GDP, real vs nominal, and the business cycle
Grade 12 Social Studies Worksheet - Challenge Me
Circle the best answer.
Read this first
U.S. GDP, 1979 to 1983
Year Nominal GDP (billions of dollars) Real GDP (billions of 2017 dollars) 1979 2,627 7,276 1980 2,857 7,257 1981 3,207 7,441 1982 3,344 7,307 1983 3,634 7,642 Note: BEA, gross domestic product, annual, as listed by FRED (series GDPA, nominal; GDPCA, real in chained 2017 dollars), retrieved Nov 14, 2026; billions of dollars. Card B (in our words): The GDP price index is nominal GDP divided by real GDP, times 100. Card C (NBER): The NBER dated two contractions in these years, from January 1980 to July 1980 and from July 1981 to November 1982. Card D: The data are annual totals; they do not show quarters.
Nominal GDP rose every year from 1979 to 1983. Pia says that means the economy grew every year. Which reply is best supported?
- Yes: real GDP rose in 1980 and 1982, since it is deflated by the rising price index
- No: real GDP fell in 1980 and 1982 while nominal GDP rose, since prices rose faster
- No: nominal GDP cannot measure growth, since it is distorted by price changes in many years
- Yes: nominal GDP is the value of everything produced, so a rise in it means more output
In 1980 nominal GDP rose about 9 percent while real GDP fell slightly. Bo asks what the 1980 rise was made of. Which statement fits?
- Half was output and half was prices, since each has a share in nominal growth
- Prices fell about 9 percent, since real GDP fell while nominal GDP rose
- Almost all of it was prices: the price index rose from 36.1 to 39.4, about 9 percent
- Output grew about 9 percent, since nominal GDP rose by that much
In 1982 nominal GDP was 3,344 but real GDP was 7,307, more than twice as large. Esme asks why. Which reason fits card B?
- Real GDP counts the effects of inflation twice, which doubles its size
- Output in 1982 was more than twice the output in 2017, so real GDP is the larger
- Prices in 1982 were above 2017 prices, so real GDP, which divides them out, is the larger
- Prices in 1982 were far below 2017 prices, so the same output is worth more at 2017 prices
A student says there was one long recession from 1980 to 1982. Jun tests it with card C and the table. What is the best reply?
- Two contractions with a recovery between: real GDP rose in 1981 (7,257 to 7,441)
- One recession: real GDP was lower in 1982 than in 1979, so the whole period was a single fall
- One recession: nominal GDP did not fall in any year, so the NBER treats the span as one event
- Two recessions, but real GDP fell in each of the three years 1980, 1981 and 1982
Kira compares 1979 with 1983. Which statement about the four years is best supported?
- Real GDP rose about 38 percent and nominal GDP about 5, so output grew most of the three
- Prices rose 38 percent, the same as nominal GDP, since output was unchanged between the years
- Both rose about 38 percent, since real and nominal GDP move together over time
- Nominal GDP rose about 38 percent but real GDP about 5: most of the rise was prices
A commentator says the 1982 recession cut output by 1.8 percent. Luz reads card D. Which statement is best supported?
- Wrong: nominal GDP rose in 1982, so output could not have fallen
- Wrong: the annual fall overstates the recession, since a yearly number averages in the weakest quarter
- Annual totals blur the swing: the table gives years, not the quarters from peak to trough
- Right: real GDP fell 1.8 percent from 1981 to 1982, which is the size of the whole recession
U.S. GDP, 2006 to 2012
Year Nominal GDP (billions of dollars) Real GDP (billions of 2017 dollars) 2006 13,816 16,433 2007 14,474 16,762 2008 14,770 16,781 2009 14,478 16,349 2010 15,049 16,790 2011 15,600 17,052 2012 16,254 17,443 Note: BEA, gross domestic product, annual, as listed by FRED (series GDPA, nominal; GDPCA, real in chained 2017 dollars), retrieved Nov 14, 2026; billions of dollars. Card B (NBER): The NBER dated a contraction from December 2007 to June 2009. Card C (in our words): Real GDP is the total output of the whole economy valued at 2017 prices. It is not income per person.
Real GDP rose from 16,762 in 2007 to 16,781 in 2008, but card B dates a contraction from December 2007. Milo asks if these conflict. What is the best reply?
- No: the 2008 rise in real GDP was inflation, which hid the fall in output
- Yes: the NBER dating is wrong, since real GDP rose in 2008
- Yes: the contraction began in 2009, since 2009 holds the first fall in real GDP
- No: a yearly total can edge up while output falls within the year
In 2009 nominal GDP was 14,478, nearly equal to 2007's 14,474, but real GDP was lower. Noah asks what that shows. Which statement fits?
- Nominal GDP is the better guide to the downturn, since it shows the same level as in 2007
- Output was unchanged, since nominal GDP was almost unchanged between the two years
- Prices fell about 2.5 percent, which is why real GDP was lower than nominal GDP
- Prices rose enough to hide a fall in output: real GDP in 2009 was about 2.5 percent below 2007
Ren compares the 2008 to 2009 change in real GDP with the 2006 to 2007 change. Which statement is best supported?
- The two changes were equal, since real GDP fell in 2009 by the amount it rose in 2007
- The fall was about 432 percent, since real GDP dropped by 432 billion dollars
- The rise from 2006 to 2007 (about 2.6 percent) was larger than the fall from 2008 to 2009
- The 2008 to 2009 fall (about 2.6 percent) beat the 2006 to 2007 rise (about 2.0)
A student says real GDP fell 2.6 percent in 2009, so people were 2.6 percent poorer. Ari tests the claim with card C. What is the best reply?
- Shown: output is what people earn, so a 2.6 percent fall in output is a 2.6 percent fall in income
- Not shown: real GDP is the total output of the economy, not income per person
- Not shown: nominal GDP, not real GDP, measures what people earn, and it rose in 2010
- Shown, but just for nominal GDP, which fell 2.0 percent from 2008 to 2009