egb.ps1-2019 solution.pdf - Economics of Global Business...

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Economics of Global BusinessProblem Set #1: Solution1. One big question is ”how is economic growth distributed?” This first questions looks at labor’sshare of income, that is how much do workers get out of the total pie.a. We use FRED to acquire the following data series: Gross Domestic Product (FRED Code ”GDP”)and Compensation of employees (FRED Code A033RC1A027NBEA”). For convenience, we workonly with annual frequencies. We first open the series on FRED and click ”Edit Graph”. In the”Modify frequency” box select ”Annual” and choose ”Average” for the Aggregation method.To compute average annual growth rates, use the formula100×(ln(GDP1980)-ln(GDP1970))/(1980-1970)for each corresponding decade. Note that we are dividing by difference in years of 10 years ratherthan the number of years we are averaging on (11 years). Then we construct the following table.Series1970-19801980-19901990-20002000-20181970-2018Growth Rate of GDP9.79%7.36%5.42%3.87%6.15%Growth Rate of Labor Compensation9.56%7.22%5.60%3.47%5.97%b. To construct a graph that plots the ratio of Labor Compensation relative to GDP for the entiretime period 1970-2018, we go on FRED on GDP graph and click on ”Edit graph”. On the tab”You can begin by adding a series to combine with your existing series” search for Compensationof employees (FRED Code A033RC1A027NBEA”) and click add.GDP should be labeled asdataset (a) and compensation of employees as dataset (b).Below in the tab ”Now create a

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