Econ 385 Intermediate Macroeconomics I
Homework Assignment #1
January 20, 2024
Abstract
The entire assignment must be submitted by 10 AM on the due date via eClass assignment portal. No late assignments will be accepted. Your assignment submission must be assembled into one PDF file with clear and easily readable writing and images. Use a good quality scanner app (for example Genius Scan) to scan your hand written notes. You can work on this assignment in groups of up to four people, but individual work is also acceptable. Only one assignment per group should be submitted. Select one responsible person from your group who will submit the report on time. Don't forget to write names and student ID numbers of all group participants on the first page of your report. As always with my homework questions or exam questions, please make sure to answer the questions posed, and show/explain your work, so that my TA or I see the chain of your reasoning.
1 Growth accounting exercise (20 points total)
Imagine that your top manager is about to give an important presentation to the IMF executives about the growth experience of two countries, Greece and Turkiye. Your manager is always busy and relies on you, one of her best researchers, to do the analysis. She asks you to research this topic and write a nice and clear 3-4 page report summarizing your analysis and main findings. Your manager is a really nice person, so you donít want to let her down. You decided to do the growth accounting exercise using PWT 10.01 data for the years 1959, 1969, 1979, 1989, 1999, 2009, 2019. For both Greece and T¸rkiye you need to do the following tasks:
1.1 Download Excel data file from PWT 10.01 database. Focus on real GDP, real capital stock, employment and labour share data for both Greece and T¸rkiye. Specifically, use the following series:
Real GDP at constant 2017 national prices (in mil. 2017US$), rgdpna
Capital stock at constant 2017 national prices (in mil. 2017US$), rnna
Number of persons engaged (in millions), emp
Share of labour compensation in GDP at current national prices, labsh
In your final report to the manager you will need to have a nice, properly labeled table similar to Table 7.2 in Chapter 7 of your textbook, which reports the compiled data and the sources of data. Typically this kind of background information goes into an Appendix of your report.
1.2 For each country, calculate TFP using a Cobb-Douglas production func-tion with the labour exponent set equal to the average labour share of this country, with the average taken over the selected years (1959, 1969, 1979, 1989, 1999, 2009, 2019).
1.3 Plot calculated TFP levels for both countries on the same graph, while making sure that they both start from 100 in 1959. You will need to re-scale the entire TFP series for both countries in order to achieve that.
1.4 Calculate the average annual growth rates of output, capital, employment and TFP for each decade, and report them in a nice table just like Table 7.3 in chapter 7 of your textbook.
1.5 For each decade and for each country calculate the share of output growth that can be attributed to growth in capital, employment and TFP.
1.6 Write a brief but informative summary of main insights that your manager should learn from your research in preparation for her important presen-tation. This report with all the tables and charts (needed to support your conclusions) will be the first part of your homework. It will be graded on the basis of how good my TA feels about your report. It is certainly a subjective metric, but this is what you should expect from your future managers anyway.
2 Analyzing Income and Substitution effects (20 points)
In a one period model of Chapter 4, suppose the real wage has increased, but the non-wage income decreases at the same time so that to exactly offset the income effect of the real wage fall. Use carefully labeled charts to show the impact of these changes on the representative consumer's optimal choices. Use letters and intervals to clearly label various points and distances in your charts.
Your charts must clearly show the following details:
a) The income and substitution effects of the real wage change alone.
b) The magnitude of the change in the representative household's non-wage income which eliminates the income effect of the real wage change.
c) The effect of both income changes combined on consumption.
d) The effect of both income changes combined on leisure.
e) The effect of both income changes combined on labour supply.
3 Plotting a chart with a trend curve (20 points)
Figure 1.3 in your textbook shows log of real per capita income in Canada and an HP filtered trend curve fit to this series. You will need to plot a similar chart, but for natural logarithm of U.S. Real GDP (not per capita) PLUS a linear trend fit to this series. In order to do that you need to find Real GDP data for U.S.A. This series should be quarterly frequency, seasonally adjusted at annual rates, and cover the period from the first quarter of 1961 to the third quarter of 2023. You can find these data on the FRED databse website. This exercise is easiest to do in Excel, but if you want to do it in other software packages, I am fine with that. Label and format the chart to make it look as professional as possible. My TA will be comparing your charts with my chart and giving you grades based on how close they are in terms of quality.