Over many years, small differences in growth rates can have large effects on the level of income. This question will help you understand this important point. Consider an initial value of real GDP equal to Yo. If real GDP grows at a rate of g percent annually, after N years real GDP will equal Yo(1+g). Now consider the following table. Let the initial level of GDP in all cases be 100. a. By using the formula provided above, compute the level of real GDP in column 1 for each year. For example, in Year 1, real GDP will equal 100x (1.01)¹ 101. For each year, compute the GDP. Complete the rest of the columns. (Round your responses to two decimal places.) b. In year 20, how much larger (in percentage terms) is real GDP in the 2.0-percent growth case compared with the 1.5-percent growth case? Real GDP in the 2.0-percent growth case is % larger. (Round your response to the nearest whole number) c. In year 50, how much larger is real GDP in the 2.0-percent growth case compared to the 1.5-percent growth case? Real GDP in the 2.0-percent growth case is % larger. (Round your response to the nearest whole number.) Real GDP with Alternative Growth Rates 1.0% 1.5% 2.0% $100 $100 $100 $101 101.50 $102 103.03. 104.57 $106.12 122.02 134.69 148.59 $164.46 Year- 0 1 3 20 50 $210.52 2.5% 100 102.50 107.69 163.86 269.16 $343.71

1. The following table shows Spain's (awalizr) quarterly real GDP growth rates for the 2007–2012 period. (Roman numbers refer to quarters.) Variable 2007 2007 2007 2007 2008 2008 I II III IV I II Real GDP 7.6 7.3 6.5 6.4 5.6 4.6 Variable 2008 2008 2009 2009 2009 2009 III IV I II III IV Real GDP 3.1 0.5 -0.1 -4.1 -4.5 -3.3 Variable 2010 2010 2010 2010 2011 2011 I II III IV I II Real GDP -1.5 -0.2 0.0 0.4 0.5 0.5 Variable 2011 2011 2012 2012 2012 2012 III IV II III IV Real GDP 0.6 0.0 -0.7 -1.4 -1.6 -1.9 а) Plot real GDP growth rate in a graph, and identify a trend in the data. b) Based on the data shown, identify the beginning (i.e., the year and the quarter) of the current recession. 2. Unemployment is a very important topic in macroeconomics. A high unemployment rate means that a lot of individuals willing to work cannot find a job. This is bad for the economy, as some resources (i.e., labour) remain idle. Comment on the effects that being unemployed have on an individual.

Suppose the u.s. nominal GDP increases from one year to the next year. Can you conclude that these figures present a misleading measure of economic growth?

12. Suppose an economy represented by the graph below started with K = 25, so it was in a steady state, but then disaster struck and most of the capital was destroyed. (Assume that no people were hurt so the labor force is the same size.) dK 25 K After the disaster would we expect the economy to grow or shrink? a. grow, I> dK b. grow, I dK d. shrink, I< dK