Exercise on Nominal vs. Real GDP

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Introduction

This exercise deals with the difference between nominal and real GDP, and also explores the characteristics of the components of GDP over time.

Instructions

– Go to BEA.gov and in the U.S. Economic Accounts find Table 1.1.5 (nominal GDP) and Table 1.1.6 (real GDP) and download them for the period 1960 to the latest available year in annual frequency (yearly).

– What is the base year in table 1.1.6? (25 points)

– In Excel plot line 1 of both tables within a single graph. Where do they cross? Explain what is the relationship between real and nominal GDP before and after the crossing point? Why? (25 points)

– In Excel, using the formula “=ln( )” take the natural log of real GDP (line 1) and plot the change in GDP from one year to the next measured by ln(GDP(t)) – ln(GDP(t-1)). (If you multiply by 100, it will be a percentage.) (25 points)

– In Excel using nominal GDP (table 1.1.5) calculate and plot the GDP shares of Consumption (line 2), Investment (line 7), Government (line 22), and Net Exports (line 15). For example, the consumption share is C/Y or line 2 / line 1. (25 points)

All the charts should have a title and have the axis labeled (with time in the x-axis, and the label of the variable(s) and units in the y-axis).