose by 290,000 in April, the unemployment rate edged up to 9.9 percent, and the labor force increased sharply. Job gains occurred in manufacturing, professional and business services, health care, and leisure and hospitality. Federal government employment also rose, reflecting continued hiring of temporary workers for Census 2010. (May 7, 2010)
Real GDP	U.S. real gross domestic product increased at an annual rate of 3.2 percent in the first quarter of 2010, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent. (April 30, 2010)
Federal Reserve	The FOMC maintained the target for the federal funds rate at 0 to 1/4 percent, the target rate initially established in December, 2008. (April 28, 2010)

Current Key Economic Indicators as of May 29, 2008
Inflation	The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in April, 2008. The April CPI-U level was 214.823. (May 29, 2008)
Employment and Unemployment	The U.S. Unemployment Rate was 5.0% in April, 2008. (May 29, 2008)
Real GDP	U.S. Real GDP increased at an annual rate of 0.9 percent in the first quarter of 2008 (preliminary estimate). (May 29, 2008)
Federal Reserve	The Federal Reserve FOMC lowered the target federal funds rate by 25 basis points to 2.0 percent on April 30, 2008. (May 29, 2008)

GDP, Selected Nations (millions), Reported by the World Bank, 2006
Nominal GDP Nominal GDP per capita
United States	$13,201.80	$13,201.80
European Union	$10,526.50	$34,149
Japan	$4,340.10	$38,410
China	$2,668.10	$2,010
World Total	$48,244.90	$7,439

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