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Universitat Pompeu Fabra

Introduction to Macroeconomics
Academic year 2014-2015
Professors: Teresa Garcia Mil, Danilo Guaitoli, Mara Gundn Castro
Problem set 1
(It must be uploaded in Aula Global before Monday 19th by 7pm. You can get the solution from Aula
global the same day from 7:30 pm onwards. Please have a look at the solution before your seminar class.
The general objective of this problem set is to start working with and understanding the problems,
methods and data we will use during the course to study Macroeconomics.
SECTION A: Multiple choice: in the next seven questions you must find which answer is
correct:
1. Regarding inflation rate:
a/ A higher Inflation derived from HCPI against GDP deflator could be explained by an increase
in the costs of some inputs.
b/ A lower inflation calculated on GDP deflator basis can have its origin in an increase in the
prices of consumption goods imported
c/A higher inflation calculated on GDP deflator basis can be explained by a decrease in the prices
of goods produced mainly for foreign consumption, exports.
2. Nominal GDP measures:
a/ income paid to Spanish factors of production producing abroad.
b/ income including non market activities
c/ income corrected for changes in the interest rate
d/ income at current prices
3. A period during which aggregate output rises is known as a(n)
A) recession.
B) inflation.
C) hyperinflation.
D) expansion
4. Unemployment generally________ during recessions and________ during expansions.
A) falls; rises.
B) falls; falls.
C) rises; falls.
D) rises; rises
5. A prolonged and deep recession is called
A) a business cycle.
B) a depression.
C) a stagflation.
D) hyperinflation

6. Unemployment implies that in the labor market


A) there is an excess supply of labor.
B) there is an excess demand for labor.
C) there are too few workers for the jobs available.
D) quantity demanded of labor exceeds quantity supplied
7. Which of the following is NOT a topic studied in Macroeconomics?
A) gross domestic product
B) the unemployment rate
C) the price of IBM computers
D) the inflation rate

SECTION B
8. Suppose that there are only two firms in the country: a winery, producing wine, and a wine bar. The
accounts of the two firms reveal the following information:
WINERY
Revenues (wine botles)
Sales to domestic consumers
Sales to foreigners
Sales to the Restaurant
Expenses (salaries)

Profits

WINE BAR
12,000
15,000
20,000
10,000

37,000

Revenues
Sales to households

Expenses
Salaries
wine botles
Profits

80,000

15,000
20,000
45,000

8.1. Compute the GDP following the FINAL GOODS approach.


8.2. Compute the GDP following the VALUE ADDED approach.
8.3. Compute the GDP following the INCOME approach.
SECTION C
9. Using the information in chapter 1, evaluate whether each of the following is true or false and
comment briefly:
a/ Recently, inflation has been below its historical average in the USA and in the European
Union.
b/ In the 1960s and early 70s, the USA had a higher rate of unemployment than Europe, but today
it has a much lower unemployment rate
c/ The rate of growth of output per worker in the USA decreases since the mid 90s
d/ Chinas seemingly high growth is a myth, a product solely of misleading official statistics
e/ The Europeans unemployment miracle refers to the extremely low rate of unemployment
Europe has been enjoying since the 1980s.
f/ Once inflation is under control, the US Central Bank (Federal Reserve) lowers interest rates
when it wants to avoid recession and it raises them when desiring to slow economic growth

g/ Even though the USA is the richest country in the world , it borrows hundreds of billions of $
annually from the rest of the world.
10. Suppose the nominal GDP of an economy in 2012 is 200 billion , and the same variable in
2013 becomes 220 billion . If in this period prices increased by 1%, what is the real GDP growth
rate?
If I read news about economic growth explaining that in 2010 GDP increased in Spain a 3% with
respect to previous year, can I be satisfied with this behaviour of the economy in 2011 ?
11. Suppose you have the following information about the economy of a country. There are 15
million working age persons. Of those, 9 million are employed, 3 million are looking for a job, 1
million stopped looking for a job more than two months ago and the rest, 2 million, do not want to
work at all.
11a. Show the unemployment, participation and employment rates.
11b. Now suppose that of the 3 million individuals looking for work, 1.2 million stop looking for
work. Given this change, show the unemployment, participation and employment rates.
11c. Ignore part 10.b. Start with the original numbers. Suppose firms experience an increase in the
demand for their products and they respond by increasing employment. Specifically, 0,8 million of
the previously unemployed individuals now have jobs.
Given this change, show the
unemployment, participation and employment rates.
12. Explain the difference between the two variables shown for the U.S. economy in the graph
below. Why are they so different in the 1970s and 80s and very similar in recent years? How can
real interest rate be negative?

13.
Draw a graph with nominal GDP and Real GDP in vertical axis, and years (1980 to 2000)
in the horizontal one, representing a constant production and the following behaviour of
prices:
a. Inflation along the period (1980-2000), being 1990 the base year
b. Base year 1990: deflation before that year and inflation after that.
c. Inflation along the period (1980-2000), being 1980 the base year
SECTION D: Statistical data to study Macroeconomics
There are many possible sources to find the statistical data we need to study Macroeconomics. In
this exercise we will explore two: IDESCAT (www.idescat.cat) for data corresponding to Catalonia
and EUROSTAT (ec.europa.eu/eurostat) for data corresponding to the European Union. The
exercise implies some surfing within those websites, but you will find this useful as you will
probably have to go back to them often in the next years.
GDP
13. Compare the annual growth rates of real GDP (GDP at market prices) for the period 2005-2013
in Catalonia (www.idescat.cat), Spain, France, Germany, Portugal, the Eurozone 15 and the
aggregate EU27 (ec.europa.eu/eurostat). Draw a joint graph to compare the evolution of the
economy of all those countries and compare it with the EU27. Comment the comparison between
Spain and the rest of the countries.
(Hint: Have a look at Comptes econmics anuals de Catalunya at
http://www.idescat.cat/cat/economia/ecomacro.html and http://ec.europa.eu/eurostat
Inflation
(To carry out this part you may want to have a look at the Harmonized Indices of Consumer Prices, which is
computed for all EU countries at http://ec.europa.eu/eurostat
14. Show the annual inflation rate for the period 2005-2013 for the following countries: Spain,
France, Germany, Portugal, the Eurozone 15 and the aggregate EU27 (ec.europa.eu/eurostat).
Draw a joint graph to compare the evolution of this variable for all those countries. Does inflation
differ much between the selected countries in the Euro area 15? Does inflation differ from those
countries and the EU27?
Labor market
15a.
Show the general unemployment rate for the period 2005-2013 in Catalonia
(www.idescat.cat), Spain, France, Germany, Portugal, and the aggregate EU27
http://ec.europa.eu/eurostat. Draw a joint graph to compare the evolution of the economy of all
those countries. How did the unemployment rate change before 2007 and after? Does Spain differ
from the EU27, and from the other countries in the sample?

15b. Show the general participation rate (activity rate according to Eurostat) for the population
between 15 and 64 years for the period 2005-2013 in Catalonia (www.idescat.cat), Spain, France,
Germany, Portugal, and the aggregate EU27 (ec.europa.eu/eurostat). Draw a joint graph to
compare the evolution of the economy of all those countries. Look for the participation rate of
women, and compare it with that of men. Is it different and does it differ across countries?
(To carry out these sections you may want to have a look at
http://www.idescat.cat/cat/societat/soctreball.html and
http://ec.europa.eu/eurostat/web/lfs/data/main-tables
15c. Plot, for the same period, in a unique graph the following Spanish variables: real GDP
growth, unemployment rate, and employment rate.