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ECON CH 35-Monetary Policy: Work it Out

Terms in this set (5)

In the United States, the government's data on real growth improve over time. For instance, we now know that in the early 1970s, the economy was actually growing 4% faster than people believed. Economists at the Philadelphia Federal Reserve have collected data on how our view of the economy has changed over time. Let's use their summary of the data and a virtual six‑sided die to see just how inaccurate our real‑time views of the economy actually are.
a. We are going to reenact the 1970s, and we will start figuring out how error‑filled the government's growth estimates will be. Croushore and Stark report that, on average:
iv. One‑sixth of the time, measured growth is 3% worse than actual growth.
b. Let's see what values we get when we add together the true real growth rate with the measurement error in the previous table. For true real growth, we use the most recent data in the following table—but of course even these estimates could change in the future. The sum is the actual government data that will wind up in the Federal Reserve chair's hands.
1975:−0.2%
c. In your simulation, how many times was the government data off by 2% or more?
2
d. Assume the potential growth rate in the 1970s was actually 3.6% (the average growth rate in the 1970s). In how many years did your government data give values below 3.6% when true real growth was above 3.6%?
1
How often did the reverse occur, with your government data above the potential rate while true real growth was below?
0
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