Question

What is the current real GDP growth rate, unemployment rate, and CPI inflation rate for the US economy? What are these numbers telling us? How do they compare to past values? Why are the values what they are? In the future, how does one expect them to change?
Analyze the patterns related to this data and explain how the US economy is doing. Cite two trustworthy articles to support your case.

Answer 1

Gross domestic product (GDP) represents the total output of goods and services. However, as GDP rises and falls, the metric doesn't factor the impact of inflation or rising prices into its results. The GDP price deflator addresses this by showing the effect of price changes on GDP, first by establishing a base year and, secondly, by comparing current prices to prices in the base year.

Simply put, the GDP price deflator shows how much a change in GDP relies on changes in the price level. It expresses the extent of price level changes, or inflation, within the economy by tracking the prices paid by businesses, the government, and consumers.

Typically GDP, expressed as nominal GDP, shows the total output of the country in whole dollar terms. Before we explore the GDP price deflator, we must first review how prices can impact the GDP figures from one year to another.

For instance, let's say the U.S. produced $10 million worth of goods and services in year one. In year two, the output or GDP then increased to $12 million. On the surface, it would appear that total output grew by 20% year-on-year. However, if prices rose by 10% from year one to year two, the $12 million GDP figure would be inflated when compared to year one.

In reality, the economy only grew by 10% from year one to year two, when considering the impact of inflation. The GDP measure that takes inflation into consideration is called the real GDP. So, in the example above, the nominal GDP for year two would be $12 million, while real GDP would be $11 million.