Intermediate macroeconomicsProcedure: Please upload all of your work (spreadsheets, scatter plots, graphs and answers to
the questions) on Moodle but also submit a printed copy of the ?nal outputs (scatter plots,
graphs and answers to the questions only, you do not need print out the spreadsheets with the
data) in AG20.
Part I
Using U.K. Data
1. Find the GDP data at National Statistics located at:
http://www.ons.gov.uk/ons/datasets-and-tables/data-selector.html?table-id=A2&dataset=ukea
and choose the Table 1.1.2: Gross domestic product: by category of expenditure.
2. Choose the variables:
(a) NMRK
General Government: Final consumption expenditure (P3): CP NSA m
(b) NPQX
Total Gross Fixed Capital Formation CP NSA m
(c) BKTL
Gross Domestic Product at market prices: Current price: CP NSA m
(d) NMRU
General Government: Final consumption expenditure: P3: CVM m
(e) NPQR
Total Gross Fixed Capital Formation CVM NSA m
(f) BKVT
Gross Domestic Product: : CVM NSA m
3. Save the annual data only for the years 1948-2013.
a) (2 marks) Create a scatter plot with government consumption expenditure NMRK on the hor-
izontal axis and gross ?xed capital formation (investment) NPQX on the vertical axis. (current
prices).
b) (2 marks) Create a scatter plot with government consumption expenditure NMRU on the
horizontal axis and gross ?xed capital formation (investment) NPQR on the vertical axis (chained
volume measures).
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Cty University London Intermediate Macroeconomics 2 EC2016
c) (3 marks) Create a scatter plot with government consumption expenditure NMRK divided by
Gross Domestic Product BKTL on the horizontal axis and gross ?xed capital formation NPQX
divided by Gross Domestic Product BKTL on the vertical axis.
d) (3 marks) Create a scatter plot with government consumption expenditure NMRU divided by
Gross Domestic Product BKVT on the horizontal axis and gross ?xed capital formation NPQR
divided by Gross Domestic Product BKVT on the vertical axis.
Part II
Using U.S. Data
1. Find the web site of the Bureau of Economic Analysis (part of the U.S. Department of
Commerce) and go to the page with national accounts, located at:
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1
2. In Section 1, select Table 1.1.5.
3. Press modify and request the table with annual data from 1929 to 2014 and press the
button refresh table.
4. After the new chart appears, press download and save as xls.
a) (2 marks) Using the data from Table 1.1.5, create a scatter plot with nominal government
consumption expenditures & gross investment on the horizontal axis and nominal gross private
domestic investment on the vertical axis.
b) (2 marks) Select Table 1.1.6 and repeat the process above. Create a scatter plot with real
government consumption expenditures & gross investment on the horizontal axis and gross
private domestic investment on the vertical axis.
c) (3 marks) Use the data from Table 1.1.5 to calculate government consumption expenditures
& gross investment and gross private domestic investment, each as fractions of GDP. Create
a scatter plot with government consumption expenditures & gross investment/GDP on the
horizontal axis. and gross private domestic investment/GDP on the vertical axis.
d) (3 marks) Use the data from Table 1.1.6 to calculate government consumption expenditures
& gross investment and gross private domestic investment, each as fractions of GDP. Create
a scatter plot with government consumption expenditures & gross investment/GDP on the
horizontal axis. and gross private domestic investment/GDP on the vertical axis.
Part III
a) (40 marks) Rosencrantz and Guildenstern are two politicians from rival parties who have seen
the results from Part I and Part II. According to Rosencrantz the evidence plainly suggests that
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Cty University London Intermediate Macroeconomics 2 EC2016
government expenditure crowds in investment, i.e. more government expenditure will inevitably
cause higher investment. Guildenstern argues based on the same charts that government ex-
penditure crowds out investment, i.e. the causation runs the other way. In 500 words or less,
explain the patterns in the eight graphs you have produced and why the relationship appears so
dierent depending on whether you use nominal variables, real variables or a fraction of GDP.
Who is right, Rosencrantz, Guildenstern, or consider that perhaps neither is right?
b) (10 marks) For both Part I and Part II compare the patterns of the graphs in sections c)
and d) where in each case the data is denominated as fractions of GDP. Do the patterns exactly
match or do they dier slightly? Explain why or why not.
Part IV
Using World Data
1. Go to the website for the University of Pennsylvania World Tables 7.1:
https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php Choose seven countries from
the list, Canada, China (use version 2), Japan, the U.K. and three other countries where
the ?rst letters of two of the additional countries must correspond to your own initials.
Example: Someone named John Smith might choose Jordan and Senegal or Jamaica and
Seychelles. If a name begins with the letters W, X, or Y choose countries whose names
begin with A or Z instead (do not worry if there is some missing data for particular
countries).
2. Choose the variables P (Price Level of Gross Domestic Product) and XRAT (Exchange
Rate) Choose the option ?add all?for years.
3. Under output format, choose ?comma separated values .csv?.
4. Copy the result and then copy and paste the data into an excel spreadsheet. The data
will all be sitting in one column so choose text to columns in the Data toolbar. Choose
commas for the delineations and this will spread the data into the columns on the right.
5. Invert the variable P and multiply by 100, i.e. calculate 100/P. This is the Real Exchange
Rate relative to the US$ as de?ned in page 587 of the Williamson textbook.
6. Normalise the value of XRAT so that the ?rst year in the data series (usually 1950, but for
some countries such as China it starts a few years later) is equal to 100/P. Then divide all
subsequent values of XRAT by this normalised initial ratio of XRAT1950/RealExchangeRate1950.
The idea here is to be able to compare the movements of the real and nominal exchange
rates on the same axes.
7. (10 marks) Plot both the variables you calculated in 5 and 6 together in the same graph.
(years on the horizontal axis, nominal and real exchange rates on the vertical axes).
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Cty University London Intermediate Macroeconomics 2 EC2016
8. Answer the following questions, next to the graph or at the top of the spread-sheet:
(a) (10 marks) According to your calculations which countries?exchange rates are usually
over-valued? Under-valued? Correspond to the theory of Purchasing Power Parity
(PPP)?
(b) (10 marks) What explains the dierence between the nominal and real exchange rates,
i.e. what is happening to relative prices?
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