Macroeconomics (EC108) Problem Set 9a
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Macroeconomics (EC108)
Problem Set 9a
1 Business cycles
1. Consider the table below, showing hypothetical measures of real GDP in the coming years, starting at a level of f18 trillion in 2018, fill in the remaining columns of the table by answering the following questions:
Year |
Actual output Yt |
Potential output Y(¯)t |
Output xt |
gap |
Growth rate of actual output |
|
2018 |
18.00 |
|||||
2019 |
18.20 |
|||||
2020 |
18.50 |
|||||
2021 |
19.50 |
|||||
2022 |
20.00 |
(a) After some research using business surveys, unemployment reports, and recent years’ experience, an economist suggests that the economy was operating at potential output in 2018. Assuming that potential output grows at a constant
annual rate of 2.5% complete the remainder of the table.
(b) Briefly comment on the state of the economy in each year.
2. Consider output in country “Alpha” between 2009 and 2018 (in millions):
Table 1: ‘Alpha’ GDP
Year |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
output |
1 |
1.2 |
2.8 |
4.3 |
5.2 |
6.1 |
6.7 |
7.4 |
8.9 |
10 |
Assume that a simple straight line between 2009 and 2018 is a good estimate of trend GDP. Calculate the output gap.
3. After reading the following:
● World Bank’s “Global Economic Prospects” (Jan, 2023), read Global Con- text (pages 3-12). Available at: https://openknowledge.worldbank.org/ bitstream/handle/10986/38030/GEP-January-2023.pdf
● “https://www.ft.com/content/0012b878-cdcd-446e-8c0c-c008709a11c1” (Finan- cial Times, 10 Jan 2023) Available at:
https://www.ft.com/content/0012b878-cdcd-446e-8c0c-c008709a11c1
Answer these questions.
(a) Explain what has affected the World Bank’s growth estimates.
(b) How do investments affect the predicted slowdown in the world economy?
(c) Look at news for any other country in the world of your choice (it can be from local newspapers in that country). What is the economic outlook in this
country? How has it been affected by recent developments?
Notes:
More questions regarding the articles will be asked during the S&F class. You do need to read these articles before attending the session. If you haven’t read the articles, tutors can skip any discussion/questions based on these, as there is no time during the session to read articles.
You may not fully understand every aspect covered in the document. This is normal. Rather than trying to understand everything, focus on the aspects we have covered in the module so far. In particular, on the discussion of business cycles, what factors affect it, what is the role of consumption and investment. You can also start thinking about the relationship between output, inflation and unemployment.
You have received information on how to access the FT. I have explained this on Moodle too. You can go to www. ft. com/ warwickeconomics , and register using your Warwick account.
4. Collect data for GDP and unemployment rate for two OECD economies (different from the ones seen at the lectures) between 2008 and the most recent year for which data is available. Produce a scatterplot of percentage point changes in GDP and the unemployment rate over the course of this period. Answer the following:
(a) Describe briefly what the graphs shows.
(b) Does the data support Okun’s Law?
(c) If not, suggest some factors that might account for the differences in Okun’s coefficients observed across the chosen economies.
2 The Labour Market
5. An economy is characterised by the following equations:
wP S =0.5 (2)
Assume that zw = 0. Calculate the equilibrium level of employment for this economy and show this in a graph (you can use unemployment on the x-axis rather than employment).
3 Growth rates
These are some simple exercises on growth rates for you to practise on the properties of the growth rates.
6. Suppose k , n, and h grow at constant rates given by g k g n and gh. What is the growth rate of y in each of the following:
(a) y = k1/3
(b) y = k1/3n2/3
(c) y = hk1/3n2/3
(d) y = hk1/4n3/4
(e) y = hk3/4n1/4
(f) y = (knh)1/2
(g) y = (kn)1/4(1/h)3/4
2023-06-17