Web-Based Questions


1			THE MULTIPLIER—CALCULATING HYPOTHETICAL CHANGES IN GDP Go to the Bureau of Economic Analysis at http://www.bea.gov, and use the BEA interactivity feature to select National Income and Product Account Tables. Then find Table 1.1, which contains the most recent values for GDP = C_a + I_g + G + ( X - M ). Assume that the MPC is .75 and that, for each of the following, the values of the initial variables are those you just discovered. Determine the new value of GDP if, other things equal, (a) investment increased by 5 percent, (b) imports increased by 5 percent while exports increased by 5 percent, (c) consumption increased by 5 percent, and (d) government spending increased by 5 percent. Which of the changes, (a) through (d), caused the greatest change in GDP in absolute dollars?




2			GDP GAP AND RECESSIONARY GAP The St. Louis Federal Reserve Bank at http://www.research.stlouisfed.org/fred2 provides data on both real GDP (chained 2000 dollars) and real potential GDP for the United States. Both sets of data are located as links under "Gross Domestic Product and Components." What was potential GDP for the third quarter of 2001? What was the actual level of real GDP for that quarter? What was the size difference between the two—the negative GDP gap? If the multiplier was 2 in that period, what was the size of the economy's recessionary expenditure gap?