{"id":7018,"date":"2020-09-01T15:32:56","date_gmt":"2020-09-01T10:02:56","guid":{"rendered":"https:\/\/vivekkaul.com\/?p=7018"},"modified":"2020-09-01T21:17:31","modified_gmt":"2020-09-01T15:47:31","slug":"the-us-economy-contracted-by-9-1-and-not-32-indias-economy-contracted-by-23-9","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2020\/09\/01\/the-us-economy-contracted-by-9-1-and-not-32-indias-economy-contracted-by-23-9\/","title":{"rendered":"The US Economy Contracted by 9.1% and not 32%. India\u2019s Economy Contracted by 23.9%."},"content":{"rendered":"

Summary: I had absolutely no plans of writing this. But given what has been happening on Twitter and WhatsApp since the morning, I was forced to write this. Please read and share widely. <\/em><\/p>\n

There is a full-fledged controversy raging on the internet where people have said that the economy of the United States, as represented by its gross domestic product (GDP), contracted by 32%, during April to June 2020. This was worse than India\u2019s contraction of 23.9%.<\/p>\n

This comparison is totally wrong. The way the United States reports GDP growth\/contraction is different from the way India does. Let\u2019s try and understand this in detail.<\/p>\n

In April to June 2020, the US economy contracted by 9.1% in comparison to January to March 2020. This is a quarter on quarter comparison. This figure is then annualised.<\/p>\n

How do we annualise it?\u00a0 We do that by assuming that the US economy will continue to contract by 9.1% quarter on quarter, over the next three quarters (basically we compound in a negative direction, since the economy is contracting). Let\u2019s understand this through a simple example.<\/p>\n

So, let\u2019s say during the January to March 2020, the size of the US economy or its GDP was $100. In April to June 2020, this contracted by 9.1%. The size of the economy came in at $90.9 ($100 \u2013 9.1% of $100).<\/p>\n

In July to September 2020, the economy will contract further by 9.1% to $82.63 ($90.9 \u2013 9.1% of $90.9).<\/p>\n

In October to December 2020, the economy will contract further by 9.1% to $75.11 ($82.63 \u2013 9.1% of $82.63).<\/p>\n

In January to March 2021, the economy will contract further by 9.1% to $68.27 ($75.11 \u2013 9.1% of $75.11).<\/p>\n

Hence, by the end of one year, the economy has contracted from $100 to $68.27 or by 31.73%, which is nearly equal to 32%.<\/p>\n

This is how the GDP growth\/contraction numbers in the US get reported. Hence, by this logic, on an annualised basis, the US economy contracted by close to 32% in the period April to June 2020, in comparison to January to March 2020. But this figure can\u2019t be compared with the Indian figure.<\/p>\n

The Indian system is different. The GDP during a particular quarter is compared to the GDP during the same quarter in the last year. In the Indian case, the GDP contracted by 23.9% during April to June 2020, in comparison to April to June 2019 (and not January to March 2020, as is the case with the US). The Indian comparison is a year on year one and not a comparison with the previous quarter. The US comparison is a quarter on quarter comparison which is then annualised.<\/p>\n

If the US were to report the GDP growth\/contraction in the same way as India, its GDP during April to June 2020 contracted by 9.1% in comparison to the GDP between April to June 2019. The Indian economy contracted by 23.9% during the same period. That\u2019s the right comparison.<\/p>\n

This is the right way of looking at things and not how they are being misrepresented on the social media, even by experienced economists.<\/p>\n","protected":false},"excerpt":{"rendered":"

Summary: I had absolutely no plans of writing this. But given what has been happening on Twitter and WhatsApp since the morning, I was forced to write this. Please read and share widely. There is a full-fledged controversy raging on the internet where people have said that the economy of the United States, as represented … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":7019,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[4094,41,4062],"tags":[4096,4095,1694,3858],"qubely_featured_image_url":{"full":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=1024%2C683&ssl=1",1024,683,false],"landscape":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=1024%2C683&ssl=1",1200,750,true],"portraits":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=540%2C320&ssl=1",540,320,true],"thumbnail":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=150%2C150&ssl=1",150,150,true],"medium":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=400%2C267&ssl=1",400,267,true],"medium_large":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=768%2C512&ssl=1",768,512,true],"large":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=1024%2C683&ssl=1",1024,683,true],"1536x1536":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=1536%2C1024&ssl=1",1536,1024,true],"2048x2048":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=1024%2C683&ssl=1",1024,683,true],"qubely_landscape":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=1024%2C683&ssl=1",1200,750,true],"qubely_portrait":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=540%2C320&ssl=1",540,320,true],"qubely_thumbnail":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?resize=140%2C100&ssl=1",140,100,true]},"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Explainer<\/a> Indian economy<\/a> Macroeconomy<\/a>","qubely_excerpt":"Summary: I had absolutely no plans of writing this. But given what has been happening on Twitter and WhatsApp since the morning, I was forced to write this. Please read and share widely. There is a full-fledged controversy raging on the internet where people have said that the economy of the United States, as represented…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2020\/09\/GDP-fall-e1599081320625.png?fit=1024%2C683&ssl=1","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/7018"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=7018"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/7018\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media\/7019"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=7018"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=7018"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=7018"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}