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Gross Domestic Product, Fourth Quarter

EconEye Admin

Real gross domestic product increased at an annual rate of 2.9 percent in the fourth quarter of 2022. The increase in real GDP reflected increases in investment, consumer spending, and government spending, that were partly offset by decreases in exports. Imports decreased. Current‑dollar GDP increased 6.5 percent at an annual rate.—bea.gov

Answer the following questions to check your understanding of the story.

What is relationship between GDP (Y) and investment (I), consumer spending (C), government spending (G), exports (X), and imports (M), all valued in base year prices?

Wrong! - If GDP is measured as aggregate expenditure, what is the relationship between GDP (Y) and investment (I), consumer spending (C), government spending (G), exports (X), and imports (M)?

Well Done! -

  1. GDP is the market value of the final goods and services produced within a country in a given time period. GDP can be measured as total expenditure on the goods and services, or total income earned producing goods and services. When measured as total expenditure, Y = C + I + G + X – M.

What does the news clip tell us about the inflation rate in the fourth quarter of 2022?

The data in the news clip tell us that as measured by the ____________, the inflation rate was ____________ percent.

Wrong! - The GDP deflator is an index of the prices of all the items included in GDP. What is the formula for the GDP deflator? Can we use the formula for the GDP deflator to calculate the inflation rate? Does the news clip give us the data needed to perform this calculation?

What is the CPI? Does the news clip give data that allows the calculation of the inflation rate measured by the CPI?

Correct! - The GDP deflator is an index of the prices of all the items included in GDP. GDP deflator = (Nominal GDP ÷ Real GDP) × 100, so inflation measured by the GDP deflator is Nominal GDP growth – Real GDP growth. With nominal (current-dollar) GDP growth of 6.5 percent and real GDP growth of 2.9 percent, inflation measured by the GDP deflator is 6.5 percent – 2.9 percent = 3.6 percent.

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