This lesson focuses on the November 25, 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 about the impact of the current level of growth on the U.S. economy and individuals.

KEY CONCEPTS

Business Cycles, Economic Growth, Gross Domestic Product (GDP), Macroeconomic Indicators, Real vs. Nominal

STUDENTS WILL

  • Determine the current and historical growth of U.S. real gross domestic product.
  • Identify the components of the measurement of the nation's gross domestic product.
  • Determine the difference between nominal and real gross domestic product.
  • Speculate about the nature and impact of current economic conditions and implications for the future.

Current Key Economic Indicators

as of May 5, 2013

Inflation

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers decreased 0.2 percent in March after increasing 0.7 percent in February. The index for all items less food and energy rose 0.1 percent in March after rising 0.2 percent in February.

Employment and Unemployment

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Real GDP

Real gross domestic product increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

Federal Reserve

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent...

INTRODUCTION

Each month, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, releases an estimate of the level and growth of U.S. gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States. This lesson focuses on the BEA announcement of November 25, 2008, for the third quarter (July, August and September) of 2008.

Understanding the level and rate of growth of the economy's output (GDP) helps to better understand employment trends, the health of businesses and consumer well-being.

Bureau of Economic Analysis announcement, November 25, 2008

"Real gross domestic product, the output of goods and services produced by labor and property located in the United States, decreased at an annual rate of 0.5 percent in the third quarter of 2008... In the second quarter, real GDP increased 2.8 percent."

This was the second in a series of three announcements of the third quarter GDP data. The announcement explained, "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 (October 30), the decrease in real GDP was 0.3 percent." The November revision, based on additional information, showed that the fall in output was worse than the earlier estimate.

The BEA identified some of the significant GDP data by sector. "The decrease in real GDP in the third quarter primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were partly offset by positive contributions from federal government spending, private inventory investment, exports, nonresidential structures, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased."

"Most of the major components contributed to the downturn in real GDP growth in the third quarter. The largest contributors were a sharp downturn in PCE, a deceleration in exports, a smaller decrease in imports, and decelerations in nonresidential structures and in state and local government spending. Notable offsets were an upturn in inventory investment and an acceleration in federal government spending."

UPDATE! NBER Recession Announcement, December 1, 2008!

On December 1, 2008, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) announced that the United States economy had reached a peak in the most recent expansion and has been in a recession since December 2007.

To view the full NBER recession announcement go to: Determination of the December 2007 Peak in Economic Activity

"The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

NBER's Definition of a Recession

"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion."

The NBER somewhat broke with tradition in this announcement by not using the simple "textbook" definition of a recession as two consecutive quarters of GDP decline. "Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity." The announcement Q and A section included this comment. "Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. As an example, the last recession, in 2001, did not include two consecutive quarters of decline. As of the date of the committee’s meeting, the economy had not yet experienced two consecutive quarters of decline.

What Did the Recession Start in December?

The NBER explained, "The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3."

"Other series considered by the committee—including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey—all reached peaks between November 2007 and June 2008."

[Note to teacher: This GDP focus on economic data presents an opportunity for students to take a close look at the prospects for a recession in the United States in the last half of 2008. It confirms that third quarter output decreased even more than originally estimated. Students should watch for the signs of continued GDP decrease in the fourth quarter (October-December).

MATERIALS


Key Economic Indicators

as of November 25, 2008

Inflation

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in October, before seasonal adjustment. The October level of 216.573 was 3.7 percent higher than in October 2007.

Employment and Unemployment

The unemployment rate rose by 0.4 percentage point to 6.5 percent in October, and the number of unemployed persons increased by 603,000 to 10.1 million.

Real GDP

U.S. real gross domestic product decreased at an annual rate of 0.5 percent in the third quarter of 2008,(preliminary estimate). In the second quarter, real GDP increased 2.8 percent.

Federal Reserve

At its October 29 meeting, the Federal Open Market Committee decided to reduce the target for the federal funds rate by 1/2 percent (50 basis points) to 1.0 percent.

PROCESS

[Note to teachers: This lesson will focus primarily on the meaning of real GDP and not on the "official" declaration of a recession. The NBER recession announcement was made after this lesson was written. Use this focus on economic data  to take a closer look at GDP as a measure of economic activity, understanding that GDP remains a critically important measurement of the economy's health and the traditional definition of a recession.

What is gross domestic product? What is "real" gross domestic product? What's the difference? Does it matter?

GDP is the national domestic output - the sum of personal consumption, government and private investment expenditures, plus the value of net exports. It is the total value of what we have produced with the domestic productive capacity of the United States.

GDP = personal consumption expenditures + government spending + private investment + net exports (exports minus imports)

Real GDP is the current dollar (nominal dollar) measurement of output adjusted for the effect of inflation from year-to year. In the November report, U.S. nominal (current dollar) GDP was $14,420.5 billion (annualized). The U.S. nominal GDP had been estimated to be $14,294.5 in the second quarter. In nominal terms, GDP increased by $125 billion.

When adjusted for inflation, using the price index for gross domestic purchases, U.S. real GDP was $11,727.4 (billion, annualized) in the second quarter and $11,712.3 in the third quarter - a decrease of $15.1 billion. U.S. "real" output decreased in the third quarter.

So what? If a family's income simply kept pace with inflation for the last quarter, the family's purchasing power remained constant. They could buy the same amount of goods and services. If the current value of output simply kept pace with inflation, the "real" output was constant. To make it simple - the same number of goods, services, etc, were produced. This report tells us that the number of goods, services, etc. actually decreased after adjusting for the increase in the price level.

If the U.S. produced fewer, goods, services, etc., it may mean that fewer people were employed, or there were fewer investments, or government programs were reduced. There was less of something in the economy (unless there was a large decease in net exports - not the case in Q3).

[Note to teachers: For more information about measuring economics growth, go to: BEA, "Measuring the Economy: A Primer on GDP and the National Income and Product Accounts ."]

The BEA report detailed the Q3 GDP by sector group.

"Real personal consumption expenditures decreased 3.7 percent in the third quarter, in contrast to an increase of 1.2 percent in the second."

"Real nonresidential fixed investment decreased 1.5 percent, in contrast to an increase of 2.5 percent." "Real residential fixed investment decreased 17.6 percent, compared with a decrease of 13.3 percent."

"Real exports of goods and services increased 3.4 percent in the third quarter, compared with an increase of 12.3 percent in the second. Real imports of goods and services decreased 3.2 percent, compared with a decrease of 7.3 percent."

"Real federal government consumption expenditures and gross investment increased 13.6 percent in the third quarter, compared with an increase of 6.6 percent in the second." "Real state and local government consumption expenditures and gross investment increased 0.8 percent, compared with an increase of 2.5 percent."

[Note to teachers: During Q3, business inventories also increased. This means final sales were less than the value of production.]

Table 1 shows the change of the various components of GDP during the third quarter. Note that the decrease in personal consumption expenditures was a smaller percentage than other component decreases. Remember, personal consumption is a significantly larger portion of the total GDP.

 

Table 1. Real Gross Domestic Product Components: Percent Change Q3

(Seasonally adjusted at annual rates)

 

Gross domestic product (GDP)............................................ –0.5

Personal consumption expenditures.....................................–3.7

Durable goods ........................................................–15.2                  

Nondurable goods ....................................................–6.9

Services……………………………………………...0.0

Gross private domestic investment........................................ 0.4

Fixed investment ......................................................–5.6

Nonresidential ..........................................................–1.5

Structures................................................................... 6.6

Equipment and software ..........................................–5.7

Residential .............................................................–17.6

Net exports of goods and services

Exports ..................................................................... 3.4

Goods ........................................................... 3.9

Services ........................................................ 2.4

Imports.....................................................................–3.2

Goods ..........................................................–4.4

Services ........................................................ 3.2

Government consumption and gross investment ................. 5.4

Federal.................................................................... 13.6

National defense .................................................... 18.0

Nondefense............................................................... 4.5

State and local .......................................................... 0.8

Revisions from the October GDP report for Q3

The BEA report added, "The preliminary estimate of the third-quarter decrease in real GDP is 0.2 percentage point, or $7.7 billion, lower than the advance estimate issued last month. The downward revision to the percent change in real GDP primarily reflected downward revisions to personal consumption expenditures and to exports that were partly offset by an upward revision to private nonfarm inventory investment and a downward revision to imports."

The October report overestimated consumer spending and exports. As data is collected, more accurate estimates are produced. The November GDP report may be adjusted in the December report if additional data shows changes.

[Note to teachers: For all U.S. GDP data from 1929 to 2008, go to the National Income and Product Accounts, Table 1.1.5., Gross Domestic Product .]

The BEA will release the “final” estimate of third-quarter 2008

GDP on December 23, 2008. Why does it take the BEA three months an two revisions to get the GDP numbers right?

An article in the Spring, 2008 Journal of Economics Perspectives called "Taking the Pulse of the Economy: Measuring GDP " addressed this issue.

"In producing the national accounts estimates, the Bureau of Economic Analysis attempts to strike a balance between accuracy and timeliness so that the estimates can be used to monitor real overall economic growth and inflation, as well as major sectors of interest, such as investment in information technology and developments in the housing sector. These estimates are also used by policymakers and government forecasters, as well as by private-sector business planners and investors."

Measuring GDP Is A Complicated Process

Measuring GDP is a very complicated process. First, there are benchmark measurements against which current measures are compared. Current measures typically are constantly being revised.

Some measurements are "leading," that is, they tell us what will happen in the future. Some "coincident" measures tell us what is happening right now. Other measures are known only after some time period, "lagging' the current time period.

The Conference Board , non-profit, global independent membership organization working in the public interest, publishes information and analysis of economic activity, including the "Index of Leading Economic Indicators.

The Conference Board announced on November 20, 2008, that its leading index decreased 0.8 percent, the coincident index increased 0.2 percent and the lagging index increased 0.1 percent in October. The Conference Board report painted a bleak picture of the future of the economy.

"The leading index declined sharply in October as stock prices, building permits, consumer expectations and the index of supplier deliveries made large negative contributions to the index, despite continued positive contributions from real money supply and the interest rate spread. In the past two months, without the very large positive contributions from inflation-adjusted money supply (the largest in seven years), the leading index would have been substantially weaker."

"The coincident index increased in October, following five consecutive monthly declines. Industrial production recovered from its sharp September drop (partially due to two large hurricanes during that month), more than offsetting the continued decline in employment. Index levels were revised lower for August and September due to downward revisions for most of the components. In October, the coincident index increased slightly more than the lagging index, and the coincident-to-lagging ratio rose as a result."

"Both the leading and coincident indexes have been on a downward trend for at least a year now, and the pace of their declines have accelerated in recent months. The composite indexes are now decreasing at rates last seen in 2001, with widespread weakness among their components. Meanwhile, real GDP contracted at a 0.3 (revised to -.5 perent after this report) percent annual rate in the third quarter. Taken together, the persistent and extensive deterioration of the composite indexes continues to suggest that the economy is unlikely to improve soon, and economic activity may contract further in the near term."

"LEADING INDICATORS. Three of the ten indicators that make up the leading index increased in October. The positive contributors — beginning with the largest positive contributor — were real money supply*, interest rate spread, and manufacturers' new orders for consumer goods and materials*. The negative contributors — beginning with the largest negative contributor — were stock prices, building permits, index of consumer expectations, index of supplier deliveries (vendor performance), average weekly initial claims for unemployment insurance (inverted), and manufacturers' new orders for nondefense capital goods*. Average weekly manufacturing hours held steady in October."

"COINCIDENT INDICATORS. Three of the four indicators that make up the coincident index increased in October. The positive contributors to the index — beginning with the largest positive contributor — were industrial production, personal income less transfer payments* and manufacturing and trade sales*. The negative contributor was employees on nonagricultural payrolls."

"LAGGING INDICATORS. The lagging index stands at 113.3 (2004=100) in October, with two of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were commercial and industrial loans outstanding* and ratio of consumer installment credit to personal income*. The negative contributors — beginning with the largest negative contributor — were average duration of unemployment (inverted), average prime rate charged by banks, change in CPI for services, and the change in index of labor cost per unit of output, manufacturing. The ratio of manufacturing and trade inventories to sales** held steady in October."

Source: The Conference Board, "Global Business Cycle Indicators ."

Real GDP

Real GDP is the current or nominal dollar amo9unt adjusted for inflation. BEA uses the "price index for gross domestic purchases" as a measure of inflation. It is a more broad measure than consumer price index, but is generally consistent with changes in the CPI. It is only after adjusting for inflation that the November measurement of GDP shows an decrease of .5 percent. Table 2 shows the changes in U.S. GDP in nominal and real terms from 2000 to 2008.

Determination of "real" GDP October-November 2008

Real GDP October estimate: -0.3 percent

November estimate: -0.5 percent

Current-dollar GDP October estimate: 3.8 percent

November estimate: 3.6 percent

Gross domestic October estimate 4.8 percent purchases price index November estimate 4.7 percent

 

Table 2: U.S. Gross Domestic Product
U.S. GDP, Current Dollar and Real Dollar, 2000 - 2008
Year
Current $
Real $
2000 9,817 9,817
2001 10,128 9,890
2002 10,470 10,049
2003 10,961 10,301
2004 11,686 10,676
2005 12,422 10,990
2006 13,178 11,295
2007 13,808 11,524
2008 14,421 11,712

 

U.S. GDP Percent Change, Year to Year
Year Current $ Real $
2000 5.9 3.7
2001 3.2 .8
2002 3.4 1.6
2003 4.7 2.5
2004 6.6 3.6
2005 6.3 2.9
2006 6.1 2.8
2007 4.8 2.0
2008 3.6 .5

 

[Note to teacher: Click on this link for data on the Level and Growth of Current Dollar GDP and "Real' GDP in the United States from 1929 through 2007.  Click on this link for data on the Percent Change of Current Dollar GDP and "Real" GDP in the United States from 1929 through 2007.]

There are three ways to measure GDP

  • Value-added (or production) approach

Gross Output (gross sales less change in inventories)

  • Less: Intermediate inputs
  • Equals: Value added for each industry

2. Income (by type) approach

Sum of:

  • Compensation
  • Rental income
  • Profits and proprietors’ income
  • Taxes on production & imports
  • Less: Subsidies
  • Interest, miscellaneous payments
  • Depreciation

Equals: Total domestic incomes earned

3. Final demand (or expenditures) approach

Sum of:

  • Consumption of final goods and services by households
  • Investment in plant, equipment, and software
  • Government expenditures on goods and services
  • Net exports of goods and services (exports - imports)

Equals: Final sales of domestic product to purchasers

[Note to teacher: For an excellent description of the meaning and methodology of the National Product and Income Accounts (NIPAs) data, see "Taking the Pulse of the Economy: Measuring GDP ." J. Steven Landefeld, Eugene P. Seskin, and Barbara M. Fraumeni, Journal of Economic Perspectives, Volume 22, Number 2, Spring 2008,Pages 193–216.]

The Business Cycle

"Business cycles" are the regularly occurring fluctuations of economic activity around the long-term growth trend of the economy. A cycle consists of periods of growth (expansion) of output and periods of decline (contraction or recession). The cycle fluctuations are most often measured by changes in real gross domestic product.

The National Bureau of Economics Research (NBER)'s Business Cycle Dating Committee is charged with maintaining records the U.S. business cycles and, when appropriate, identifyiing "oficial" recessions. The committee identifies the dates of expansions, peaks, contractions and and troughs over the cycle. The most recent recession identified by the NBER committee began in March 2001, ending a ten year-long period of economic expansion. Official designation as a "recession" is normally reserved for periods of negative growth lasting at least six months. A recession should not be confused with a period where the rate of growth of the economy is slowing. Growth contributes to the potential peak.

Figure 1 shows the changes in U.S. GDP over the last several years. Note the "cycles " of ups and downs of the growth rate.

 

GDP Figure 1

 

Figure 2 shows the quarterly periods of growth and decline that make up the business cycles. Note the recession of 2001, where growth was negative and the Q3 2008 negative growth.

 

GDP Figure 2

 

 Employment and Real GDP

The level of real GDP that can be produced in a nation with "full employment" is called 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. Of course, the opposite is also true. An increase in unemployment reflects a decrease in GDP. 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.

If this theory is accurate, the recent drop in U.S. real GDP is directly related to the recent increase in unemployment.

Table 3 lists the average annual unemployment rates and GDP growth rates in the U.S. from the year 2000 to year 2007. Do the two rates change in opposite directions as Professor Okun theorized? Does there seem to be a relationship? The time period after the 2001 recession is often referred to as a "jobless recovery," when output increased primarily due to increases in productivity, not higher employment.

 

Table 3: U.S. Unemployment and Real GDP Growth Rates, 2000-2007
Year Unemployment Real GDP Growth Rate Growth Rate Change
2000 4.0 -- 3.7 --
2001 4.7 +.7 .8 -2.9
2002 5.8 +1.1 1.6 +.8
2003 6.0 +.2 2.5 +.9
2004 5.5 -.5 3.6 +1.1
2005 5.1 -.4 2.9 -.7
2006 4.6 -.5 2.8 -.1
2007 4.6 0.00 2.0 -.8
The 2008 unemployment and GDP growth rates (through Q3) seem to support Professor Okun's theory. Unemployment has increased and GDP growth has slowed.

ASSESSMENT ACTIVITY

Essay Question:

1. The Economist.Com article, "Bad, or Worse," summed up the world economic conditions:

"Deprive a person of oxygen and he will turn blue, collapse and eventually die. Deprive economies of credit and a similar process kicks in. As the financial crisis has broadened and intensified, the global economy has begun to suffocate."

Students: The Bloomberg.Com article compared credit to oxygen. Can you think of another analogy to describe the problems of the economy?

[Anders will vary. Some possibilities include a plant without water, an ipod with a low battery, a fire without oxygen, a balloon without air, etc. In each case, the theory is that pumping in more of the missing or restricted element will revive the subject. Many agree that reviving (stimulating) the credit markets will revive (stimulate) the economy.] 

2. On December 1, 2008, the National Bureau of Economic Analysis (NBER) announced that the U.S. was "officially" in a recession and had been since the peak of the business cycle in December 2008. Given all of the recent bad economic news, does it matter if the NBER has now officially called it a "recession"?

[Economists and news reporters have been debating this point for much of the last year. The NBER announcement, "Determination of the December 2007 Peak in Economic Activity " only confirms what many had thought. Some say that the NBER designation of a recession was "old news." Some saw it a confirmation of their predictions. Other may see the NBER announcement as a sign that we have been in a recession and, thus, we are possibly on our way out of one.

This is an opportunity for students to discuss the significance of "official" government reports (often delayed), versus the economic news we hear daily. Maybe the NBER announcement is only import as a symbolic recognition of the reality of the nation's economic problems.]

CONCLUSION

If GDP decreases, it can have a variety of negative impacts on the economy and different groups.

  • Employment opportunities may be reduced.
  • Unemployment may increase
  • The futures of many business firms are in doubt.
  • Real incomes may decrease.
  • Foreign demand for U.S. goods and services may shrink.
  • Possible reduced investment by businesses.
  • Increased pressure on government to spend more.
  • Reduced tax revenues (and increased national debt).

There is evidence that the U.S. downturn in growth is part of a global trend. A November 25 Bloomberg.Com article entitled "German Economy Falls into Recession, Lead by Trade " reported that "Germany’s economy, Europe’s largest, fell into recession in the third quarter after a global credit crunch and the euro’s gain to a record stifled foreign demand."

Many agree that the European economy as a whole is in recession. Japan's GDP decreased by 3 percent in the second quarter. China may not be in a recesson, but it's consistently high rate of GDP growth has slowed.

The Bloomberg.Com article continued, "Europe’s economy fell into its first recession in 15 year(s) in the third quarter, as the global financial crisis is curbing exports and demand. Sentiment among purchasing managers in the 15-nation euro region contracted in November at the fastest pace in at least a decade."

Is the World in a Recession?

The Bloomberg.Com article also added, "The IMF predicted on Nov. 6 that global GDP, the measure of all goods and services, will rise 2.2 percent next year. It defines a world recession as growth of less than 3 percent."

Whether it is a world-wide recession or not, growth has slowed and world economies are experiencing serious probems. The leaders of the world's developed nations are working together to implement measures to jump-start their economies, just as the U.S. has enacted several "stimulus" policies.

An October 9, Economist.Com article, "Bad, or Worse ," summed up the world economic conditions, "Deprive a person of oxygen and he will turn blue, collapse and eventually die. Deprive economies of credit and a similar process kicks in. As the financial crisis has broadened and intensified, the global economy has begun to suffocate. That is why the world’s central banks have been administering emergency measures, including a round of co-ordinated interest-rate cuts on October 8th. With luck they will prevent catastrophe. They are unlikely to avert a global recession."

EXTENSION ACTIVITY

Each year, the BEA releases a report on GDP growth for the individual regions, states and metropolitan areas. Students can access information about their state (or metropolitan area) to compare with other states.

Go to the BEA report "GDP by State," dated June 5, 2008, titled "State Economic Growth Slowed in 2007 ."

Ask your students: What factors do you think differentiate your state or region from other states or regions? Why is your region's output increasing/decreasing more than others?