Project of Globalization

20548 Foundations of Globalization

Project 1 (Due Friday October 7, 2016 before 23:59:59)

Carolina Colombo        1740836         Class 7

Gabriel Geronazzo         1748656         Class 6

Federico Raviola         1743558         Class 7

Andrea Ricotti         1741008        Class 7

Luca Settanni                 1741768         Class 7

Francesco Toschi         1742477         Class 6

Simone Vergani         1739580         Class 6

1)  WHAT COUNTS AS GDP?

1. In this case GDP increases by 2M$ because we consider only the value of the final good (we assume that there are no imports).

1. In this case GDP increases by 6,000$ (agent commission). The capital gains does not count into their formula because they are not produced this year and the house already existed and does not represent new production.

1. In this case GDP does not increase because unemployment benefits are not included into the GDP computation. This is a transfer of resources made by the government (redistribution of wealth), thus it is not to be counted into the GDP calculation.

1. In this case there are two countries within the economy: Europe and USA. USA: GDP does not change since investments increase by $50M, but at the same time NX decreases by the same amount. Europe: Exports increase by $50 million, therefore the GDP increases by the same amount.

1. In this case we assume that airplanes are physically imported. There are two countries within the economy: USA and Europe. Europe: the GDP does not change since investments increase by $50M, but at the same time NX decreases by the same amount. USA: Exports increase by $50 million, therefore the GDP increases by the same amount.

1. In this case there are two countries within the economy: Belgium and USA.

Belgium: NX increases by $100,000 (+100,000 exports) and the GDP increases by the same amount.

USA: Assuming the store is located in the US, NX decreases by 100,000 (imports) and consumption increases by 125,000 and so the GDP consequently increases by $25,000.

2)  NOMINAL VS. REAL VARIABLES

2.a)

The general formulas we used to calculate the values above are the following:

• Nominal GDP2016 = price of apples2016*quantity of apples2016 + price of boomerangs2016*quantity of boomerangs2016.
• Nominal GDP2017 = price of apples2017*quantity of apples2017 + price of boomerangs2017*quantity of boomerangs2017.

• Real GDP in 2016 (2016 prices) = price of apples2016*quantity of apples2016 + price of boomerangs2016*quantity of boomerangs2016.
• Real GDP in 2016 (2017 prices) = price of apples2017*quantity of apples2016 + price of boomerangs2017*quantity of boomerangs2016.
• Real GDP in 2017 (2016 prices) = price of apples2016*quantity of apples2017 + price of boomerangs2016*quantity of boomerangs2017.
• Real GDP in 2017 (2017 prices) = price of apples2017*quantity of apples2017 + price of boomerangs2017*quantity of boomerangs2017.

• Real GDP in 2016 in chained prices, benchmarked to 2017 (called x, we solved the equation):

[pic 1]

 [the real GDP in 2017 in chained prices, benchmarked in 2017 is the same of the corresponding real GDP in 2017 in 2017 prices]

2.b)         

% change in nominal GDP ≈ inflation rate + % change in real GDP

• LASPEYRES: inflation rate = 14.81% - 6.88% = 7.93%
• PAASCHE: inflation rate = 14.81% - 6.8% = 8.01%
• CHAIN-WEIGHTED INDEX: inflation rate = 14.81% - 6.84% = 7.97%

3) REAL US DATA

3.a)

GDP: Second Quarter 2016 (Third Estimate)

According to the third estimate released on Thursday, September 29, 2016 by BEA:

• Real GDP increased at an annual rate of 1.4% in the second quarter (it increased by 0.8% in the first quarter). Compared to the previsions done one month ago, the newer ones have seen an upward trend, moving from an estimate of 1.1% to a more recent one of 1.4%. This upward revision followed upward revisions to PCE, non-residential fixed investment, private inventory investment and export. Even if imports increased, this did not offset the positive effect stated above.
• Real GDI decreased by 0.2% in the second quarter (it increased by 0.8% in the first quarter).
• Average of Real GDP and Real GDI increased by 0.6% (it increased by 0.8% in the first quarter).
• Current-dollar GDP increased by 3.7% (168.5B$) in the second quarter (it increased by 1.3% (58.8B$) in the first quarter).