Assignment 2

Important

This assignment is now due 9/5/23

Note

A Microsoft word version of the assignment can be found here

Note

Answers to this assignment can be found here

There are two parts to this assignment. One focused on getting some empirical data, and one focused on GDP calculations in principle. Please complete both parts and submit as a word file by email.

Empirical Assignment

For this assignment you will get to know the Federal Reserve Economic Database — a key source of macroeconomic data from a large number of government agencies as well as private providers.

Get friendly with FRED

Watch the first 5 videos of the “How to Use FRED” playlist.

Recessions and recoveries

Note

You can get annual Real GDP annualized quarterly growth in two ways with FRED. You can start with Real GDP (GDPC1) in billions of chained 2012 dollars and convert the units to “compounded annual rate of change,” or you can just use (A191RL1Q225SBEA) which produces the same chart.

Produce a graph of annual Real GDP growth (percent change from preceeding period, quarterly, seasonally adjusted) from 1960 to the present. Download it as a png file and paste it in your homework (please adjust the size so it is reasonable).

  1. How many recessions has the US economy undergone since 1960, quarter 2?
  2. How many quarters has each recession lasted?
  3. In terms of length and magnitude, which two recessions have been the most severe?
  4. Which years had the longest period of uninterrupted growth in real GDP?

Shares of GDP

Note

To find shares of GDP, you can either use the search bar and type “shares of gross domestic product”, or you can visit the page for the GDP data release, Table 1.1.10.

On a single graph, show the shares of annual gross domestic product between 1950 and the present for:

  • Gross private domestic investment
  • Net exports of goods and services
  • Personal consumption expenditures
  • Government consumption expenditures

Download your graph as a png file and paste it in your homework (please adjust the size so it is reasonable).

  1. Which share is the largest, and which is the smallest?
  2. Do the shares remain constant over time or have they changed? If so, how? In particular, has the pandemic had any effect?

Theoretical Assignment

Nominal and Real GDP

An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2012 and 2013 are as follows:

Table 1: Example Economy

(a) 2012
Quantity Price
Cars 10 $2,000
Computers 4 $1,000
Oranges 1,000 $1
(b) 2013
Quantity Price
Cars 12 $3,000
Computers 6 $500
Oranges 1,000 $1

  1. What is nominal GDP in 2012 and in 2013? By what percentage does nominal GDP change from 2012 to 2013?

  2. Using the prices for 2012 as the set of common prices, what is real GDP in 2012 and in 2013? By what percentage does real GDP change from 2012 to 2013?

  3. Using the prices for 2013 as the set of common prices, what is real GDP in 2012 and in 2013? By what percentage does real GDP change from 2012 to 2013?

  4. Why are the two output growth rates constructed in parts b and c different? Which one is correct? Explain your answer.

Transactions

Determine whether each of the following tansactions contributes to the calculation of GDP as total spending. If if it coes contribute to GDP, then identify the relevant component of GDP (C, I, G, or NX)

  1. Michelin sells tires to Nissan to install on their 2022 Sentras that are produced and sold in the United States

  2. Molly Maid provides house cleaning services across the United States

  3. U.S. consumers import $3.5 billion of woven apparent from Bangladesh

  4. The U.S. government spent $523.1 billion on national defense

  5. Entrepreneur and Shark Tank investor Barbara Corcoran purchases 15% of Cousins Maine Lobster food truck company for $55,000.

Exceptions

Explain a scenario in which money is spent and not counted in GDP or a scenario in which money is not spent but something gets counted in GDP.