Economics 304: Intermediate Macroeconomics
Fall 2007
Reed College -- Professor Jeffrey Parker

Homework #2
Due: 9am, Friday, September 7

Problems from Blanchard: Chapter 3, Problems 2 through 8.

Empirical Exercise: Your answer to this exercise should be assembled in a word-processor file and submitted either in electronic form via email or in print form. You may use standard copy and paste functions to copy your graphs and tables from Excel into Word.

Download the dataset HW_2.xls, which contains a set of Excel spreadsheets with data on the size and composition of GPD for many countries. The data are drawn from the Penn World Tables, Version 6.2. Use the data to answer the questions below.

The top spreadsheet in the file contains data for 2000. Other sheets have comparable data for 1995 and 1990. Use the tabs at the bottom to move between sheets. Empty cells indicate missing data. The variables in the data set include per-capita real GDP (in 2000 US $) and the percentage shares in GDP of consumption, government spending, and investment. The shares do not add up to 100% when net exports are non-zero. If you want additional information about individual countries, you may use whatever sources you think are appropriate, but be sure to cite them.

1. Sort the data for each year in descending order of consumption share.

• How can a country's consumption share be greater than 100%? Is this desirable? Is it sustainable?
• What characteristics do most of the countries near the top of the list in 2000 have in common? Are they also near the top in the other years?
• Some of the values for consumption share in 2000 are surprisingly small. Given the countries at the bottom of the list, what might explain these small consumption shares? Are these countries also near the bottom in the other years?

2. Sort the data for each year in descending order of investment share.

• How would you characterize the countries at the top of the list in 2000? Why would countries like these have high investment? Are they also near the top in other years?
• How would you characterize the countries at the bottom of the list in 2000? Why would these countries have low investment? Are they also near the bottom in other years?

3. Sort the data for each year in descending order of per-capita income.

• Among the countries at the top of the list, how do the shares of consumption, government spending, and investment compare to the rest of the world? Are these shares roughly consistent over time?
• Among the countries at the bottom of the list, how do the shares compare with the rest of the world? Are they consistent over time?
• Create a scatter plot (with lines connecting the data points) for 2000 with per-capita income on the horizontal axis and the shares of consumption, government spending, and investment on the vertical axis. (Hint: Use Insert -- Chart -- XY (Scatter) to get started.) Are the patterns that you observed for the richest and poorest countries consistent across the sample?

4. Create a new column of data for each year. Use Excel formulas to fill this column with the share of net exports, calculated as 100 minus the sum of consumption, investment, and government shares. Sort the data according to net export share.

• What can you say about the magnitudes of net export share for the countries at the top and bottom of the list? Do the magnitudes seem large or small? Are they consistent over time? What are the characteristics of the countries at the top and bottom of the list?
• Where does the United States fall in terms of net export share? Does this make you more or less worried about the U.S. trade deficit?

5. Summarize, using your results from above and other observations on the data: What factors seem to be most important in determining the composition of GDP for individual countries?