Economic Growth and Business Cycles: Using Data to Illustrate the Economic History of the US

Kathleen E. Odell, Dominican University
Author Profile
This material was originally created for Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.

Summary

This Excel-based homework activity gives students the opportunity to work with real-world data to gain a deeper understanding of the ways in which economists use GDP, economic growth, business cycles and net exports data. Using historical data from the Bureau of Economic Analysis, students create graphs of growth rates over time, GDP over time, and net exports over time. They also calculate the value of net exports given import and export data. Students prepare a brief report including their graphs and a written explanation of the information included in the graphs (periods of expansion, recession etc.) This project enhances students' ability to work with and interpret economic data and clarifies the difference between changes in growth rates and changes in levels of various economic variables.


Learning Goals

Content Objectives:
- Students will interpret and describe real-world data on US GDP, GDP per capita, and net exports.
- Students will use Excel to make calculations using economic data.
- Students will use quantitative data in Excel to create legible graphs.
- Students will write coherently about economic data.

Learning Objectives: Upon successful completion of this activity, students will be able to correctly interpret economic data to evaluate a real-world situation.


Hanson Proficiencies: Interpreting and manipulating economic data

Context for Use

This activity is appropriate as a homework exercise for a Principles level course in macroeconomics. Students should be familiar with the concepts of GDP, GDP per capita, economic growth, business cycles, imports, exports and net exports and have a basic working knowledge of Excel. The in-class time required is 15-30 minutes for a demonstration of the correct solutions after students have worked through the assignment themselves, usually outside of class. A week's time between assigning the project and collecting students' completed work should be sufficient.

Description and Teaching Materials

Once the appropriate concepts have been introduced, students can be given this activity as a homework assignment to be completed outside of class. The assignment sheet below contains full instructions for students. Once students have worked through the activity, it is recommended that the instructor present and explain a full and correct solution. This solution will vary depending on the data included in the project, but can be prepared relatively quickly using the same data assigned to the students.
Growth and Business Cycles Student Handout (Microsoft Word 2007 (.docx) 17kB Apr30 13)



Teaching Notes and Tips

This exercise promotes data literacy and gives students practice using real-world economic data to illustrate course concepts. It can be used early in the course, as soon as the concepts of GDP, GDP per capita, economic growth, business cycles and net exports have been introduced.

The data is available on the Bureau of Economic Analysis website. (http://www.bea.gov/national/index.htm). Click "Interactive Tables: GDP and the National Income and Product Account (NIPA) Historical Tables" and then "Begin Using the Data" and then choose the desired tables (1.1.1 and 1.1.6) from Section 1. This activity is easily modified to include additional data if desired. Click "Options" to change the time period included in the table. Click "Download" to download.

Modify the assignment sheet to indicate the years that you are including in the exercises. I have used 1930 - present; 1930 is the earliest data available on the BEA site. Alternatively, if you are using a stricter definition of recession and want to use quarterly data this is available starting in 1947.

Students find it helpful for the instructor to project a correctly drawn version of the requested graphs, and to explain what they see (business cycles, long-run growth, increase in net exports, etc.). This is most effective if student have already worked on the assignment. If the assignment is collected as homework, it makes sense to go over the solution either once the assignment is collected or as you are handing it back.

Common student mistakes:

  • Student submissions often show evidence of confusion about rates of change versus levels. For example, if the growth rate of GDP is falling but positive, many students will identify this as a period of recession. It is useful to reinforce that recession (real GDP decreasing – you can show this on Graph #2) shows up as a negative growth rate (<0) of real GDP in Graph #1.
  • Students are asked to calculate net exports in Step 3. Some students will simply use the value of exports here, which indicates that the definition of net exports has not been fully understood. This can be reinforced when the instructor goes over the correct solution to the problem.

Assessment

This activity can be assessed directly if students turn in their graphs and written descriptions; this could be included as a homework grade. More importantly, a graded quiz or exam question can be given which asks students to interpret economic data to evaluate a real-world situation.

Examples:
Given a table of US GDP over five years (say, 2006-2011), ask students to identify which years show evidence of recession.

OR, Given a graph of the growth rate of real GDP over 30 years (say, 1980-2010), identify the periods of recession.

References and Resources

http://www.bea.gov/national/index.htm
National Economic Accounts, available from the Bureau of Economic Analysis, Source for the data to be used in the activity.

http://research.stlouisfed.org/fred2/

Federal Reserve Economic Data, hosted by the St. Louis Fed (FRED)

This is another great resource for time series data and could be used in place of the BEA data if the instructor prefers.