#### ECON10003 Introductory Macroeconomics

**Introductory Macroeconomics**

**Instructions. **You can but do not have to do this assignment in a group. If you work in a group, it can have at most three people. The assignment is due by 4pm on Wednesday October 5 in Canvas.

The submission process will have two steps:

*Group formation*: Students wanting to submit as a group will first need to form their assignment group in Canvas, further instructions to be provided in your tutorials. Students must form their assignment group with students*from the same tutorial*, up to three people. Students completing the assignment alone do not need to form a group. Assignment groups must be formed no later than 10am on Monday October 3. This is a strict deadline and cannot be extended.

*Submission*: Assignments can only be submitted after group formation has closed, i.e., from 10am on October 3. Assignments are submitted through the Assignments section in Canvas, further details to be provided in a Canvas announcement beforehand.

**Late assignments. **Late assignments *will not be accepted*. Please apply for Special Consideration if for some documented reason you cannot submit by the due deadline.

**Marking criteria. **The tutors will mark the assignment according to the following criteria:

- Ability to use material discussed in lectures, tutorials, and other sources to complete the as- signment tasks in a logical and coherent fashion (90% weight).
- Overall presentation of the assignment. This includes spelling, grammar, correct construction of figures, referencing sources etc (10% weight).
- The maximum assignment length is 800 words.
- The University of Melbourne and the teaching staff take academic integrity seriously. Plagiarism and collusion are unacceptable. Further details can be found in the subject guide.

Please also note:

- All assignments must be typed. Handwritten assignments will not be accepted.
- Use a spreadsheet program or similar to prepare figures etc. Figures must be carefully labelled.
- Due care must be taken to ensure submitted files are not excessively large.

# Long Run Growth

In this assignment you will collect and interpret data on long run economic growth for Australia and a number of other countries. The best data for this purpose is the Penn World Tables (PWT) as dicussed below.

**Task #1 Australia (4 marks). **Use the Penn World Tables website

https://www.rug.nl/ggdc/productivity/pwt/

to download annual data covering the period 1950–2019 for the following variables

- real GDP [use ‘output-side real GDP at chained PPPs (in mil. 2017US$)’]
- population
- employment
- average hours per worker
- the capital stock [use ‘capital stock at current PPPs (in mil. 2017US$)’]

Use a spreadsheet program to plot the levels of real GDP per person, real GDP per worker, real GDP per hour, and capital per worker for the Australian economy from 1950. *Put all your plots on a log scale so that it is easier to spot changes in growth rates over time*.

Calculate and report the average annual growth rate of real GDP per worker, real GDP per person, real GDP per hour, and capital per worker over the whole sample and over each decade (1950s, 1960s, *. . . *, 2010s). When did labour productivity grow quickly? When did it grow slowly? Has the Australian economy become more or less capital-intensive over this time? *See the end of this document for more details on how to calculate growth rates, what years to include in a decade, etc.*

**Task ****#2 ****International Comparisons (6 marks). **Choose three from the following five countries

- Bangladesh
- Brazil
- China
- India
- Indonesia
- Nigeria

For each of the three countries you choose, use the Penn World Tables to download annual data covering *as much as possible *of the period 1950–2019 for the same five variables (real GDP, population, employment, hours, capital) as disccussed for Australia.

Use a spreadsheet program to plot real GDP per person, real GDP per worker, real GDP per hour, and capital per worker for the three countries you choose. *For each variable, put all three countries on the same plot to make it easier to compare them. Again put all your plots on a log scale.*

Calculate and report the average annual growth rate of real GDP per worker, real GDP per person, real GDP per hour, and capital per worker over the whole sample and over each decade (1950s, 1960s,*. . . *, 2010s). *If some data is missing, take averages over those dates for which the data is available.*

Now suppose that each country *i *has a Cobb-Douglas production function of the form

*Y**it *= *A**it **K*1*/*3 *L*2*/*3

*it it*

where *Y*_{it}* *denotes real GDP, *K*_{it}* *denotes capital, and *L*_{it}* *denotes the number of employed workers in country *i *on date *t*. Note that each country has the same share parameter *α *= 1*/*3 but they have different levels of total factor productivity (TFP) denoted *A** _{it}*. Using this assumption, calculate and report the average annual growth rate of TFP over the whole sample and over each decade (1950s, 1960s,

*. . .*, 2010s) — again, subject to data availability for each country.

Now suppose that the production function is instead

*Y**it *= *A**it **K*1*/*3 (*H**it**L**it*)2*/*3

where *H*_{it}* *denotes average *hours *per worker, i.e., here the measure of labour input is total hours, not total employment. How if at all does this change your conclusions about TFP growth?

Briefly discuss the long run growth experiences of the three countries you choose. Which features of their experiences seem most important to you? Did these countries have similar or dissimilar experiences? Is their growth mostly due to capital accumulation or TFP growth? Explain.

**Replication File. **You must be able to replicate these calculations if we ask you to. To that end, you must keep a single spreadsheet recording the data you downloaded and the figures you made using this data. If we have questions about your assignment, we will ask you for this file.

## Handling the data.

*Growth rates.*For any variable*X*_{t}*t*, calculate the annual percentage growth rate as

*gX,t* = * Xt − Xt−*1 100

*X*

*t**−*1

The average annual growth rate over *T *years is then

*T*

*g*

*T*

*t*=1

*X,t*

*Decades.*Treat the decades as, for example,

1950s = (1950*, *1951*, *1952*, *1953*, …, *1959)

*Rounding.*Round final answers to 2 decimal places.*Log scale.*Put plots on a log scale so that it is easier to spot changes in growth rates over time. Your tutors will explain this in more detail.