Between the years of 1991 and 2011, the nominal GDP in America increased from $5.9 trillion to $15 trillion. What conclusions can we draw about America’s economy during this 20 year time span?

Real GDP• GDP that is adjusted to remove the changes caused by

inflation– Example• 2011 nominal GDP (with inflation) = $15 trillion• 1991 nominal GDP = $5.9 trillion

– Difference of nearly $10 trillion• 2011 Real GDP (inflation taken out) = $13.29 trillion• 1991 Real GDP = $8 trillion

– Difference of only $5 trillion

• Changes in Real GDP give us a more accurate picture of how the economy is doing (compared to nominal)

The Business Cycle

Economic Growth and Decline

Business Cycle

• Repeating phases in the economy as a result of changes in real GDP over time

Expansion

• Real GDP grows– Jobs are being created– People are spending money

Peak

• Real GDP stops growing• Cause for concern

Recession (contraction)

• A decline in real GDP for two quarters or more– Jobs lost– Spending slows

Trough

• Real GDP stops declining– Recovery is on the way!

Real GDP per Capita

• Real GDP per capita– Dollar amount of real GDP produced per person– More accurately represents the wealth of our country

• Real GDP usually grows as the population grows– Why?– Important question: Which one grows faster? Real

GDP or the population?• Real GDP = more goods and services per person (we are

becoming wealthier)• Population = less goods and services per person (we are

becoming poorer)

Quick Review1. How is real GDP different from nominal GDP

(The GDP we learned about earlier this week)?

2. What is happening to the real GDP at the peak?

3. What measures the amount of goods and services being produced per person

Inflation is taken out

Stopped growing

Real GDP per capita