Econ 300

Homework 1

Due on Tuesday, July 22, 2014 at 12.00 in class.

Short Questions (5 points for each question from 1 to 6)

1) What are the three appraches to measuring GDP?

2) What is the difference between GDP and GNP?

3) Is GDP a good measure of economic welfare? Why or why not?

4) What is investment?

5) Besides persistence , what are the important features of deviations from trend in GDP?

6) Describe the key business cycle regularities in consumption and investment expenditures?

7) (10 pts) Define the following key terms: Amplitude, frequency, boom, business cycles, correlation
coefficient, peak, recession, scatter plot, seasonal adjustment.

Problems

1) (15 pts) Suppose that umemployment rate is 5%, the total working age population is 100 million ,
and the number of unemployed is 2.5 million. Determine (a) the participation rate;(b) the labor force;
(c) the number of employed workers.

2) (25 pts) Consider an economy with a corn producer, some consumers, and a government. In a
given year, the corn producer grows 30 million bushels of corn and the market price for corn is $5 per
bushel. Of the 30 million bushels produced , 20 million bushels are sold to consumers, 5 million are
stored in inventory, and 5 million are sold to the government to feed the army. The corn producer
pays $60 million in wages to consumers and $20 million in taxes to the government. Consumers pay
$10 million in taxes to the government, and receive $10 million in interest on the government debt,
and receive $5 million in social security payments from the government. The profits of the corn
producers are distributed to consumers. Calculate GDP using the three approaches.
Figure 3.17 Percentage Deviations from Trend in Real GDP and Government Expenditures

Figure 3.18 Scatter Plot of Government Expenditures Against Real GDP

3) (20 pts) In Figure 3.17, percentage Deviations from Trend in Real GDP and Government
Expenditures for the period 1947-2009 are plotted. Figure 3.18 is a scatter plot of the same data.

a) Which is more variable, Y or G?

b) Is G procyclical, countercyclical, or acyclical? How can you tell? What do you think explains this?

c) Is there any tendency for G to lead or lag Y, or is G coincident?