3.23.    Table 3.8 gives data on gross domestic product (GDP) for the United States for the years 1959–1997.

a.   Plot the GDP data in current and constant (i.e., 1992) dollars against time.

b.   Letting Y denote GDP and X time (measured chronologically starting with 1 for 1959, 2 for 1960, through 39 for 1997), see if the following model fits the GDP data:

Yt   = β1 + β2 Xt + ut

Estimate this model for both current and constant-dollar GDP.

c.   How would you interpret β2 ?

d.   If there is a difference between β2 estimated for current-dollar GDP and that estimated for constant-dollar GDP, what explains the difference?

TABLE 3.8     NOMINAL AND REAL GDP, UNITED STATES, 1959–1997

Note: NGDP = nominal GDP (current dollars in billions).

RGDP = real GDP (1992 billions of dollars).

Source: Economic Report of the President, 1999, Tables B-1 and B-2, pp. 326–328.

e.   From your results what can you say about the nature of inflation in the United States over the sample period?