Understanding Rates of Change Statistics

A Common question at AS and A2 Level is to understand economic graphs and statistics.

Look at the graph below and explain what happens to GDP at current prices between 1974-1983?

Many students will answer – In this period GDP is falling.

However, this is wrong. What is happening is that the growth rate is falling. In other words, GDP is increasing at a slower rate at the end of the period than at the beginning. Only if growth rates become negative is GDP actually falling.

Inflation and The General Price Level.

A similar issue could occur with a graph of inflation. If the graph shows a decline in the inflation rate. It doesn’t mean that prices are falling. It means prices are increasing at a slower rate.

More Misleading Economic Statistics?

Can we trust Economic statistics?