Unit 5 Macroeconomics

BU204-01: Macroeconomics
Unit 5
June 17, 2013

Unit 5 Assignment

There are 2 parts to this Assignment:

PART 1: Comparing Growth Rates

First, prepare yourself for the Assignment by reading the following three articles or webpages:

Professor Dave Alber’s Lecture can be found in the Doc Sharing area of the course.

Abler, D. (n.d.) Notes for a Lecture on Economic conditions in developing countries. Copyright permission granted September 25, 2010.
Khan’s (2001) article by going to the International Monetary Fund Website (see the Webliography).

Khan, M. H. (2001). Rural poverty in developing countries: Implications for public policy. Economic Issues NO. 26. International Monetary Fund. Retrieved July 6, 2012.
You can find the most up-to-date report on the World Bank website. (See Webliography).

The World Bank Group. (2012). Prospects for the Global Economy. Washington D.C.

After you have read the items listed above, access the “Data & Research” tab in the World Bank Website and compare growth rates between two countries of your choice. Specifically, select one developed country (such as U.S., England, Canada, Germany, etc.), and select one developing country (such as Angola, Bangladesh, Chad, Nigeria, etc.).
Find and transfer their 2007–2011 GDP growth (annual %) data into your Assignment. Identify and explain possible factors that may be adding to the differences between their GDP growth rates.

The two countries that I chose are Canada (developed) and Nigeria (undeveloped). GDP growth (annual %)

Country Name
Indicator Name
2007
2008
2009
2010
2011
Canada
GDP growth (annual %)
2.20002136
0.68872687
2.76976818
3.21494841
2.4596412

Nigeria
GDP growth (annual %)
6.44982811
5.98366359
6.95977806
7.97607496
7.35551671

As a developed country, Canada closely follows the GDP of other developed countries. We see an increase of only .68 in 2008 and a reduction of GDP by -2.77 in 2009. This is due to the global recession that was experienced in most developed countries.

Nigeria did not experience this downturn since the recession was primarily due to the housing market. Nigeria is a poor country and shows a higher growth rate due to the catch up effect. It takes less of an increase for a poor nation to show positive growth in GDP.

PART 2: Loanable Funds Market

Answer questions 1a and 1b:

1. Analyze each of the following changes in the market for loanable funds. Explain what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries).

a. The government reduces the size of its deficit to zero.

If the government reduces the deficit to zero, the demand curve will shift to the left. This will reflect a decrease in private savings due to a decrease in interest rates. Private investment spending will go up however due to the lower interest rates.

b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero.

If consumers increase their savings, the supply curve will ship to the right. The quantity of loanable funds will increase. Due to this increase, the interest rate will drop. The lower interest rates will cause private investment spending to increase.