In Modules 3 and 5 you learned about the key macroeconomic indicators of RGDP growth and inflation. In assignment, you will compare the two and explain what different values of these indicators mean for the U.S. economy. In addition, in Module 5, you learned how to find the real wage from the nominal wage and CPI. In assignment, you will try to explain the implications of stagnant real wages for the U.S. economy prior to and during the Great Recession in 2008-2009.

1) In what aspects do the inflation rate and the growth rate of Real GDP differ?

2) Do they have anything in common?

3) Explain the consequences of an inflation rate of 2-3%, and a real GDP growth rate of 2-3% for an economy like the U.S.

4) Would your answer differ if the inflation and RGDP growth rates were both around 10%? Explain. (5 points)

5) As shown in the graph below, between 1981 and 2011 the nominal wage rate in the U.S. more than doubled, but the real wage rate stayed roughly constant because the increase in the nominal wage rate just kept up with inflation.

How can this fact contribute to explaining the mortgage crises, which led to the financial crisis in 2007-2008 and the Great Recession in 2008-2009?

For a broader explanation, use the information from the moviePanic: The Untold Story of the 2008 Financial

Crisis(Links to an external site.) https://www.youtube.com/watch?v=QozGSS7QY_U