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: nominal GDP is the value of everything produced, so a rise in it means more output
- 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
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
- 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
- Prices fell about 9 percent, since real GDP fell while nominal GDP rose
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?
- Prices in 1982 were above 2017 prices, so real GDP, which divides them out, is the larger
- Real GDP counts the effects of inflation twice, which doubles its size
- Prices in 1982 were far below 2017 prices, so the same output is worth more at 2017 prices
- Output in 1982 was more than twice the output in 2017, so real GDP is the larger
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?
- One recession: nominal GDP did not fall in any year, so the NBER treats the span as one event
- One recession: real GDP was lower in 1982 than in 1979, so the whole period was a single fall
- Two contractions with a recovery between: real GDP rose in 1981 (7,257 to 7,441)
- 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?
- Nominal GDP rose about 38 percent but real GDP about 5: most of the rise was prices
- Prices rose 38 percent, the same as nominal GDP, since output was unchanged between the years
- Real GDP rose about 38 percent and nominal GDP about 5, so output grew most of the three
- Both rose about 38 percent, since real and nominal GDP move together over time
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
- Right: real GDP fell 1.8 percent from 1981 to 1982, which is the size of the whole recession
- Annual totals blur the swing: the table gives years, not the quarters from peak to trough
- Wrong: the annual fall overstates the recession, since a yearly number averages in the weakest quarter
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.
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?
- Output was unchanged, since nominal GDP was almost unchanged between the two years
- Prices rose enough to hide a fall in output: real GDP in 2009 was about 2.5 percent below 2007
- Nominal GDP is the better guide to the downturn, since it shows the same level as in 2007
- Prices fell about 2.5 percent, which is why real GDP was lower than nominal GDP
Real GDP in 2010 (16,790) was above its 2007 level (16,762). A writer says the economy had fully recovered by 2010. Tala tests the claim. What is the best verdict?
- Output regained its 2007 level, but the cards have no jobs data to show full recovery
- Shown: real GDP above its earlier level means the economy has fully recovered, with no gap left
- Refuted: real GDP in 2010 was below the 2008 level of 16,781, so it had not recovered
- Refuted: nominal GDP in 2010 was just 15,049, much lower than the real GDP figure
From 2009 to 2012 nominal GDP rose from 14,478 to 16,254. A reporter says output grew by that much. Zee corrects it with the real figures. Which reply is best?
- Output grew about 12 percent, since nominal GDP measures how much was produced
- Output grew about 7 percent, and prices did not change, so the two measures agree
- Nominal GDP rose about 12 percent, but real GDP rose about 7 percent, so output grew less
- Output grew about 19 percent, the sum of the nominal and the real rises
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?
- Not shown: real GDP is the total output of the economy, not income per person
- Shown: output is what people earn, so a 2.6 percent fall in output is a 2.6 percent fall in income
- Shown, but just for nominal GDP, which fell 2.0 percent from 2008 to 2009
- Not shown: nominal GDP, not real GDP, measures what people earn, and it rose in 2010
