ECON 202 HW 1

HW1 for the first week: Due by the end of the weekend in BB 25 pts

Use the data in the Table below to answer the questions asked in a and b on each of the 3 variables for the US economy:

a. Calculate the annual changes in RGDP growth rates, unemployment rates and inflation rates in % for the years from Year 2007 through 2020 and show them in a new column next to each of the values of the three variables (a template of the table is given below).You may use excel spreadsheet for estimation as well. 5 pts

Year	Real GDP in 2012 Base Year prices	RGDP growth rate in %	Unemployment Rate	Change in U rate in %	CPI Indices	Inflation rate in %
2006	15,338.3	-	4.4%	-	201.6	-
2007	15,626.0	?	5.0%	?	207.3	?
2008	15,604.7	?	7.3%	?	215.3	?
2009	15,208.8	?	9.9%	?	214.53	?
2010	15,598.8	?	9.3%	?	218.05	?
2011	15,840.7	?	8.5%	?	224.93	?
2012	16,197.0	?	7.9%	?	229.59	?
2013	16,495.4	?	6.7%	?	232.96	?
2014	16,912.0	?	5.6%	?	236.74	?
2015	17,432.2	?	5.0%	?	237.02	?
2016	17,730.5	?	4.7%	?	240.01	?
2017	18,144.1	?	4.1%	?	245.12	?
2018	18,687.8	?	3.9%	?	251.11	?
2019	19,091.7	?	3.5%	?	255.66	?
2020	18,426.1	?	8.1%	?	258.81	?

b. Illustrate the values you have estimated in answer to Q1a in a single graph or you may graph in three separate diagrams for three variables for those years of economic performance. 5 pts

c. Based on those calculations, briefly analyze the overall economic performance over the last 14 years (2007-2020) and critically predict about these three macroeconomic variables for 2021-22. 5 pts

Note: please make sure you take into account of the sudden economic downturn in 2020 amid COVIOD-19 Pandemic crisis in your prediction and its subsequent recovery in 2021. In another words, while predicting the trend for 2021-2022 (based on the growth rates and trend you estimated in the table above), it is imperative to observe the most recent data on these three variables.

10

Q2. Using the materials in Chapter 3 of the textbook on Composition of GDP, use the macroeconomic model below to answer the questions followed. 10 pts

Use the following macroeconomic model structure to answer the questions followed. Please note that you must show your work of estimations for these numerical multiple- choice questions for gradable credit. Without showing your works of estimation, your answers won’t credible for take-home exam. 8 pts

C = 300 + 0.8Yd; C = consumption function; Yd (Y-T) = disposable income I = 200; I = Investment

G = 400; G = Government expenditure T = 200; T = Tax revenue

Also assume that Yf = Full employment GDP (Potential GDP) = 5,000

· The equilibrium GDP level (income) is . Hint: Ye = C+I+G a. 2,850

b. 3,700

c. 3,145

d. 3,800

· At the equilibrium level of output, the aggregate consumption level is: a. 3,100

b. 3,250

c. 3,400

d. 3,625

· At the equilibrium level of output, the aggregate saving level is: a. 550

b. 450

c. 400

d. 350

· The MPC and MPS for the economy is respectively: a. 0.9 and 0.1

b. 0.85 and 0.15

c. 0.75 and 0.25

d. 0.80 and 0.20

· The expenditure multiplier for the economy is:

· 10

· 8

· 5

· 4

· The tax multiplier for the economy is:

· -3

·

11

b. -4

c. 4

d. 5

2.7. Given the value of full employment level of GDP above, the GDP gap is

a. 1,200 b.1,300 c. 1,400

d. 1,500

Hint: GDP gap is the difference between full employment (potential GDP) and existing equilibrium GDP)

2.8. The government spending needed to bridge the GDP gap you found in statement 8.7 above would be

Hint: It is also called recessionary or inflationary gap depending on whether the economy is in state of recession or inflation.

a. 400

b. 350

c. 260

d. 250

2.9. Suppose the Payroll tax reduction for middle-income households has been extended in the amount of $500 billion for the remainder of 2020 to recover from COVID-19 crisis. Assuming the MPC for that income group of households is 0.8 and also assuming that other things stay the same, the increase in GDP under this proposed extension of tax break is expected to increase by (ΔY) 1pt

a. $2,500 billion

b. $2,000 billion

c. $1,000 billion

d. $1,500 billion

Hint: Need to use tax multiplier and it is a negative tax.

2.10. Illustrate your answer to Q2.1 in a diagram with the use of 45 degree equality line of aggregate expenditure including the level of full employment GDP assumed in the above model. Course Instructor will explain in more detail in the class during the first week of the session. 1pt