Exercise 1
In macroeconomics there are two questions that serve as foundation to any subsequent analysis: 1) how to measure (real) output growth? and 2) how is growth connected to wellbeing?
As for the first question, there are three ways that can be done, starting with the basic definition of percentage difference between two numbers, say x1 compared to x0. For the economy, the focus is on real GDP growth, which holds prices constant on a given year (base year) the then apply them before, during, and after that year in order to calculate the total dollar value of all goods and services produced (i.e. we need prices to add up quantities in dollar terms).
The second question refers to a mapping from goods and services, to subjective well‐being. Yes, there is a way.
Work out the algebraic steps to:
(1) go from the first to the second equation in slide 8;
(2) from that same top equation in slide 8 to the one in slide 9; and (3) show the relationship in slide 10.
