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Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.81,0:00:04.34,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:14.90,0:00:16.70,Default,,0000,0000,0000,,- [Alex] Is the economy growing?
Dialogue: 0,0:00:16.70,0:00:20.40,Default,,0000,0000,0000,,Are people better off today\Nthan they were four years ago?
Dialogue: 0,0:00:20.82,0:00:22.57,Default,,0000,0000,0000,,What about 40 years ago?
Dialogue: 0,0:00:22.97,0:00:26.62,Default,,0000,0000,0000,,The GDP statistic can help us to answer\Nall of these questions.
Dialogue: 0,0:00:27.16,0:00:29.84,Default,,0000,0000,0000,,But first, we do need\Nto make some modifications.
Dialogue: 0,0:00:30.17,0:00:32.28,Default,,0000,0000,0000,,As we discussed in our first video,
Dialogue: 0,0:00:32.28,0:00:36.50,Default,,0000,0000,0000,,GDP sums up the prices\Nof all finished goods and services.
Dialogue: 0,0:00:37.11,0:00:40.57,Default,,0000,0000,0000,,So that means that there are two ways\Nthe GDP can increase.
Dialogue: 0,0:00:41.56,0:00:44.41,Default,,0000,0000,0000,,First, prices can increase.
Dialogue: 0,0:00:44.90,0:00:47.46,Default,,0000,0000,0000,,In this case, the GDP number goes up,
Dialogue: 0,0:00:47.90,0:00:51.100,Default,,0000,0000,0000,,but the economy isn't actually producing\Nmore goods and services.
Dialogue: 0,0:00:51.100,0:00:55.69,Default,,0000,0000,0000,,It's inflation which is driving\Nthe higher GDP.
Dialogue: 0,0:00:56.46,0:00:59.64,Default,,0000,0000,0000,,The increase in GDP --\Nit might look good on paper --
Dialogue: 0,0:00:59.64,0:01:03.07,Default,,0000,0000,0000,,but it's a mirage,\Na nominal increase only.
Dialogue: 0,0:01:04.48,0:01:07.24,Default,,0000,0000,0000,,The other way that GDP can increase
Dialogue: 0,0:01:07.24,0:01:10.72,Default,,0000,0000,0000,,is if we DO produce\Nmore valuable goods and services.
Dialogue: 0,0:01:11.44,0:01:15.11,Default,,0000,0000,0000,,That could mean simply\Nmore goods and services,
Dialogue: 0,0:01:15.11,0:01:17.27,Default,,0000,0000,0000,,or better goods and services,
Dialogue: 0,0:01:17.74,0:01:20.48,Default,,0000,0000,0000,,more highly-valued goods and services.
Dialogue: 0,0:01:20.99,0:01:24.58,Default,,0000,0000,0000,,It's this second type\Nof increase in GDP that we want.
Dialogue: 0,0:01:24.96,0:01:30.30,Default,,0000,0000,0000,,This isn't a mirage,\Nthis is a real increase in GDP.
Dialogue: 0,0:01:31.64,0:01:34.84,Default,,0000,0000,0000,,Real GDP measures\Nthe second type of growth.
Dialogue: 0,0:01:35.42,0:01:39.14,Default,,0000,0000,0000,,And the Real GDP statistic --\Nit controls for inflation
Dialogue: 0,0:01:39.14,0:01:43.01,Default,,0000,0000,0000,,by adding up all the goods\Nand services produced in an economy
Dialogue: 0,0:01:43.01,0:01:47.09,Default,,0000,0000,0000,,using the same set of prices over time.
Dialogue: 0,0:01:47.09,0:01:48.88,Default,,0000,0000,0000,,The same set of prices.
Dialogue: 0,0:01:48.88,0:01:55.08,Default,,0000,0000,0000,,Real GDP tells us -- if, if the prices\Nof goods and services hadn't changed,
Dialogue: 0,0:01:55.45,0:01:59.11,Default,,0000,0000,0000,,how much would GDP\Nhave increased, or decreased?
Dialogue: 0,0:02:00.11,0:02:03.30,Default,,0000,0000,0000,,Real GDP -- it's typically\Nwhat we really care about.
Dialogue: 0,0:02:03.68,0:02:05.04,Default,,0000,0000,0000,,Let's give an example.
Dialogue: 0,0:02:06.04,0:02:08.14,Default,,0000,0000,0000,,We'll be using a fantastic tool
Dialogue: 0,0:02:08.14,0:02:12.61,Default,,0000,0000,0000,,called the St. Louis Federal Reserve\NEconomic Database, or FRED.
Dialogue: 0,0:02:12.98,0:02:15.50,Default,,0000,0000,0000,,FRED is every economist's best friend.
Dialogue: 0,0:02:16.42,0:02:21.72,Default,,0000,0000,0000,,So let's Google "US nominal GDP Fred."
Dialogue: 0,0:02:22.64,0:02:24.11,Default,,0000,0000,0000,,Here's what we get.
Dialogue: 0,0:02:25.03,0:02:32.46,Default,,0000,0000,0000,,We can see that we've grown\Nfrom a GDP in 1950 of $320 billion,
Dialogue: 0,0:02:32.76,0:02:39.28,Default,,0000,0000,0000,,to a GDP in 2015 of over $17 trillion.
Dialogue: 0,0:02:40.06,0:02:46.41,Default,,0000,0000,0000,,Wow! That suggests that our economy\Nhas gotten 55 times bigger.
Dialogue: 0,0:02:47.35,0:02:50.62,Default,,0000,0000,0000,,But hold on, hold on,\Nwait a moment, you might say.
Dialogue: 0,0:02:50.62,0:02:54.87,Default,,0000,0000,0000,,My grandmother told me\Nthat a loaf of bread used to cost a dime.
Dialogue: 0,0:02:55.14,0:02:56.100,Default,,0000,0000,0000,,And now it costs a couple of dollars.
Dialogue: 0,0:02:57.72,0:02:58.77,Default,,0000,0000,0000,,That's right.
Dialogue: 0,0:02:59.58,0:03:02.45,Default,,0000,0000,0000,,If we want to compare\Nour economy over time,
Dialogue: 0,0:03:02.91,0:03:06.27,Default,,0000,0000,0000,,we need to control\Nfor changes in prices.
Dialogue: 0,0:03:07.11,0:03:09.58,Default,,0000,0000,0000,,So we don't want to look at Nominal GDP.
Dialogue: 0,0:03:09.78,0:03:12.36,Default,,0000,0000,0000,,We're more interested in Real GDP.
Dialogue: 0,0:03:12.94,0:03:17.32,Default,,0000,0000,0000,,So let's Google "Real US GDP Fred."
Dialogue: 0,0:03:18.07,0:03:19.26,Default,,0000,0000,0000,,Here's what we get.
Dialogue: 0,0:03:19.91,0:03:25.17,Default,,0000,0000,0000,,This graph measures\NReal GDP in 2009 dollars.
Dialogue: 0,0:03:25.51,0:03:28.34,Default,,0000,0000,0000,,That means using 2009 prices.
Dialogue: 0,0:03:29.21,0:03:34.40,Default,,0000,0000,0000,,This graph tells us\Nthat using 2009 prices consistently,
Dialogue: 0,0:03:35.42,0:03:40.36,Default,,0000,0000,0000,,that in 1950, all the goods and services\Nproduced at that time
Dialogue: 0,0:03:40.36,0:03:44.01,Default,,0000,0000,0000,,were worth about $2 trillion.
Dialogue: 0,0:03:44.50,0:03:47.32,Default,,0000,0000,0000,,In comparison, in 2015,
Dialogue: 0,0:03:47.32,0:03:49.98,Default,,0000,0000,0000,,all the goods and services\Nproduced at that time
Dialogue: 0,0:03:49.98,0:03:53.93,Default,,0000,0000,0000,,were worth about $16 trillion.
Dialogue: 0,0:03:55.62,0:04:03.67,Default,,0000,0000,0000,,So while Nominal GDP says that the economy\Nis 55 times bigger in 2015 than in 1950,
Dialogue: 0,0:04:04.44,0:04:08.03,Default,,0000,0000,0000,,Real GDP shows us\Nthat it's 8 times bigger.
Dialogue: 0,0:04:08.57,0:04:10.81,Default,,0000,0000,0000,,That's still pretty good,\Nbut a big difference
Dialogue: 0,0:04:10.81,0:04:13.79,Default,,0000,0000,0000,,between Nominal GDP and Real GDP.
Dialogue: 0,0:04:15.03,0:04:20.32,Default,,0000,0000,0000,,Okay. So now we've controlled for prices,\Nbut there's another big difference
Dialogue: 0,0:04:20.32,0:04:23.60,Default,,0000,0000,0000,,in the US economy in 1950\Ncompared to today.
Dialogue: 0,0:04:25.20,0:04:27.24,Default,,0000,0000,0000,,Right - there's a lot more people today.
Dialogue: 0,0:04:28.32,0:04:30.54,Default,,0000,0000,0000,,We can control for the population size
Dialogue: 0,0:04:30.54,0:04:35.24,Default,,0000,0000,0000,,by using Real GDP\Nper capita, or per person.
Dialogue: 0,0:04:35.96,0:04:39.44,Default,,0000,0000,0000,,By dividing Real GDP\Nby a country's population,
Dialogue: 0,0:04:39.44,0:04:42.79,Default,,0000,0000,0000,,we get a good, albeit imperfect,
Dialogue: 0,0:04:42.79,0:04:46.54,Default,,0000,0000,0000,,measure of the average \Nstandard of living in a county.
Dialogue: 0,0:04:47.71,0:04:52.28,Default,,0000,0000,0000,,So once again, let's Google,\N"Real GDP per capita FRED."
Dialogue: 0,0:04:52.76,0:04:53.69,Default,,0000,0000,0000,,Here's what we get.
Dialogue: 0,0:04:55.15,0:04:56.75,Default,,0000,0000,0000,,In 1950,
Dialogue: 0,0:04:57.12,0:05:01.55,Default,,0000,0000,0000,,Real GDP per capita,\Nmeasured in constant prices,
Dialogue: 0,0:05:01.72,0:05:03.90,Default,,0000,0000,0000,,was about $14,000.
Dialogue: 0,0:05:05.01,0:05:10.43,Default,,0000,0000,0000,,In 2015, Real GDP per capita\Nis about $50,000.
Dialogue: 0,0:05:11.30,0:05:16.06,Default,,0000,0000,0000,,So on average, people in 2015\Nhave a standard of living
Dialogue: 0,0:05:16.06,0:05:20.50,Default,,0000,0000,0000,,that's four times higher\Nthan the people in 1950.
Dialogue: 0,0:05:21.45,0:05:25.83,Default,,0000,0000,0000,,That's a pretty big and a remarkable \Nincrease in the standard of living.
Dialogue: 0,0:05:26.93,0:05:31.28,Default,,0000,0000,0000,,By the way, since Real GDP\Nincreased by eight times,
Dialogue: 0,0:05:31.88,0:05:35.76,Default,,0000,0000,0000,,and Real GDP per capita\Nincreased by four times,
Dialogue: 0,0:05:36.38,0:05:37.76,Default,,0000,0000,0000,,we know immediately
Dialogue: 0,0:05:37.76,0:05:42.82,Default,,0000,0000,0000,,that the population approximately doubled\Nbetween 1950 and 2015.
Dialogue: 0,0:05:44.75,0:05:47.22,Default,,0000,0000,0000,,Now let's take a closer look\Nat this graph.
Dialogue: 0,0:05:47.61,0:05:51.06,Default,,0000,0000,0000,,We can see another reason\Nwhy we're interested in the GDP statistic.
Dialogue: 0,0:05:51.89,0:05:56.34,Default,,0000,0000,0000,,Real GDP per capita\Ndeclines during recessions.
Dialogue: 0,0:05:57.09,0:06:02.54,Default,,0000,0000,0000,,In fact, a decline in Real GDP\Nis part of what defines a recession.
Dialogue: 0,0:06:03.79,0:06:05.16,Default,,0000,0000,0000,,Declines in Real GDP
Dialogue: 0,0:06:05.16,0:06:09.50,Default,,0000,0000,0000,,also tend to be accompanied\Nby increases in unemployment.
Dialogue: 0,0:06:09.91,0:06:14.48,Default,,0000,0000,0000,,You can see here that when Real GDP dips,\Nthe unemployment rate spikes.
Dialogue: 0,0:06:16.87,0:06:19.94,Default,,0000,0000,0000,,Now here's another nice feature\Nof the FRED database.
Dialogue: 0,0:06:20.24,0:06:24.96,Default,,0000,0000,0000,,On the Real GDP per capita graph,\Nclick "Edit data series"
Dialogue: 0,0:06:25.89,0:06:29.95,Default,,0000,0000,0000,,and then switch to percent annual changes.
Dialogue: 0,0:06:31.66,0:06:35.07,Default,,0000,0000,0000,,So now we can see immediately\Nthe annual changes in Real GDP.
Dialogue: 0,0:06:35.56,0:06:39.60,Default,,0000,0000,0000,,You can see, for example,\Nthe big recession in 2008 and 2009.
Dialogue: 0,0:06:40.25,0:06:45.89,Default,,0000,0000,0000,,In 2009, for example,\Nthe economy shrank by 3.6%
Dialogue: 0,0:06:45.89,0:06:47.51,Default,,0000,0000,0000,,compared to the year before.
Dialogue: 0,0:06:47.88,0:06:51.24,Default,,0000,0000,0000,,That's a very big\Nand a very unpleasant decline.
Dialogue: 0,0:06:51.51,0:06:54.93,Default,,0000,0000,0000,,Okay. So now you've got\Nyour hands around Real GDP
Dialogue: 0,0:06:54.93,0:06:57.86,Default,,0000,0000,0000,,as a way of measuring\Nthe health of our economy.
Dialogue: 0,0:06:58.15,0:07:02.77,Default,,0000,0000,0000,,And I said that Real GDP per capita\Nis a good, albeit imperfect measure
Dialogue: 0,0:07:02.77,0:07:05.58,Default,,0000,0000,0000,,of the average standard\Nof living in a country.
Dialogue: 0,0:07:05.100,0:07:07.65,Default,,0000,0000,0000,,But is that really true?
Dialogue: 0,0:07:07.99,0:07:12.21,Default,,0000,0000,0000,,Does an increase in Real GDP per capita\Nmean that we're better off?
Dialogue: 0,0:07:12.70,0:07:16.35,Default,,0000,0000,0000,,That's the view that I'm going\Nto defend in the next video.
Dialogue: 0,0:07:17.73,0:07:21.04,Default,,0000,0000,0000,,- [Narrator] If you want to test yourself,\Nclick "Practice Questions."
Dialogue: 0,0:07:21.04,0:07:24.97,Default,,0000,0000,0000,,Or, if you're ready to move on,\Nyou can click "Go to the next video."
Dialogue: 0,0:07:28.15,0:07:30.81,Default,,0000,0000,0000,,You can also visit MRUniversity.com
Dialogue: 0,0:07:30.81,0:07:33.91,Default,,0000,0000,0000,,to see our entire library\Nof videos and resources.
Dialogue: 0,0:07:34.15,0:07:36.15,Default,,0000,0000,0000,,♪ [music] ♪