Using State-Level Data to Study Nominal and Real GDP, Part 1—GDP Deflators and Inflation Rates
and is replicated here as part of the SERC Pedagogic Service.
In this activity, students collect state-level data on nominal and real GDP. The data are then used to calculate GDP deflators and inflation rates over time.
This is one of several activities in which students use publicly available internet sources from the St. Louis Federal Reserve Bank's, Federal Reserve Economic Data (FRED) to collect and analyze macroeconomic data at the state level.
After completing this assignment, students will be able to
- Access nominal and real GDP at the state level through the FRED website.
- Present data collected from the internet in tables and graphs
- Use the state-level data to calculate GDP deflators and inflation rates for each year in a time series.
- Write a analysis of the state macro economy's recent history of inflation or deflation.
-Compare and contrast state-level inflation rates with national inflation rates.
Context for Use
This activity can easily be adapted to upper-division courses in intermediate macroeconomics or regional economics by expanding the complexity of the calculations required or the depth of the written analysis. Nominal and real GDP data can be accessed at city, county or MSA levels for use in urban economics coursework or for other countries in development or international economics coursework.
Description and Teaching Materials
Also attached is an Excel file, "New Mexico example spreadsheet with Nominal and Real GDP." This spreadsheet gives the data for New Mexico accessed from the FRED website (http://research.stlouisfed.org/fred2/) with assignments that including graphs, formulas, and brief discussions.
Using State-Level Data to Study Inflation Activity Instructions (Microsoft Word 2007 (.docx) 17kB Jul17 13)
New Mexico example spreadsheet with nominal and real GDP (Excel 2007 (.xlsx) 24kB Jul17 13)
Teaching Notes and Tips
States can be assigned to students in several ways. In smaller classes (less than 50 students), each student can be assigned a separate state to study. In larger classes, groups of two or three students can be assigned the same state and can do the assignments individually or in groups.
I often let students pick the state they want to study through an online discussion board (e.g. in Blackboard). Students must post the name of the state in the subject line and make sure that no one else has already picked the same state. I also have them pick the state and include the name of the governor, the state capital and the largest city or cities.
Accessing the Data
The state level data can be accessed through several different paths on the FRED website. Students can be given exact instructions or the data can be collected as part of a "Scavenger Hunt" in which students are told what to find and then explore the website themselves in search of the correct series.
Please note, the state-level data are only available in a consistent series from 1997 to present.
Within FRED, state-level nominal and real GDP time series are available online and can also be easily downloaded in Excel files.
Graphing the Data
There are also many options for graphing the data in Excel. Graphs for each time series are created automatically in FRED. These can be copied and pasted into student assignments in Excel or Word. FRED also has options for creating new graphs online than can be tailored to fit a wide range of characteristics, such as exact dates, units of measurement (i.e. quarterly or annual data).
If instructors would like to also emphasize graphing skills in Excel, all data available on FRED can be easily downloaded into Excel files.
Graphical Presentation of the Data
Often students will be quite creative in constructing graphs in Excel, using the state flag as a background or state colors.
For freshman who might not have experience working in Excel, sometimes I will give them the example spreadsheet with the data for a specific state and then have them replace only the data from their assigned states. In this case, the graph changes automatically and students just have to change the names of the states.
Variable Levels of Complexity
Once the data are in place, there are many ways they can be used by the students to use nominal and real GDP to study inflation. Examples of some possible assignments are given in the attached Excel file that uses data from the state of New Mexico.
Analysis of the Nominal and Real GDP Graph
Students can look at the graph and describe how the fact that real GDP is above nominal GDP up until the base year and then below nominal GDP afterwards, indicates that the state economy has experienced inflation over time.
In the New Mexico example discussions, I've calculated percent growth in both nominal and real GDP, which can lead to a discussion of why the two series are so different.
Numerical Calculations of GDP Deflators and Inflation Rates
The general formulas used are in the step-by-step instructions. The formulas used in Excel are still in the example file.
Students can also collect the nominal and real GDP for the U.S. as a whole and compare trends in inflation or average inflation rates in the U.S. to the state.
Instructors could also turn this activity into a cooperative learning activity. Each cooperative learning group of students could be assigned a different region to study, such as the BEA regions or the BLS regions. Each student in the group could be assigned a different state and would calculate GDP deflators and inflation rates over time. The group could then do multistate comparisons and discuss why inflations rates might vary from state to state.
Quizzes or exams can be used to follow-up the activity with questions about how GDP deflators and inflation rates are calculated and why inflation rates might vary over time and from state-to-state. Students could be asked to explain why national inflation rates, as averages, do not account for variability across states.
In online quizzes or exams, questions can be individualized by asking students to provide data and analysis of data that are specific to their assigned state.
References and Resources
Here are some useful links to FRED: