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ECON7040  Tutorial 1

1. In this problem we investigate the relationship between the size of government and growth in GDP per person between 1960-2019 for the following countries: Australia,

Canada, Germany, Japan, Spain, and the United States.

(a) Go to this Saint Louis FREDpage, and download the Share of Government          Consumption at Current Purchasing Power Parities” for the relevant subset of countries. Plot the trends of government’s share over time for the countries. Comment on the trends. Do they seem to be moving in the same direction for all the countries?

(b) Next, we have to construct real GDP per capita. First, go to thispage, and download Expenditure-Side Real GDP at Chained Purchasing Power Parities” for the subset of countries. Next go toWDIpage, and download Population” for each country. Real GDP   per capita is Real GDP divided by population. Calculate real GDP per person at each point in time for each country. Plot the log level of real GDP per capita over time for each country.    Do the countries appear to be getting closer together or fanning out?

(c) For every country, calculate the average share of government expenditures and the average rate of growth in output per worker over ten years. For example, calculate the average share of government expenditures in Canada from 1960- 1969 and the average growth rate in GDP per capita between 1961- 1970. You will have five decade pairs for each  country. Once these are constructed, create a scatter plot of real GDP growth on the vertical axis and government’s share of expenditure on the horizontal axis. What is the correlation between these variables?