This study source was downloaded by 100000846183132 from CourseHero com on 01 21 2025 19 02 47 GMT 06 00 https www coursehero com file 22229738 ECON 304 HW 2 Name Date last 4 PSU ID Economics 304WD Homework Lesson 2 Real vs Nominal Economic Variables 90 pointsIn this homework assignment we are getting our hands dirty to get familiar with some of the major macroeconomic variables that we will be using and working with throughoutthe semester Our first chapter with something to sink our teeth into will be chapter 3 and it is all about the factors of production the labor market and the production function Major variables in this part of the macroeconomy i e the supply side of the economy include but certainly are not limited to employment denoted N real wages denoted w W P where W nominal wage and P is the price index typically the CPI and real GDP denoted Y When we move to chapter 4 we encounter many more major macroeconomic variables including consumption C investment I and the real interestrate denoted r among others We are going to use FRED as our source of data many professional economists use this site nice clean data 1I provide you with the links to the data that is needed throughout this assignment For an interesting look at the W vs the P see this graph from the FRED site As we move forward through the class we are going to learn about some business cycle facts See page 290 in text Chapter 8 In this first question among other things we are going to investigate the behavior of the real wage over the most recent business cycle See the National Bureau of Economic Research NBER site look at right hand side of page for the official dates of the most previous 4 recessions In particular we are going to calculate the percent change in the real wage during the most recent recession 12 07 6 09 and compare it to the percent change during the most recent recovery 7 09 to the present 1 FRED stands for Federal Reserve Economic Data see the FRED website This study source was downloaded by 100000846183132 from CourseHero com on 01 21 2025 19 02 47 GMT 06 00 https www coursehero com file 22229738 ECON 304 HW 2 1 15 points total Use the following two links to answer the following questions Nominal Wages W Price index CPI P 2Let us go back to the 1981 1982 recession review the NBER site Note that officially this recession began in third quarter of 1981 and ended in the fourth quarter of 1982 a 5 points Calculate the real wage W P the first month of the recession 7 81 and compare it to the last month of the recession 11 82 What is the percent change in the real wage during this most recent recession Please show all work and round to two decimal places W P 7 81 W P 11 82 W P b 5 points Now calculate the real wage during the first month of the recovery 12 82 and compare it to the real wage right before the following recession 6 90 What is the percent change in the real wage during this recovery thus far Please show all work and round to two decimals W P 12 82 W P 6 90 W P 2 Hint when deflating using a price index we typically move the decimal two place to the left For example in 12 09 W 18 80 and the price index was 217 541 The real wage is thus 18 80 divided by 2 17541 2 7 46 91 5 x100 8 15 7 98 98 x100 8 14 8 15 8 14 8 14 00 8 02 97 7 x100 8 21 10 2 129 9 x100 7 85 8 21 7 85 7 85 05 This study source was downloaded by 100000846183132 from CourseHero com on 01 21 2025 19 02 47 GMT 06 00 https www coursehero com file 22229738 ECON 304 HW 2 c 5 points What is the main reason why economists would like to use the real wage when looking at changes over time 2 10 points In the homework folder there are two items you need to answer this question One is a Ted Talk and the other is an NPR news story You can also access them via the links below https www ted com talks michael green what the social progress index can reveal about your country http www npr org templates story story php storyId 127586501Why do economists use GDP to measure the wellbeing of society Is this the best way to do so Refer to the items above in discussing other ways to measure the overall wellbeing of a society 3Real wage is calculated by taking the nominal wage divided by the price index Economists like to use this calculation because it allows them to see how the standard of living has changed over time Economists have been using GDP to measure the wellbeing of society for many years It all started with Simon Kuznets with his report National Income 1929 32 mentioned in the Ted Talks video Ever since then we have been using GDP to measure our wellbeing However using GDP as a measure for happiness is just saying that the more goods and material things we buy the happier we are and that just isn t true Between the Ted Talks video and the article about Gross National Happiness there is plenty of evidence to determine that using GDP is not the most effective way to measure our wellbeing It is my personal opinion that we should use a Social Progress Index which was mentioned in the Ted Talks video to measure our Gross National Happiness which was mentioned in the article Of course we still use GDP foreconomic growth but for growth as a society and trying to better ourselves I do think we need to approach things differently This study source was downloaded by 100000846183132 from CourseHero com on 01 21 2025 19 02 47 GMT 06 00 https www coursehero com file 22229738 ECON 304 HW 2 3 20 points You will need to use the following links to answer this question Nominal one year rates i Click HerePrice index CPI P Click HereExpected InflationClick HereIn this part of question 2 we are going to compare the most recent one year real interest rates in the US both ex ante and ex post A couple notes are in order i Expected inflation data is one year hence so for example expected inflation for the period from July 2010 to July 2011 is given in July 2010 and if you view the data the expected inflation during this time is 2 7 e ii To calculate the actual rate of inflation for example during the July 2010 to July 2011period you need to take the percent change in P P Using the CPI data we have the price index equaling 217 7 in 7 2010 beginning of August given the end of month data …