Problem set 2 - mnnnnnnnnnn PDF

Preview

Summary

mnnnnnnnnnn...

Description

Problem set 2 1. Application: Components of GDP growth Calculations in economic reports similar to your lecture slide (IMF and PWC report), please fill in the blue cell with your computation and create a chart to show the GDP growth and also the components contribution to GDP growth Note: In this you have to download the data from blackboard for the UK and compute the contribution of each GDP component to GDP growth from 1997 to 2020.

2. Assume that a household has access to credit. Which of the following is likely to have a significant effect on long-run consumption? A. A temporary reduction in income. B. A rise in interest rates. C. An unexpected promotion to a senior position. D. A freeze in the value of state retirement benefits.

3. A temporary change in income affects the current consumption of creditconstrained households more than it does that of the unconstrained because: A. A credit-constrained household is unlikely to have savings to fall back on. B. If the household cannot borrow, its current consumption is limited by its current income. C. A credit-constrained household cannot foresee the future. D. Credit-constrained households are likely to be shortsighted.

4. Why is investment spending likely to be more volatile than consumption spending? Because A. investment depends entirely on ‘animal spirits’. B. Because firms cannot foresee the future.

C. Because a large part of consumption spending is on items that cannot be postponed. (‘non-discretionary’) – food, heating, lighting, shelter, for example. D. Interest rates fluctuate.

5. Consider a credit-constrained household type and a consumption smoothing household type. I. For each household type, use a figure with time on the horizontal axis and income and consumption on the vertical axis to explain the relationship between the change in income and the change in consumption when income returns to normal after an unexpected temporary decline. II.

Based on this analysis, explain the predicted relationship between temporary changes in income and consumption for an economy with a mixture of the two household types....