Initial Publication Date: March 13, 2010

Summary

Students predict the best graphical representation of US real GDP/capita during the last twenty years, choosing from graphs showing: cyclical decline, cyclical change with no net change, cyclical increase, or erratic wide fluctuations. Using actual US data, students graph real GDP/capita to find out the actual pattern: a rising series with periodic dips, not a flat series, a falling series, or a highly erratic series as students often predict. Students then reflect on why this pattern is often misunderstood and why it may not fully describe the well-being of the US population.

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Learning Goals

Students will be able to recall the overall trend and pattern in recent US real GDP/capita. Students will understand why this trend is misunderstood because of price, population, and business cycle changes.

Context for Use

Introductory macroeconomics course.

Description and Teaching Materials

This activity follows the steps of an Interactive Lecture Demonstration

For handout to use in class see Student worksheet (Microsoft Word 28kB Mar13 10)

There are several ways in which students can analyze the data in step 5. Actual data in an Excel spreadsheet are available in US GDP per capita 1980 - 2008 (Comma Separated Values 3kB Oct4 09). Students may learn the most if they plot the data by hand, using only the annual data rather than quarterly data. Or, students can use the Excel data to draw a graph (see, for example, US GDP per capita 1980 - 2008 graph (Microsoft Word 24kB Oct4 09).) Or, if computers are not available and it is important to complete the demonstration quickly, the instructor could create a graph, or simply have it available.

Teaching Notes and Tips

More recent data available is available from U.S. Department of Commerce .

Likely, many students will underestimate growth in per capita GDP, or overestimate its fluctuations. During the recent recession, fewer than one-third of students in principles courses at Glendale Community College (CA) predicted that the average person today was better off than twenty years ago.

If students mistakenly attribute the smoothness of the series to inflation, remind them that the series shows real GDP (adjusted using chained dollars).

Even though the series shows steady growth, this does not imply steady improvement in overall living standards. Students should be able to identify limitations to GDP as a measure of well-being as well as problems in using the average as a measure of the typical standard of living.

Assessment

Learning will more likely to remembered after the class and also applied to new situations if students reflect on how their understanding changed. Ask students to complete a short (one or two page) essay beginning with: "Although most people believe _______ about the US growth in real GDP/capita because __________________, in fact ________________."

Also, students can be asked to apply the insights learned here about real GDP/capita to other data such as growth rates in nominal GDP/capita, real GDP, nominal GDP and these statistics for other countries.