Econ 402 Winter 2024 Graded Homework 1

Econ 402 Winter 2024 Graded Homework 1 Due in Section in the week of February 5 Part I Economic data 1. Data Question I: Components of GDP 1) What was the share of each component in 1960? And in 2019? a. Shares of gross domestic product: Personal consumption expenditures (DPCERE1A156NBEA): i. 1960 –> 61% ii. 2019 –> 67.0% b. Shares of gross domestic product: Gross private domestic investment (A006RE1A156NBEA) i. 1960 –> 15.9% ii. 2019 –> 18.1% c. Shares of gross domestic product: Government consumption expenditures and gross investment (A822RE1A156NBEA) i. 1960 –> 22.2% ii. 2019 –> 17.6% d. Shares of gross domestic product: Net exports of goods and services (A019RE1A156NBEA) i. 1960 –> 0.8% ii. 2019 –> -2.7% 2) Do you see any changes over the 50 years in these shares? a. Shares of gross domestic product: Personal consumption expenditures (DPCERE1A156NBEA): i. From 1960 (61.1) to 2019 (67.0), the shares of GDP (personal consumption expenditures) increased by 5.9%

b. Shares of gross domestic product: Gross private domestic investment (A006RE1A156NBEA) i. From 1960 (15.9) to 2019 (18.1), the shares of GDP (Gross private domestic investment) increased by 2.2% c. Shares of gross domestic product: Government consumption expenditures and gross investment (A822RE1A156NBEA) i. From 1960 (22.2) to 2019 (17.6), the shares of GDP (Government consumption expenditures and gross investment) decreased by 4.6% d. Shares of gross domestic product: Net exports of goods and services (A019RE1A156NBEA) i. From 1960 (0.8) to 2019 (-2.7), the shares of GDP (Net exports of goods and services) decreased by 3.5% 3) Has the contribution of Net Exports changed? (Note: we still study the mechanisms through which trade policy can affect GDP growth during the second part of the course.) a. Yes. The net export decreased by 3.5%, meaning the nation’s total export goods and services were less than the value of all the goods and services the nation imported. Part II Growth and Convergence 2. Data Question II: Growth Rates and Convergence 1) Using Excel, plot the evolution of GDP per capita for these countries during this period (present the resulting graph as part of your homework). Do we see a convergence between Japan and the US? In what year did Japan catch up with the US? Do we see a convergence between Argentina and the US?

2) Compute the annual growth rate for each year for each country using the formula γ t = y t − y t − 1 y t − 1 . a. Compute the average annual growth rate for each of the three countries. (JPN) (ARG) (USA) average annual growth rate 0.030986535 0.011353104 0.019947566 b. Which country grew faster in per capita terms for the 1960-1990 period According to the average growth rate per capita from 1960 to 1990, Japan grew faster in per capita terms for this period. c. And for the 1990-2018 period? (JPN) (ARG) (USA) avg annual growth rate (1990-2018) 0.010397244 0.016665719 0.014763449 According to the average growth rate per capita from 1990 to 2018, Argentina grew faster in per capita terms for this period. d. Based on the Japan-US experience, would you expect that China will vastly surpass the US in terms of GDP per capita? (Here you just need to present the results for the average growth rates. You can compute an average in Excel using the “average” function.) According to the Solow model, China’s GDP will eventually converge with the US GDP because countries with similar parameters will eventually converge. (JPN) (ARG) (USA) average annual growth rate 0.030986535 0.011353104 0.019947566 1) Now compute the annual growth rate for each year for each country using the approximation γ t ≃ ln ( y t ) − ln ( y t − 1 ) . Compute the average of these new annual growth rates for each of the three countries during the same periods. Are your results similar to the ones you obtained in part (ii)? (Again, you only need to present results for the average growth rates.) (JPN) (ARG) (USA) avg annual growth rate (1960-1990) 0.051368383 0.004547771 0.02454112 (JPN) (ARG) (USA) Average γ t ' 0.029957414 0.009940557 0.019561429

Yes. The results are similar as they indicate similar trends, with Japan having the highest average annual growth rate and Argentina having the lowest annual growth rate, just like what it says in part (ii) 3. Computer Question: Simulating the Solow Model Using the spreadsheet, you will simulate the basic Solow model we discussed in class, where the parameters are given by: s = 0.15, δ = 0.2, α = 0.3, Y = A 1 − α K t α L 1 − α , L = 1 (in every period), A = 1 (in every period). i. First, calculate the steady state level of capital and output (show work, no need for Excel yet).