Question

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).

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 Belpercentage.) (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)

Explain the relationship between national saving and net exports. (25 points)

(The chart is posted under Principal Federal Economic Indicators-GDP-Interactive data on bea.gov home page)

Answer 1

The nominal GDP is the value of goods and services produced within an economy in a country during a particular period of time. The real GDP is nominal GDP adjusted for a common price level.

Figure 1

The real and nominal GDP crosses each other at the base year. because real GDP is expressed in base year price, the real GDP is equal to nominal GDP at the base year. In this case, the real GP is calculated in chained 2012 prices, then the real GDP crosses nominal GDP at the year 2012.

The nominal GDP is lower than real GDP before 2012 and it is higher after 2012. This is because, as inflation is positive mainly, year after year the price rises from one year to another. Therefore, when nominal GDP is adjusted to base year prices, it increases prior to 2012, because 2012 has higher prices than 1960 to 2011. The opposite is true for the years after 2012. As price continues to rise, the nominal GDP when adjusted for higher prices rose above real GDP after 2012.

Figure 2

Table 3

Year	C/Y	I/Y	NX/Y	G/Y
1960	0.610619	0.159476	0.007743	0.222161
1961	0.607435	0.154038	0.008716	0.229811
1962	0.600431	0.160623	0.006789	0.232323
1963	0.599216	0.162039	0.007686	0.230902
1964	0.599854	0.163915	0.01008	0.22615
1965	0.596794	0.174592	0.007544	0.22107
1966	0.589993	0.177281	0.004795	0.227932
1967	0.589186	0.16593	0.004186	0.240698
1968	0.592006	0.166791	0.001488	0.239715
1969	0.59316	0.170597	0.001376	0.234866
1970	0.602534	0.15839	0.003634	0.235349
1971	0.600824	0.168942	0.000515	0.229633
1972	0.600579	0.178329	-0.00266	0.223751
1973	0.596043	0.187246	0.002876	0.213835
1974	0.601993	0.177647	-0.00052	0.220942
1975	0.611609	0.152709	0.009496	0.226186
1976	0.612629	0.172521	-0.00085	0.215757
1977	0.61197	0.190508	-0.0111	0.208618
1978	0.604822	0.203436	-0.0108	0.202543
1979	0.603433	0.20542	-0.00856	0.199749
1980	0.612711	0.185525	-0.00458	0.206349
1981	0.603056	0.196819	-0.0039	0.204054
1982	0.619445	0.173754	-0.00598	0.212782
1983	0.627848	0.175427	-0.0142	0.210952
1984	0.617273	0.203116	-0.02544	0.205048
1985	0.625213	0.191219	-0.02627	0.209841
1986	0.630252	0.185409	-0.0288	0.213141
1987	0.633609	0.183762	-0.02982	0.212453
1988	0.635933	0.17894	-0.02089	0.206038
1989	0.634005	0.177202	-0.01537	0.20418
1990	0.638762	0.166591	-0.01306	0.207711
1991	0.64036	0.153343	-0.00464	0.210942
1992	0.643774	0.155361	-0.00532	0.206202
1993	0.649112	0.161374	-0.00951	0.199006
1994	0.647848	0.172426	-0.01269	0.192433
1995	0.64958	0.172454	-0.01175	0.189719
1996	0.649639	0.177392	-0.01194	0.18491
1997	0.645495	0.186019	-0.01189	0.180365
1998	0.648497	0.19163	-0.01795	0.177826
1999	0.651988	0.195946	-0.02656	0.178637
2000	0.659569	0.198824	-0.03659	0.178184
2001	0.667712	0.182842	-0.03477	0.184213
2002	0.6714	0.176511	-0.0389	0.190986
2003	0.674024	0.176913	-0.04391	0.19298
2004	0.672417	0.186782	-0.05069	0.191498
2005	0.670965	0.19443	-0.05532	0.189927
2006	0.670327	0.195518	-0.0558	0.189958
2007	0.671635	0.184958	-0.04971	0.19311
2008	0.678069	0.168398	-0.04915	0.202681
2009	0.681173	0.133553	-0.02744	0.212715
2010	0.679411	0.144443	-0.03428	0.210417
2011	0.684641	0.150078	-0.03728	0.202566
2012	0.679558	0.161869	-0.03511	0.193678
2013	0.674249	0.168366	-0.02924	0.18662
2014	0.67482	0.173436	-0.02901	0.180747
2015	0.674806	0.176297	-0.02862	0.177515
2016	0.682459	0.169448	-0.02783	0.175922
2017	0.683661	0.172847	-0.02968	0.173176
2018	0.680546	0.178151	-0.03052	0.171824

Figure 3

The national savings of the economy is the sum of private and public savings. This is given as