16 Feb 2014 7:08 pm
Also, while I'm here I guess I might as well take the time to correct some economic illiteracy.
GDP is normally adjusted for inflation, but the way we get the real GDP is by using what is called a GDP deflator. This will determine whether or not the economic growth gained in a particular period is mostly attributed to inflation or whether or not it is genuine economic growth. The GDP deflator is considered one of the most comprehensive metrics when calculating inflation because it covers a wide array of goods and services in the economy, including the construction/production of this goods and services.
Real GDP = Nominal GDP / GDP Deflator.
Also keep in mind, when using a metric such as the GDP Deflator, you always need to remember that it metrics the level goods and services increase relative to a base year.
For example, during the Carter Administration, nominal GDP grew from 1,992.5 billion from the start of his administration to 3,131.8 billion to the end, which is an increase of 57%. However, the prices of goods and services also increased 52% according to the GDP Deflator indexed for 1977. This means that Real GDP actually grew 49%.
Reagan on the other hand had a nominal GDP growth from 3,167.2 billion to 5,527.3, a 74% increase, however according to the GDP Deflator indexed for 1981, prices increased a total of 38%. This means Real GDP actually grew 74% percent.
In very simple terms, the GDP growth for the Carter Administration is higher annualised simply because of the rate of inflation, which the GDP Deflator accurately captures. GDP averages an annualised rate of 3.3% during the Carter Administration, however you have prices increasing at a rate of 7% or more.Reagan averaged an annualised rate of 3.5%, while prices only increasing by 4.75.
In very simple terms, Reagan's economic growth was actually genuine economic growth, while Carter's was the result of the double digit inflation of the 1970's.
I don't know why I had to calculate this just to demonstrate this fact. I thought this was common knowledge.http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&910=x&911=0&903=12&904=1977&905=1989&906=a
GDP is normally adjusted for inflation, but the way we get the real GDP is by using what is called a GDP deflator. This will determine whether or not the economic growth gained in a particular period is mostly attributed to inflation or whether or not it is genuine economic growth. The GDP deflator is considered one of the most comprehensive metrics when calculating inflation because it covers a wide array of goods and services in the economy, including the construction/production of this goods and services.
Real GDP = Nominal GDP / GDP Deflator.
Also keep in mind, when using a metric such as the GDP Deflator, you always need to remember that it metrics the level goods and services increase relative to a base year.
For example, during the Carter Administration, nominal GDP grew from 1,992.5 billion from the start of his administration to 3,131.8 billion to the end, which is an increase of 57%. However, the prices of goods and services also increased 52% according to the GDP Deflator indexed for 1977. This means that Real GDP actually grew 49%.
Reagan on the other hand had a nominal GDP growth from 3,167.2 billion to 5,527.3, a 74% increase, however according to the GDP Deflator indexed for 1981, prices increased a total of 38%. This means Real GDP actually grew 74% percent.
In very simple terms, the GDP growth for the Carter Administration is higher annualised simply because of the rate of inflation, which the GDP Deflator accurately captures. GDP averages an annualised rate of 3.3% during the Carter Administration, however you have prices increasing at a rate of 7% or more.Reagan averaged an annualised rate of 3.5%, while prices only increasing by 4.75.
In very simple terms, Reagan's economic growth was actually genuine economic growth, while Carter's was the result of the double digit inflation of the 1970's.
I don't know why I had to calculate this just to demonstrate this fact. I thought this was common knowledge.http://www.bea.gov/iTable/iTableHtml.cfm?reqid=9&step=3&isuri=1&910=x&911=0&903=12&904=1977&905=1989&906=a