Fred graph analysis

Real GDP

This graph is showing the real GDP from years 1947-2018. GDP stands for gross domestic product. GDP is the sum of all final goods and services produced within a year. Real GDP will be able to tell people the price of an item today, and show how much it was worth in a different year. In other words, real GDP is adjusted for inflation. For example, if a piece of cheese today is worth $4.00 then real GDP can tell you how much that $4.00 was worth in 1965.

According to the graph, there is a clear increase in GDP from the years 1947-2018. The increase means that people are producing more goods and services, as well as, better quality items. For example, producing an IPod over a CD player creates an increase in GDP because not only is it worth more, it is better in quality.

Real GDP Per Capita

This graph is showing the real GDP per capita. Real GDP per Capita is the way economist measure the standard of living within a country. Real GDP per capita does not measure the quality of life, however, it is correlated with aspects of life that people care about.

One way real GDP per capita is correlated to things people care about, is within life expectancy. Countries with higher GDP per capita has longer life expectancy rates than countries with lower GDP per capita. Despite this fact, real GDP per capita is not a perfect measurement of life. The distribution of income is not presented in this calculation. What this means is, the real GDP per capita may be high, but that maybe because a small percentage of people have extremely large amounts of money. The calculation of real GDP per capita doesn't actually mean that everyone within that country is living better off.

Inflation Rate based on CPI

Inflation is basically when the purchasing power of money within a nation decreases. When inflation is applied to CPI (Consumer Price Index), economist look at how the value of money increases or decreases in percent. For example, in 1940, the cost of cereal may have been $0.60 but in 2007, the cost of cereal would be $2.50. Inflation based on CPI looks at the percentage those prices increased and shows us the value of the cereal today as opposed to back then.

In this case, this graph is showing how high the rate of inflation is rising. The trend of this line is above the mark 0 this means that inflation is constantly rising for the most part. the difference between the lower marked spots and the higher marked spots is how much inflation is increasing. If the inflation rate is at 3% rather that 7%, inflation is still increasing, just not as much.

Civilian Unemployment Rate

This graph mirrors the unemployment rates of any given year. Unemployment includes people that work plus the people not working. In other words, the labor force = employed + unemployed. People that are not employed and are not looking for jobs are not included in labor force, nor are they counted in unemployment rate. This may cause people to be mislead by the decrease in unemployment rates because the decrease maybe the cause of people dropping out of the labor force instead of more people being employed.

The gray lines on the graph represent recessions within the economy. The unemployment rates skyrocketed when recessions hit because many people were getting laid off.

Effective Federal Funds Rate

Effective federal funds rate is the rate at which commercial banks are borrowing and money from each other. To put this into perspective, commercial banks such as, Chase Bank, maybe required to have a minimum of $10,000 in their possession by the end of each day. Sometimes banks lend money out to customers, and go over their limit of $10,000. In this scenario, Chase would borrow money from TD Bank. The fund rate Chase gets from TD Bank is the rate at which Chase has to pay that money back.

There are 3 lines present on this graph. The blue line represents the effective federal funds rate, which was explained above. The red line represents the "Bank Prime Loan Rate". The bank prime loan rate is the rate at which banks are lending money to each other. As you can see, although the bank prime loan rate and the effective federal funds rate are following the same trend, the bank prime loan rate line is higher than the effective federal funds rate line. This is because the bank prime rate is almost always approximately 3% more than the effective federal funds rate.

The green line represents the "30-year Fixed Rate Mortgage Average in the United States" graphed. A fixed mortgage rate is a mortgage where your interest rate and monthly payments never change. The green line displays how these mortgage deals changed within 30 years. According to the graph, the average fixed mortgage rates has increased starting after 1970 and started to drop around 1983. The gray lines on the graph represent recessions in our economy. The fixed mortgage rates dropped because people were not buying homes due to the fact that they had no money. Therefore, mortgage rates began to drop so that people would buy homes.

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