Tag Archives: real GDP

Output Over the Years

fredgraph

As we can see, this graph represents GDP, or output in the last 66 years. It is also clear that all of this is based on 2009 Dollars. This means that it is real GDP, as opposed to nominal GDP. It does not take the price level into account. Overall, we have noticed an upward trend with an increasing slope. In 1947, year 1, real GDP was about $2 trillion.

We can see that the first real slump is between 1973-1975. The slope of the graph is negative at that point. The reason for this is that there was an recession during that time. Two causes of this were an oil crisis and a stock market crash. Furthermore, other nations were developing. This increased competition in industries, such as steel, for North American and European countries. This forced them to re-structure the cores of their industrial areas. The stock market crash opened everyone’s eyes to this economic downturn.

The next recession happened between 2008-2009. The United States economy is still recovering from it to this day. The main cause was the large amount of sub-prime mortgage loans that banks were issuing. These mortgage-backed securities, MBS, were not very liquid assets. When the housing market popped, then the securities took a large hit. just like the recession in the mid 70’s, the slope of the line in the graph is negative. Overall, this recession saw a large loss in money for financial institutions. This is why it is considered to be the worst downturn since the Great Depression.

At the end of the graph, which is in the year 2013, real GDP is at about $16 trillion dollars. This is  8 times as much as it was in 1947. Using knowledge of logarithms, and the rule of 70, we can conclude that the economy grew about 210% over the span of 66 years. Output being 8 times larger means that it doubled three times. Each time output doubles, there is a growth of 70% in platonic terms. Three doublings would mean that the economy grew 210%.

Going back the recession of 2008, a speculation can be made, under a few conditions. If the financial crisis did not happen, and the upward trend of real GDP growth continued, output would be at about $17 trillion. The recession set the economy back by  about $1 trillion. In my opinion, this means that the current economic slump will be over when the economy’s output makes up for that $1 trillion. This is not to be treated like a debt, but more like staying on course. The economy will need to keep increasing output in order to get out of the downturn.