GDP, real vs nominal, and the business cycle

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   A two-good economy in two years (made up)

   Good	Price, year 1	Quantity, year 1	Price, year 2	Quantity, year 2
   Phones	$100	10	$60	20
   Bread	$2.00	500	$2.20	520

   Note: The economy and its prices are made up. Card A: Nominal GDP values output at each year's own prices. Real GDP values output at the prices of one base year, so it changes only when quantities change. Card B (in our words): BEA's chained dollars average the growth found with the first year's prices and with the second year's prices, so no single base year decides the result. Card C: A price index compares what a fixed basket of goods costs in two years.

2. 1.

   At second-year prices, real growth is about 38 percent, not 52. Bo asks why the base year changes the answer. Which reason fits card A?

   • Just one of the two can be right, since real GDP has a single true growth rate
   • One figure counts quantities and the other counts prices, which is why they differ
   • The gap comes from bread, whose price rose 10 percent and counts more at second-year prices
   • Phones, the fast-growing good, get a higher price weight in the first year than in the second
3. 2.

   Phone prices fell from $100 to $60 and bread rose from $2.00 to $2.20. Jun asks how prices changed overall. Which statement is best supported?

   • Prices fell 40 percent, since a price index follows the single biggest price change
   • Prices rose 10 percent, because bread went from $2.00 to $2.20 and bread sells in the larger quantity
   • Prices rose 17 percent, the rise in nominal GDP between the two years, since nominal GDP moves with prices
   • They fell: 15 percent on first-year quantities and about 23 percent on second-year quantities
4. 3.

   Kira asks which base year makes real growth look larger and why. Which answer fits the chart and card A?

   • Neither: real growth does not depend on prices, just on how many units were made
   • First year: bread output rose in the same year, so first-year prices give the larger growth
   • Second year: the latest prices are the most accurate, which gives the larger growth
   • First year: phones cost most then, so their doubling counts more (52 percent, not 38)
5. 4.

   A reporter says real growth of about 45 percent means people could buy 45 percent more. Luz tests the claim. What is the best reply?

   • Shown: output is what people consume, so 45 percent more output is 45 percent more to buy
   • Shown for phones, but not for bread, since bread grew by just 4 percent
   • Not shown: real GDP measures total output, and the table has no incomes or who buys it
   • Not shown: real growth of 45 percent already counts the price changes, so it cannot be used

6. Three U.S. contractions and the expansions after them

   Peak	Trough	Contraction (months)	Expansion that followed (months)
   November 1973	March 1975	16	58
   July 1990	March 1991	8	120
   March 2001	November 2001	8	73

   Note: NBER, U.S. Business Cycle Expansions and Contractions, retrieved Nov 14, 2026. The chart lists three of the eight contractions between December 1969 and April 2020. A contraction runs from a peak to the next trough; an expansion runs from a trough to the next peak. Card B (in our words): The NBER's Business Cycle Dating Committee looks at real GDP, real income, employment, industrial production and sales. It does not use a fixed rule such as two quarters of falling GDP. BEA revises its GDP estimates as more data arrive.

7. 5.

   Milo writes one claim comparing each contraction on the chart with the expansion that followed. Which claim is best supported?

   • The 1973 contraction, at 16 months, was followed by the longest expansion on the chart
   • Expansions lasted 120 months on average, the length of the one that followed July 1990
   • Contractions have been getting shorter since 1973, so the next one will be shorter still
   • Each expansion (58, 120, 73 months) far outlasted the contraction before it (16, 8, 8)
8. 6.

   Noah averages the lengths on the chart. Which statement is correct?

   • Contractions averaged 32 months, the total of the three, and expansions about 84
   • Contractions averaged about 10.7 months and expansions about 251, the total of the three
   • Contractions averaged about 10.7 months; the three expansions averaged about 84
   • Contractions averaged about 84 months and expansions about 10.7, since contractions feel longer
9. 7.

   A writer says the economy is in recession about a quarter of the time. Ren tests it with the chart. What is the best verdict?

   • Not supported: 32 months of contraction out of about 336 is just about 10 percent
   • Not testable here: the chart lists only three of the eight contractions, so it undercounts
   • Not testable: GDP is revised, so no claim about months in contraction can be checked
   • Supported: contractions lasted 32 months against 251 of expansion on the chart, roughly a quarter
10. 8.

    A student says a recession needs at least a year of falling output. Tala tests the claim with the chart. What is the best reply?

    • Not the NBER's test: two of its listed contractions lasted 8 months, under a year
    • Right: the longest contraction lasted 16 months, so a year is the usual minimum
    • Right: the NBER requires twelve months and counted the 8-month cases because output fell so far
    • Wrong: the NBER counts any fall in real GDP in a single quarter as a recession
11. 9.

    A student says GDP alone should date the business cycle. Zee asks why the NBER also uses income, jobs, production and sales. Which reason fits card B?

    • No measure is final: BEA revises GDP, so the committee checks other data too
    • Jobs data replace GDP, because employment and output are the same thing in the end
    • GDP alone is enough, since it adds up the output of the economy and so covers the others
    • The committee distrusts GDP, so it ignores GDP and uses the other four measures
12. 10.

    A writer says long expansions cause recessions, since the 120-month expansion ended in a contraction. Ari tests the claim with the chart. What is the best verdict?

    • Refuted: the 73-month expansion was shorter and also ended in a recession
    • Shown in reverse: long expansions follow short contractions, so recessions cause long expansions
    • Shown: the longest expansion ended in a recession, so length must cause recessions
    • Not shown: the chart gives lengths and dates, not causes, so one long expansion shows nothing