Figure 5.2: US Real GDP Annual Growth and Government Size (1870-2022)
This line graph presents the annual real GDP growth for the United States from 1870 to 2022, plotted on a vertical axis ranging from -20% to 40%. The data reveals significant economic volatility, with growth rates fluctuating around a zero average. A key historical trend visible in the graph is that these economic swings were much more severe prior to the 1940s and became notably smaller in the subsequent era. The chart also pinpoints the GDP growth rates during four specific historical events: +8% at the end of World War I (1918), +5% at the start of the Great Depression (1929), -4% during Roosevelt's New Deal (1933-1936), and -2% at the end of World War II. Furthermore, the figure highlights the expanding role of the government by plotting its size, which is measured as total tax revenue's share of GDP.
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Figure 5.2: US Real GDP Annual Growth and Government Size (1870-2022)
The Engine of Instability
The Volatility of a New Market Economy
Which statement best analyzes why recurring cycles of expansion and contraction in output and employment are considered a fundamental characteristic of capitalist economies?
In a capitalist economy, the complete absence of fluctuations in aggregate output and employment over a multi-decade period would signify a perfectly functioning and healthy system.
The Source of Economic Swings
US Real GDP Growth Since 1870 as an Example of Fluctuation