Real GDP in the Real World

 Description Note: You must post before you can see anyone else’s reply. Comment on at least one other student’s reply; make sure it’s someone who did not pick the same country as you. We have begun our exploration of the macroeconomic statistics that describe total output (and the business cycle), unemployment, and inflation in our economy. Over the last decade, we have seen significant variation in output and employment due to the “Great Recession” of 2008 and the recovery that has followed. In this assignment, we will use interactive maps on the internet to visualize these variations and see if we can identify any relationships between changes in output and changes in employment. We are going to start by looking at growth rates of real GDP. Use this link to access * the International Monetary Fund’s Data Mapper (Links to an external site.). There is a bar at the top of the page that states “Datasets”. Click on Datasets, then select “World Economic Outlook” on the upper left part of the screen. On the World Economic Outlook page, scroll down and select “Gross Domestic Product”, then select “Real GDP Growth” on the page that pops up. You will now be taken to a page that will give you the data on GDP growth rates for different countries and groups of countries. On the GDP growth rates page, you will see 4 panels. On the upper right panel, scroll down and select the United States so that you will be able to see its GDP growth rates over time. You should see the United States added to the lower right panel. You may want to deselect everything else there for simplicity (just click on the little circles with an “x” for countries/regions you want to remove). Now in the lower left panel, drag “year slider” to the left, and notice that the number next to United States in the right lower panel is changing. This number is the value for the real GDP growth rate for the year currently selected. Please write down the annual rates of real GDP growth for the United States for the years 2007, 2008, 2009, 2010, and 2011. Next, we will look at changes in the unemployment rate over this same time period. We can make this change by going back to the “World Economic Outlook” data set, and selecting the “People” subject, then “Unemployment Rate”. You will then be taken back to the “data mapper” page you were on when we looked at real GDP growth rates, but now you have data on the unemployment rate. Please use the same approach described above, and write down the unemployment rates for the United States for the years 2007, 2008, 2009, 2010, and 2011. Do this for another country of your choice other than the United States. Choose a country for which data is available. For your Discussion Board assignment, do the following: In your response to this Discussion Board topic, make a table displaying the data you have gathered. Do this by table icon ( ) you see once you hit reply. Provide a brief write-up comparing the data on GDP growth rates and unemployment you have gathered for the years in question. What phase of the business cycle was each country in during 2009 — an economic expansion (growth in real GDP) or a recession (decrease in real GDP, meaning, negative growth)? Looking at the Data Mapper timeline, for about how long did each country experience this? Unemployment is something economists call a lagging indicator, which means that it lags behind changes in productivity (it responds after the business cycle changes: firms wait to hire and fire people until they are sure they need to). Focusing on the U.S. data, do you notice a relationship between the GDP growth rates and the unemployment rate? Hint: you should. What is the relationship? Do you think there is a causal (not casual!) relationship between these variables? If so, please explain exactly how the mechanism of causality works. In other words, why does a change in one variable cause the change in the other? Side note: Sometimes students search the internet about this topic and mention Okun’s Law in their discussion, but notice that it is a statement about correlation, not causation, and so should have no bearing on your discussion here. Here’s a short clip to help you understand the difference between causation and correlation (Links to an external site.).