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Sample text

It can be computed using the equation below. 5 reports real GDP for select years. 85 percent. 9 percent. The difference in these growth rates is roughly equal to the inflation rate for the same year. This will generally be the case for all years. The economy is expanding when economic growth is positive, but is contracting when growth is negative. Most textbooks define a recession as two consecutive quarters of negative growth, and a persistent one as a depression. S. recessions. The figure shows economic growth accelerating, peaking, declining, and bottoming out five times.

Since wealth and expected future income are added in the intercept, an increase (a decrease) in either shifts consumption upward (downward). For example, suppose that a decline in consumer sentiment reduces expected future income to 11 trillion dollars. In the equation that follows, the change is highlighted by the number in bold font. Simplifying the result gives final consumption. 2a. Holding DI constant at 8 trillion dollars, the decline in expected future income reduces consumer spending from 8 trillion dollars (at point O) to 7 trillion dollars (at point F).

2 The figure indicates that, in the long run, inflation rises nearly one-for-one in the growth of a country’s money supply. All data used in this book were downloaded from the Federal Reserve Economic Database unless otherwise noted. 1. 1 Inflation versus the growth in money However inflation is defined, it is measured by computing the growth rate in the price level (PL) from year to year. In the United States, the Consumer Price Index (CPI) is used to measure inflation. The CPI is an average price of products.

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