Description

Elizabeth Goodwin, Rosanne Yang
Question 1
(a)
Table 1: Mean values of three factors of GDP
Factor of GDP Mean Share (Percent)
Consumption 64.37
Private Investment 13.85
Government Spending 26.04
(b)
Consumption has changed, but not as much as many of the other variables. It went from around 60% of GDP to around 70%, and was a pretty steady increase over time. I’m not sure if this is more the result of changes in other factors of GDP or consumption increasing in general. Private investment has risen quite a lot, and I think this is most likely explained by the fall in government investment. With the fall in government investment, it left more room for private actors to invest. In addition, low interests rates from the Federal reserve could explain a decent amount of investment. Private investment also fell a lot during the financial crisis, which makes sense, as private actors were less willing to invest.

Government consumption expenditures & gross investment

Figure 1: Share of GDP by factor over time
Question 2
(a)
Yt = Ct + It + Gt + NXt
Take Derivative
dYt = dCt + dIt + dGt + dNXt
Divide both sides by Yt−1
dYt dCt dIt dGt dNXt
= + + +
Yt−1 Yt−1 Yt−1 Yt−1 Yt−1
Multiply each term by XXtt−−11
dYt

Yt−1
Rearrange dCt Ct−1 dIt It−1 dGt Gt−1 dNXt NXt−1
= · + · + · + ·
Yt−1 Ct−1 Yt−1 It−1 Yt−1 Gt−1 Yt−1 NXt−1
dYt

Yt−1 Ct−1 dCt It−1 dIt Gt−1 dGt NXt−1 dNXt
= · + · + · + ·
Yt−1 Ct−1 Yt−1 It−1 Yt−1 Gt−1 Yt−1 NXt−1
YdYt−11 is the growth rate between t−1 and t, so it is the share weighted sum, and can be replaced with g.
Ct−1 It−1 Gt−1 NXt−1
gY,t = gC,t + gI,t + gG,t + gNX,t Yt−1 Yt−1 Yt−1 Yt−1
Xt−1
Yt−1 is also equal to sX,t−1 and is X’s share of GDP at time t − 1
gY,t = gC,tsC,t−1 + gI,tsI,t−1 + gG,tsG,t−1 + gNX,tsNX,t−1
(b)
The Personal Consumption Expenditure is primarily keeping recent GDP growth rates positive. This is not surprising, as much of the GDP growth was held up by fiscal policy during the pandemic, with large amounts of government cash transfers propping up consumer consumption. Policies like the CARES and and the American Rescue Plan introduced money into the hands of consumers in an unprecedented way. The second most influential was Private Investment, which could be explained by the very dovish monetary policy of the federal reserve.

Factor Consumption Government Investment
Figure 2: Share of GDP growth by factor over time