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.

inflation

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.
  • For example, between Jul 2008 and Jan 2009, the rate of CPI inflation falls from 5% to 2%. This means that the price level is increasing at a slower rate.
  • If we use the RPI measure. then there is a period of negative inflation (deflation) when the price level falls right at end of graph.

Two Views of Unemployment

This is an example of how you could view employment statistics in the US.

Total employment US

unemployment total

This graph shows the steep fall in employment, with only a very small improvement in employment at the start of 2010

Change in Employment – US

change unemployment

After 2009, the employment situation seems to improve. But, notice the numbers employed is still fallling throughout 2009 – there is only a decline in the rate at which employment falls.

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