Do NowIn 2010, China’s nominal GDP was $5.88 trillion,

while the United States’ was $14.53 trillion. According to an IMF projection, the Chinese

economy will overtake the United States economy by 2016, thus becoming the largest economy in the

world.

How can this be true? Which measure do you think they are using to

measure the size of the economy? Nominal GDP or some other measure form of GDP measurement?

Calculate the Nominal GDP of the US and China in 2020, 2030, and 2040

• Nominal GDP of China in 2010: $5.88 trillion Assume that China’s nominal GDP will continue to grow

at the current annual rate of approximately 8%.

• Nominal GDP of United States in 2010: $14.53 trillion Assume that the U.S.’s nominal GDP will continue to

grow at it’s current annual rate of approximately 2%

Calculate the Nominal GDP of the US and China in 2020, 2030, and 2040

• Nominal GDP of China in 2010: $5.88 trillion Assume that China’s nominal GDP growth rate will slow

down to only 4%.

• Nominal GDP of United States in 2010: $14.53 trillion Assume that the U.S.’s nominal GDP will continue to

grow at it’s current annual rate of approximately 2%

Calculate the Nominal GDP of the US and China in 2020, 2030, and 2040

• Nominal GDP of China in 2010: $5.88 trillion Assume that China’s nominal GDP continued to grow at

8% for the first 10 years, and after crashed down to a rate of NEGATIVE 4%

• Nominal GDP of United States in 2010: $14.53 trillion Assume that the U.S.’s nominal GDP will continue at 2%

Why do small changes in GDP growth rates make a bigger difference in the long run?

The Japanese boom and crash:

• In the 1950s and 1960s Japan was the fastest growing economy in the world, growing at an annual rate of approximately 10%.

• By 1990 however, the Japanese real estate and equity bubble crashed, bringing negative GDP growth rates

• The Japanese economy has since stagnated for the next 20 years.