Ch 9 (Part II) Real GDP, Economic Growth, and Wellbeing: Key Concepts and Data Analysis

Real GDP

Real GDP measures the value of all final goods and services produced within a country, adjusted for inflation.

Nominal GDP

Measures value of goods/services at current market prices.

Economic Growth

Economic Growth = Percentage change in Real GDP.

Recession

A recession occurs when there are two consecutive quarters (6 months) of negative economic growth (falling Real GDP).

Business Cycle

The Business Cycle consists of phases including Expansion, Peak, Contraction, Recession, Trough, and Recovery.

Growth Rate

Indicates how fast an economy is improving or slowing down.

Strong Growth Rate

Over 3%.

Acceptable Growth Rate

2.5-3%.

Weak Growth Rate

2-2.5%.

Sick Growth Rate

0-2%.

Horrible Growth Rate

Below 0% (recession).

Inflation vs. Growth

High growth does not cause inflation; inflation is caused by an increase in the money supply, not by higher production.

Base Year

The base year choice doesn't affect the growth rate of Real GDP—just the number itself.

Expansion Phase

Real GDP increases.

Peak Phase

Temporary high point of Real GDP.

Contraction Phase

Real GDP falls (economic decline).

Trough Phase

Temporary low point before recovery.

Recovery Phase

Real GDP begins to rise again.

Economic Performance Comparison

Real GDP is used to analyze economic growth and Nominal GDP for current dollar comparisons.

Historical Recession Pattern

The U.S. spends about 9% of the time in recession and 91% growing.

COVID-19 GDP Decline

GDP decline of -5.1% then -35.75%, followed by a +30.17% rebound.

Per Capita GDP

Per Capita GDP = GDP ÷ Population. Measures average economic output per person, often used to compare living standards across countries.

Real Per Capita GDP

Adjusts for inflation → shows growth in well-being over time.

Immigration and Per Capita GDP

Immigration may lower average Per Capita GDP but does not reduce overall well-being — similar to how adding a child to an elevator full of adults lowers the average weight, not the actual health of anyone.

Per Capita GDP Data

The U.S. has the highest per capita GDP among major industrialized countries.

Per Capita GDP of the United States

$81,985

Per Capita GDP of Germany

$69,338

Per Capita GDP of Australia

$69,114

Per Capita GDP of Canada

$61,582

Per Capita GDP of France

$61,156

Per Capita GDP of the UK

$58,906

Per Capita GDP of Italy

$58,754

Per Capita GDP of Japan

$50,206

Per Capita GDP of Russia

$44,103

Per Capita GDP of Chile

$33,284

Per Capita GDP of Mexico

$25,601

Per Capita GDP of China

$24,557

Per Capita GDP of India

$10,175

Per Capita GDP of Afghanistan

$2,093

Economic Freedom and Wellbeing

Higher economic freedom → higher income levels and growth.

Index of Economic Freedom (IEF)

Tracks how free or regulated economies are.

BEA Data

The BEA compiles official GDP data for the U.S.

Economic Freedom

Strong link to higher incomes and growth.