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Tracking real GDP over time

Read about fluctuations in GDP from year to year.

Key points

  • A business cycle is the relatively short-term movement of the economy in and out of recession.
  • A significant decline in national output is called a recession; an especially lengthy and deep decline in output is called a depression.
  • The highest point of output before a recession begins is called the peak; the lowest point of output during the recession is called the trough.

Introduction

You might have heard a TV news reporter saying something along the lines of "the economy grew 1.2% in the first quarter". Reports like this are referring to percentage change in real GDP. By convention, GDP growth is reported at an annualized rate—whatever the calculated growth in real GDP was for a particular quarter is multiplied by four when it is reported, as if the economy were growing at that rate for a full year.

Tracking real GDP over time

The graph below shows the pattern of US real GDP since 1900. Notice that the generally upward longterm path of GDP has been regularly interrupted by short-term declines.
A significant decline in real GDP is called a recession. An especially lengthy and deep recession is called a depression. The severe drop in GDP that occurred during the Great Depression of the 1930s—which you probably learned about in history class—is clearly visible in the figure, as is the Great Recession of 2008 to 2009.
US GDP, 1900–2014
The graph illustrates that both real GDP and real GDP per capita have substantially increased since 1900.
Image credit: Figure 1 in "Tracking Real GDP over Time" by OpenStaxCollege, CC BY 4.0
Real GDP is important because it is highly correlated with other measures of economic activity, like employment and unemployment. When real GDP rises, so does employment.
The most significant human problem associated with recessions—and their larger, uglier cousins, depressions—is that a slowdown in production means that firms need to lay off or fire some of the workers they have. Losing a job imposes painful financial and personal costs on workers and often on their extended families as well. In addition, even those who keep their jobs are likely to find that wage raises are scanty at best—or they may even be asked to take pay cuts.
The highest point of the economy, before a recession begins, is called the peak; conversely, the lowest point of a recession, before a recovery begins, is called the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak.
The movement of the economy from peak to trough and trough to peak is called the business cycle. It is intriguing to notice that the three longest trough-to-peak expansions of the 20th century have happened since 1960. The most recent recession started in December 2007 and ended formally in June 2009. This was the most severe recession since the Great Depression of the 1930s.
A private think tank, the National Bureau of Economic Research, or NBER, is the official tracker of business cycles for the US economy. However, the effects of a severe recession often linger on after the official ending date assigned by the NBER.
The table below lists the pattern of recessions and expansions in the US economy since 1899
US business cycles since 1899
PeakTroughMonths of contractionMonths of expansion
June 1899December 19001824
September 1902August 19042321
May 1907June 19081333
January 1910Janurary 19122419
January 1913December 19142312
August 1918March 1919744
January 1920July 19211810
May 1923July 19241422
October 1926November 19271327
August 1929March 19334321
May 1937June 19381350
February 1945October 1945880
November 1948October 19491137
July 1953May 19541045
August 1957April 1958839
April 1960February 19611024
December 1969November 197011106
November 1973March 19751636
January 1980July 1980658
July 1981November 19821612
July 1990March 1991892
March 2001November 20018120
December 2007June 20091873

Summary

  • A business cycle is the relatively short-term movement of the economy in and out of recession.
  • A significant decline in national output is called a recession; an especially lengthy and deep decline in output is called a depression.
  • The highest point of output before a recession begins is called the peak; the lowest point of output during the recession is called the trough.

Self-check questions

Return to the first graph in this article, but don't use the table. If a recession is defined as a significant decline in national output, can you identify any post-1960 recessions in addition to the recession of 2008–2009? Note: This requires a judgment call.
According to the table above, how often have recessions occurred since the end of World War II—1945?
According to the table, how long has the average recession lasted since the end of World War II?
According to the table, how long has the average expansion lasted since the end of World War II?

Review question

What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?

Critical thinking questions

  • Why do you suppose that US GDP is so much higher today than 50 or 100 years ago?
  • Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?

Want to join the conversation?

  • piceratops sapling style avatar for user Ma Jingjing
    What would the answer be for the last critical thinking question--why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?
    (12 votes)
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    • blobby green style avatar for user louierubenstein
      One reason could be credit and debt. When the economy is doing well people and businesses borrow and spend a lot of money which leads to higher incomes for other people who in turn spend more which leads to a sort of snowball effect. Eventually the amount of debt people have taken on forces people to curb their spending which leads to lower incomes which forces more people to curb spending creating an opposite snowball effect. This is just one reason that has been explained to me.
      (22 votes)
  • leafers sapling style avatar for user Xiomara Kuwae
    According to the table, how long has the average expansion lasted since the end of World War II? The solution says it's 60.5 months, but I calculated it myself and it should be 58.4 months. Am I wrong? :(
    (5 votes)
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  • spunky sam blue style avatar for user Max
    How do you measure GDP of countries that annex foreign territory and its resources with expanding wars? (let's put the case of Germany during WWII)
    (4 votes)
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    • piceratops ultimate style avatar for user John Twuleski
      Even if its less common into industrialized countries these days, by definition the new annexed territory will be accounted into the "Domestic" portion of the invader. But in time of war, making an accurate report of the GDP in these "new" territories must very difficult by the chaos going around and by the fact that it is probably not a priority for the invading country.

      In my opinion, GDP reports for times like the WWII were probably containing more approximation than real numbers. You also have to take into consideration that if a territory is disputed, the GDP numbers could vary depending of which organisation is responsible to produce it and where they trace the borders.
      (5 votes)
  • blobby green style avatar for user John Ma
    "GDP growth is reported at an annualized rate—whatever the calculated growth in real GDP was for a particular quarter is multiplied by four when it is reported, as if the economy were growing at that rate for a full year." I'm confused about how this annualized report of GDP growth means?
    (1 vote)
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    • purple pi purple style avatar for user hugoncosta
      It just basically means that they make a prediction based on the quarter's performance. Let's say that GDP Q1 was 100. They'll multiply that by the number of quarters in a year (4) and they'll say "this is the expected GDP". And then they'll do the math - what's the variation in relation to last year?
      (2 votes)
  • blobby green style avatar for user Gowthami
    what would be the answers for the critical questions?
    Why do you suppose that US GDP is so much higher today than 50 or 100 years ago?
    Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down
    (2 votes)
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    • female robot ada style avatar for user Pat
      Here's what I think:

      question 1- newer technology, new inventions/products, etc. gets the real GDP higher.
      question 2- referring back to Sal's other video (The business cycle), people get over zealous or depressed; pretty much people's emotions get in the way a lot.

      Just to put it in as little words as possible.
      (1 vote)
  • starky tree style avatar for user iuliana.tornea
    Does a period of contraction correspond to a bear market and one of expansion - to a bull market?
    (1 vote)
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    • leafers tree style avatar for user Michele Truong
      Periods of contraction correspond to decrease in rGDP and vice versa for bull markets. According to the AS/AD model for the economy, increases in rGDP typically correspond to increases in price level due to shifts of the aggregate demand and vice versa for bear markets.
      (1 vote)
  • blobby green style avatar for user Komail
    According to the table, how long has the average expansion lasted since the end of World War II?
    [Hide solution.]
    The table lists the months of expansion. Averaging these figures for the post-WWII expansions gives an average expansion of 60.5 months, more than five years.

    Can someone help on how these figures were calculated?
    (1 vote)
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  • duskpin ultimate style avatar for user Annastacia S.
    I have read books about this but I neglect to see any truly inspiring, or noticeable rights here. Is there something i'm missing?
    (1 vote)
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  • blobby green style avatar for user Dũng Lê
    a slowdown in production means that firms need to lay off or fire some of the workers they have. Why is this the case? Does is make more sense for firms to hire more workers in order to increase production ?
    (0 votes)
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  • piceratops seedling style avatar for user Vinoth Mathaiyan
    Where can I get the Real GDP data? Do I need to calculate maually?
    (0 votes)
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