When you made the decision to study economics, was it a ‘rational’ decision (albeit based on the limited information you had available at the time)?
September 3, 2020
1) Suppose the budget constraint is given by wL = pq, where L is labor hours, w is the wage, q is a consumption good and p is its price.
September 3, 2020

Go to the St. Louis Federal Reserve FRED database, and find data on the total government debt as a percentage of GDP (GFDEGDQ188S) for the United States https://fred.stlouisfed.org/series/GFDEGDQ188S and gross domestic product (GDP) https://fred.stlouisfed.org/search?st=GDP. Provide a justification for the GDP series you select for the analyses.

a) Report the most current available debt-to-GDP ratio, and the ratio one year prior and fiveyears prior.

b) Based on the entire available database for the debt-to-GDP ratio, when was the last time thedebt-to-GDP ratio peaked? What was the peak value and how does it compare to the mostrecent value?

c) What is the percentage point difference in the debt-to-GDP ratio between the most recentperiod and one year ago? Between the most recent period and five years ago?

d) Calculate the total percentage increase in GDP from one year before the most recent periodavailable and also from five years before the most recent period available.

e) Compare the change in the debt-to-GDP ratio and the growth rate of GDP over the periodsmentioned in (c) and (d). What can you conclude about the behavior of debt and GDP overthe last year? Over the last year?

KM
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