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Spring 2017 Macroeconomics Homework 1 2017. 5. 8 ♦ There are 100 Full points. 15% of the final grade. ♦ Deadline: the next class (May 15)。 ♦ You can discuss with other students about the homework, but you must hand in your own answers. If some or all of answers are suspected to be directly copied from other students, no points are given. ♦ Please do not omit processes leading to final answers. ♦ Please attach titles and other necessary information to graphs (see graphs in the lecture notes). ¥ Question 1 (51 points) (1) (6 points)From the homepage of the Economic and Social Research Institute, the Cabinet Office of Japan, download datafiles of nominal GDP and real GDP (fiscal year). Then, using the obtained data, create a graph illustrating transitions of nominal GDP and real GDP for fiscal years 1994 − 2015 (a graph similar to the one on page 9 of Lecture note 1). The http addresses for the datafiles are as follows. (Note: When you copy and paste a http link, character is often not copied properly. Please correct it accordingly.) Nominal GDP:http://www.esri.cao.go.jp/jp/sna/data/data list/sokuhou/files/2016/ qe164 2/ icsFiles/afieldfile/2017/03/07/gaku-mfy1642.csv Real GDP:http://www.esri.cao.go.jp/jp/sna/data/data list/sokuhou/files/2016/ qe164 2/ icsFiles/afieldfile/2017/03/07/gaku-jfy1642.csv The files are in CSV format, and can be opened using spread sheet softwares such as Excel. (2) (6 points)Using the data downloaded in (1), create a graph illustrating transitions of annual growth rates of nominal and real GDPs (in percentage) for fiscal years 1995 − 2015 (a graph similar to the one on page 10 of Lecture note 1). (3) (1 point)Using the real GDP data, calculate the (geometric) average growth rate of real GDP (in percentage, up to two decimal points) for fiscal years 1994 to 2015. The formulas to be used is {[ (Real GDP in fiscal year 2015) ]1/(2015−1994) } − 1 × 100. (Real GDP in fiscal year 1994) 1 (4) (4 points)Using the data of nominal GDP and real GDP downloaded in (1), create the data series for GDP deflator, and create a graph illustrating transitions of levels of GDP deflator for fiscal year 1994 − 2015. (5) (1 point) Using the data of GDP deflator created in (4), compute average rates of change of GDP deflator for fiscal years 1994 − 2015 (in percentage, up to two decimal points). The formulae similar to the one in (3) should be used. (6) (6 points) The data of real GDP and GDP deflator used so far are calculated using the chain method. In Japan, the chain method was adopted on December 2004, and after the switch to 2008 SNA in December 2016, is the solely used method. Unlike the GDP deflator calculated with the fixed base year method, a base year is updated every year in the chain method deflator (that is, the previous year is the base year). The chain method is largely free from the problem of the other method that biases of the price index increase with the number of years from the base year. In order to compare series calculated with the two methods, download the datafile of GDP deflator (fixed-based method, fiscal year, 2005 calendar price) from the site of the National Accounts for 2014 of the Economic and Social Research Institute, extract the data of ”5. Gross domestic product (expenditure approach)” from the file, and create a graph illustrating transitions of the two series of GDP deflator for fiscal years 1994−2014. GDP deflator (fixed year method):http://www.esri.cao.go.jp/en/sna/data/kakuhou/files/ 2014/tables/26ffr1d en.xls Note that the original series in this file must be divided by 100 so that it can be compared with the chain method series. (7) (4 points) The data file of nominal GDP used in (1) contains data on nominal GNI (gross national income). Using this data, obtain the data series of nominal GNI divided by nominal GDP (up to three decimal points). (Submit the created data.) How much percentage (two decimal points) is nominal GNI greater (or smaller) than nominal GDP on average for fiscal years 1994 − 2015? (8) (23 points)From the same HP as (1), download the datafile of contributions to changes in annual real GDP (fiscal year). Then, create a graph illustrating transitions of the real GDP growth rate and the contribution of each demand component(private consumption, private residential investment, private non-residential investment, change in private inventories, government consumption, public investment, and net exports)on the GDP growth rate for fiscal year 1995 − 2015. (The contribution measures the amount of the GDP growth rate that is directly explained by the change of the component.) Note that a stacked bar graph should be used for the contributions of demand components. The http address for the datafile is as follows. 2 http://www.esri.cao.go.jp/jp/sna/data/data list/ sokuhou/files/2016/qe164 2/ icsFiles/afieldfile/2017/03/07/kiyo-jfy1642.csv Further, explain briefly patterns of contributions of each demand component, such as signs and magnitudes, relations with the real GDP growth rate. ¥ Question 2 (Total 25 points) (1) (3 points)In the final part of Lecture 3 (on page 12), we derived the IS balance (relation) for the economy without any transactions with foreign economies. Derive now the IS balance for the economy with international trade. (Except this, the economy is same as the one studied in the class. For example, there are no income receipt/payment from/to foreign economies.) (2) (3 points) For each sector, the difference between its receipt (income)and payment (expenditure) is called the sector’s balance of saving and investment. For example, as for the private sector, the receipt is its disposable income, the payment is the sum of its consumption and investment, and the balance of saving and investment is the difference, private saving minus private investment. In the economy considered in (1), what are balances of saving and investment for the government sector and for the foreign sector? How much is the sum of balances of saving and investment of all the three sectors? (3) (19 points)In Japan, the variable similar to balance of saving and investment is called Net lending/Net borrowing, which is the sum of balance of saving and investment and net receipt of capital transfer. We want to examine transitions of sectoral net lending/net borrowing (relative to GDP). Download the datafile of ”(18) Net Lending(+)/Net Borrowing (−) classified by Institutional Sectors” from the site of the National Accounts for 2015 of the Economic and Social Research Institute. The http address of the data file is as follows. Net Lending(+)/Net Borrowing (−) classified by Institutional Sectors: http://www.esri.cao.go.jp/en/sna/data/kakuhou/files/2015/tables/27s18 en.xls From this file, extract the fiscal year data of ”1. Net Lending(+)/Net Borrowing (−)” for all the six sectors, and add the series for Non-financial corporations, Financial corporations, and Private non-profit institutions serving households. We call the aggregated series as ”Private non-household”. Then, create data on sectoral net lending/net borrowing relative to GDP (in percentage), by dividing sectoral net lending/net borrowing by nominal GDP and multiplying it by 100. (The nominal GDP series to be used is the one in Question 1 (1).) Using the created data, create a graph illustrating transitions of net lending/net borrowing relative to GDP for each 3 of the four sectors (household, private non-household, general government, rest of the world) for fiscal years 1994 − 2015. Further, based on the graph, describe the transitions briefly. ¥ Question 3 (Total 24 points) Consider the following multiplier model. 3 C = 120 + YD ([Private] Consumption function) 5 YD : Private disposable income 1 T = Y − 50 (Net tax function [Constant 50 represents income transfer.]) 6 G = 90 (Government expenditure) I = 90 (Private investment) Y : Output (GDP) (1) (3 points) Derive the aggregate demand function representing the relation between Y and aggregate demand Z. (2) (5 points) Using the aggregate demand function and the equilibrium condition for the goods market, obtain (equilibrium) values of output (GDP), private consumption, net tax, private saving, and total saving. Note that the level of government investment is assumed to be 30. (3) (8 points) Income tax rate is changed from 16 (see the net tax function) so that balanced budget (G = T ) holds. Find new values of output, income tax rate, private consumption, and private saving. (Hint: denote new tax rate by t and use G = T as well as usual equations to find these values.) (4) (8 points) The income tax rate is at the initial level of 16 again. Suppose that the marginal propensity to save increases to 35 . Obtain values of output and private saving. Why does the paradox of saving not hold, unlike the model on page 13 of lecture note 3? Explain. (Hint: Unlike the model in the lecture note, (net) tax depends on Y .) 4