ans1154a - Economics 154a, Spring 2005 Intermediate...

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Intermediate Macroeconomics Problem Set 1: Answer Key 1. The Federal Reserve Bank of St. Louis maintains a database . .. The right series to download are: (a) GDP (Y): Real Gross domestic Product, Decimal 1 (b) Consumption (C): Real Private Consumption Expenditures-Q (c) Government expenditures (G): Real Gross Government Expendi- (d) Private Investment (I): Real Gross Private Domestic Investment (e) Net Exports (NX): Real Net Exports of Goods and Services, or since this series does not go all the way back to 1947, as the others do, you can construct it from Exports-Imports. To calculate national savings you use the following identity: S=I+CA. For I you use the series above, and for CA you can either take the ”Balance on Current Account” or, since CA= NX+NFP and NFP are generally small, you can approximate it by using NX from above. Figure 1 shows the five components of GDP as fractions of the total. In the long run the main trend to be observed is the increase in the proportion of output that is privately consumed and the correspond- ing decrease in government expenditures. In the short run, or what economists call ’at business cycle frequencies’ you can see that move- ments in the I fraction of GDP run counter to those in C and G. Finally, regarding this millennium. .. you can see a decrease in the proportion of GDP that corresponds to investment during 2000-2002, that coincides with a small increase in the fraction consumed by the government and by a huge negative increase in the size of net exports. Finally, Investment can be larger than savings if the current account is
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ans1154a - Economics 154a, Spring 2005 Intermediate...

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