A1_11F_Sol

# A1_11F_Sol - Econ 204 Instructor J Li ASSIGNMENT 1 ANSWERS...

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Econ 204 Instructor: J. Li 1 ASSIGNMENT 1 ANSWERS SEPTERMBER 2011 1. Empirical Part: Real GDP, Canada vs. US (a) Table 3800002 - Gross domestic product (GDP), expenditure-based, quarterly. Series label - v1992067 +0.5 for each (b) See columns “GDP Log Levels” and “Quarterly (Log) Growth” for calculated Canadian/US values for ln Y t and 100 × (ln Y t - ln Y t-1 ). Graphs as in Figures 1(a) or 1(b) and 2. Clearly labelled. Axes should be scaled so that some variation in output is observable. +1.5 for each graph Figure 1(a) presents Canadian and US quarterly real Gross Domestic Product (seasonally adjusted at annual rates) in logarithms over the sample 1990:1 - 2009:4. The US series is in billions of chained 2005 US dollars, the Canadian series is in chained 2002 Canadian dollars. Figure 1(b) presents the same data in a slightly different format; the Canadian series is measured with respect to the left-hand side axis while the US series is measured with respect to the right- hand side axis. The advantage of this format is that it facilitates comparison of the two series, abstracting from the different units of measurement. {Note. With Figure 1(b), where the two series are drawn on separate axes, it is important to ensure that the two axes span the same distance (ie. 13.4–14.1 and 15.8–16.5). Otherwise, the relative growth rates are distorted.} 15.85 15.95 16.05 16.15 16.25 16.35 16.45 16.55 13.35 13.45 13.55 13.65 13.75 13.85 13.95 14.05 14.15 Canadian real GDP (left) US Real GDP (right) Fig. 1 (b) Real (Log) GDP Comparison Time Ln (Million CAN Dollars) Ln (Million US Dollars)

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Econ 204 Instructor: J. Li 2 Figure 2 presents four-quarter ended growth rates (log approximation) of the two GDP series. +0.5 for each graph description (c) Given: the log level plot of GDP for the two countries. (i) Compare and contrast: the performance of the two economies. (1) Compare trend growth behaviour; 15.85 15.95 16.05 16.15 16.25 16.35 16.45 16.55 13.35 13.45 13.55 13.65 13.75 13.85 13.95 14.05 14.15 Canadian real GDP (left) US Real GDP (right) Fig. 1 (b) Real (Log) GDP Comparison Time Ln (Million CAN Dollars) Ln (Million US Dollars) -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Canadian Quarterly Growth Fig. 2 GDP Quarterly (Log) Growth Comparison Time Percent
Econ 204 Instructor: J. Li 3 (2) Compare deviations (in dashed line) from trend (in solid line) – bumps and jumps along the smooth trend path; [Suggested Answers] We can use Figure 1(a) or (b) to compare the performance of the two economies from a long run perspective; that is, we can compare and contrast the trend behaviour of GDP in the two countries. (You may find Figure 1(b) easier to read in scale.) Both countries grew reasonably quickly in the 1990s except for the first 1-2 years; the US seems to grow slightly stronger and steadier. +0.5 Subsequently, for both countries, trend growth slowed since early 2000 and slowed further since late 2006 and even further since 2008. +0.5 (ii) Possible to compare how well off the countries are? – No. (1) Different base years and currencies. We cannot use these two series to compare how well off these two countries are, for a variety of reasons. First, the series are not in similar units of measurement. The US series is measured in 2005 US dollars; the Canadian series is measured in 2002 Canadian dollars. So they are measured in

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A1_11F_Sol - Econ 204 Instructor J Li ASSIGNMENT 1 ANSWERS...

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