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US GDP Grows Faster in Q4 but Output Gap Remains Wide


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US real GDP growth accelerated to 2.8 percent in Q4 2011 from 1.8 percent in Q3, but the output gap remained wide.

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US GDP Grows Faster in Q4 but Output Gap Remains Wide

  1. Data for the Classroom from Ed Dolan’s Econ Blog US GDP Grows Faster in Q4 but Output Gap Remains Wide Posted Jan. 27, 2012 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  2. US GDP Growth Stronger in Q4 2011 <ul><li>US GDP growth accelerated to 2.8% in Q4 2011, the fastest rate in a year and a half, according to the advance estimate released today </li></ul><ul><li>It was the 10 th consecutive quarter of growth, good news for the White House as the election season heats up </li></ul><ul><li>Caution: The advance estimate is subject to revision; Q3 growth, originally reported at 2.5%, was eventually revised down to 1.8% </li></ul>Posted Jan. 27, 2012 on Ed Dolan’s Econ Blog
  3. Economy Finally Moves Solidly Into Expansion <ul><li>According to standard business cycle terminology, the recession phase of the business cycle is the downward movement of GDP from its previous peak </li></ul><ul><li>The recovery phase is the upward movement from the trough (low point) of the recession and continues until GDP again reaches its previous peak. </li></ul><ul><li>Once GDP moves above its previous peak, the expansion phase begins. </li></ul><ul><li>Q3 GDP was only slightly (0.04%) above its pre-recession peak. Now, in Q4, the economy has moved solidly into expansion </li></ul>Posted Jan. 27, 2012 on Ed Dolan’s Econ Blog
  4. Sources of US GDP Growth in Q3 2011 <ul><li>Consumption contributed strongly to Q4 growth, as it did all year </li></ul><ul><li>Investment accounted for most of the gain in Q4 growth; however, the largest component was inventory accumulation (1.95%), not fixed investment </li></ul><ul><li>Federal government spending fell sharply, led by defense cuts; state and local government spending also fell </li></ul><ul><li>Exports continued their strong growth but imports (a negative entry in the accounts) grew even faster, so net exports were a small drag on growth in Q4 </li></ul>Posted Jan. 27, 2012 on Ed Dolan’s Econ Blog Table shows the contribution of each sector to the 2.8% total GDP growth in Q4, 2011
  5. Nominal GDP Growth Equals Trend, Gap Remains Large <ul><li>The estimate of nominal GDP (NGDP) growth was 3.2% in Q4 (quarterly growth stated as annual rate) </li></ul><ul><li>NGDP growth consisted of 2.8% real growth and 0.4% inflation </li></ul><ul><li>An increasing number of economists focus on NGDP growth as a key policy target. The Q4 NGDP growth of 3.2% was slightly slower than the 3.3% estimated growth of potential NGDP as reported by the St. Louis Fed </li></ul><ul><li>The data suggest that significantly faster growth of NGDP would be consistent with the Fed’s 2% target for the rate of inflation </li></ul>Posted Jan. 27, 2012 on Ed Dolan’s Econ Blog