Using State-Level Data to Study Nominal and Real GDP, Part 1—GDP Deflators and Inflation Rates

This activity is designed to give students hands-on experience in collecting readily available macroeconomic data from FRED to obtain nominal and real GDP time series at the state level. These data can then be used to calculate GDP deflators and inflation rates over time. Textbooks usually illustrate and give example calculations of nominal and real GDP with data for the U.S. economy. By collecting and analyzing nominal and real GDP at the state-level, students are given the opportunity to work with data they might not have seen before. In addition, since data are available for each of the 50 states, this assignment can be individualized by assigning each student, or a small group of students, a different state.

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.

This activity is designed primarily for students in principles of macroeconomics courses. Since the macroeconomic data are available for all fifty states in the U.S., different states to study can be assigned individually or to small groups (2-3 students) within any class size. The activity can be used in face-to-face or online classes. Student cans complete the activity as a homework assignment or during class in a computer lab. Data collection, calculation of GDP deflators and writing a brief analysis should take approximately 30 minutes to complete. Students need to be able to use the internet, to work with data in tables and to create graphs in spreadsheets.

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.

Attached please find a Word file, "Using State-Level Data to Study Inflation" Activity Instructions. This gives step-by-step instructions for accessing state-level nominal and real GDP from the FRED website (http://research.stlouisfed.org/fred2/) and suggestions for creating assignments in an Excel spreadsheet.

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)

Assigning States

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.

Two types of tasks can be assessed in basic completion of the activity: correct collection/ presentation of the data and correct interpretation of the graphs and calculations.

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.

Access to the internet and to spreadsheet software.

Here are some useful links to FRED:

http://research.stlouisfed.org/fred2/
http://research.stlouisfed.org/fred2/categories
http://research.stlouisfed.org/fred2/categories/27281