GDP, real vs nominal, and the business cycle

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   U.S. GDP, 2019 to 2025

   Year	Nominal GDP (trillions of dollars)	Real GDP (trillions of 2017 dollars)
   2019	21.54	20.72
   2020	21.38	20.28
   2021	23.75	21.56
   2022	26.06	22.08
   2023	27.83	22.72
   2024	29.38	23.39
   2025	30.86	23.94

   Note: BEA, gross domestic product, annual, as listed by FRED (series GDPA for nominal and GDPCA for real, in chained 2017 dollars), retrieved Nov 14, 2026; trillions of dollars. Card A: Nominal GDP values each year's output at that year's prices. Real GDP values output at 2017 prices, so it changes only when output changes; in 2017 itself the two were equal, 19.61. The GDP price index is nominal GDP divided by real GDP, times 100. Card B (in our words): The NBER dates peaks and troughs of the business cycle. It dated a peak in February 2020 and a trough in April 2020, and judged that two-month fall a recession because it was deep and spread across the economy. A contraction runs from a peak to a trough, and an expansion runs from a trough to the next peak.

2. 1.

   In 2017 nominal and real GDP were both 19.61 trillion. Esme asks why. Which reason fits card A?

   • Real GDP values output at 2017 prices, so in 2017 itself the two measures agree
   • Prices did not change in 2017, so real and nominal GDP agree for that one year
   • Real GDP starts at 2017 because that was the first year BEA measured the economy
   • Nominal GDP values output at 2017 prices, so in 2017 it equals real GDP
3. 2.

   In 2022 nominal GDP grew 9.7 percent and real GDP 2.4. Jun asks what that says about prices that year. Which statement fits?

   • Prices rose about 7 percent: the GDP price index went from 110.2 to 118.0
   • Prices rose about 12 percent, the sum of the 9.7 percent and the 2.4 percent
   • Prices fell about 7 percent, since real growth was below nominal growth that year
   • Prices rose 9.7 percent, the same as nominal growth, because nominal GDP follows prices
4. 3.

   A headline says GDP was up 21 percent from 2019 to 2022. Kira checks the table. Which reply is best?

   • Nominal GDP was up 21 percent, but real GDP, which removes price changes, rose about 7 percent
   • The headline is right about output, since nominal GDP counts everything that was produced
   • The headline is wrong, since GDP cannot rise 21 percent in three years
   • Real GDP was up 21 percent too, since GDP is one number and the two tables agree
5. 4.

   Real GDP fell in 2020. Luz asks when it first got back above its 2019 level. Which answer fits the table?

   • 2020, because nominal GDP fell by less than real GDP and so counted as recovered
   • 2021: real GDP of 21.56 was above 2019's 20.72
   • 2022, the first year real GDP grew by more than 2 percent after the fall
   • 2021, but just in nominal terms, since real GDP of 21.56 was below nominal GDP of 23.75
6. 5.

   Real GDP fell 2.1 percent in 2020, yet card B says the contraction lasted two months. Milo asks how both can be true. Which fits?

   • A deep fall over two months can pull the year's total below the year before
   • One of them must be wrong, since a two-month fall cannot show up in a year of data
   • The year's real GDP fell because prices rose, not because output fell
   • The annual fall shows the contraction really lasted twelve months, not two
7. 6.

   Noah asks why the NBER called a two-month fall a recession. Which reason fits card B?

   • The year 2020 as a whole had lower real GDP, which makes the whole year a recession
   • It judged the fall deep and spread across the economy, so length was not the test
   • Nominal GDP fell that year, and any fall in nominal GDP counts as a recession
   • Real GDP fell for two quarters in a row, which is the NBER's test for a recession
8. 7.

   The NBER dated a trough in April 2020. Ren asks what a trough means and what phase follows it. Which answer fits card B?

   • A trough is the low point where the fall ends; an expansion follows it
   • A trough means the economy has fully recovered, so no phase follows it
   • A trough is the start of a contraction, which ends at the next peak
   • A trough is the high point of output, and a contraction follows it
9. 8.

   Tala writes one claim from the table. Which claim does it support best?

   • Real GDP fell in 2022 and 2023, because those were the years of the fastest price rises
   • Families were 16 percent better off in 2025, since output rose 16 percent
   • The economy grew 43 percent from 2019 to 2025, the rise in nominal GDP
   • Real GDP was higher in 2025 than in any earlier year shown, up about 16 percent
10. 9.

    A student says prices fell in 2020, since nominal GDP fell. Zee tests the claim with card A. What is the best reply?

    • Yes: nominal GDP is the average level of prices, so a fall in it is a fall in prices
    • No: the price index rose from 104.0 to 105.4; output fell, and nominal GDP fell with it
    • No: nominal GDP cannot show anything about prices, since the table has no price figures
    • Yes: real GDP fell more than nominal GDP, which can happen when prices fall
11. 10.

    A reporter writes that the economy grew 5.0 percent in 2025, using nominal GDP. Ari suggests a better measure. Which is it?

    • Real growth, about 3.4 percent, because 23.94 minus 23.39 is 0.55 and prices are 5.0
    • Real growth, about 2.4 percent (23.94 over 23.39), because it removes the rise in prices
    • Neither measure is usable, because both nominal and real GDP are revised later
    • Nominal growth is the better measure, since it counts the full dollar value of output