Macroeconomics Project:

Macroeconomics Project The Current and Future US Economy

Requirement

Step 1.

The excel file will have four worksheets. The first is “README”. You can read it if you want, but I would not. The next three worksheets are labeled annual, monthly (mostly inflation and unemployment data, which is collected monthly), and quarterly (components of GDP, collected every 3 months).

Annual Worksheet

AFDEF – Federal Government Deficit

AFEXPND – Federal Government Spending

AFRECPT – Federal Government Tax Receipts

Monthly Worksheet

CIVPART – Labor force participation rate

CPIUCSL_PC1 – Inflation rate

EMRATIO – Employment to population ratio

FEDFUNDS – Federal Funds Rate

M2SL – M2 money supply growth rate

PCEC96 – Real personal consumption expenditures

UMCSENT – Consumer Sentiment

UNRATE – Unemployment Rate

Quarterly Worksheet

EXPGSC1 – Exports

GDPC1 – Real GDP

GDPC1_PC1 – Growth rate of real GDP

GDPPOT – Potential GDP (what GDP would be if we were on the PPF)

GDPPOOT_PC1 – Growth rate of potential GDP

GPDIC1 – Investment

IMPGSC1 – Imports

PNFI – Nonresidential fixed investment

PRFI – Residential fixed investment (housing)

Step 2.

You can analyze the data however you want—I will not grade you on the sophistication of your analysis. The simplest method is just to look at the data using simple excel graphs

Step 3.

One-third of your grade on this project will depend on your answers to the questions below. I will grade your answers based on how much support you provide. For example, answering “Yes” or answering “No” will receive zero credit for question 2. Answering “Yes, because…” or “No, because…” and then providing a reason will generate lots of points. Your answers below will depend on your analysis above; if you make an error in your analysis and based on that error you make an error below, you will still receive full credit. The key is to SUPPORT YOUR ANSWERS.

1. Is the economy now at full employment, or is it experiencing cyclical unemployment? 2. Should the Fed try to lower the unemployment rate to zero?

3. Has inflation been stable, rising, or falling?

4. Why is inflation bad, i.e., why should we desire low and stable inflation?

5. Is current inflation low enough? Too low or too high?

6. How does GDP growth over the last year compare to GDP growth over the previous 20 years? So is the economy ill, healthy, or so-so?

7. Does the federal budget deficit represent a threat to the economy? Try to balance the budget using the budget simulator at http://crfb.org/stabilizethedebt/ and post the results of your best effort on the discussion board.

Make a Forecast:

Make a forecast of the following key data variables for this time next year (i.e., what will GDP growth be in 12 months). I want a number for each variable; I want a single sentence explaining why you think that number is reasonable. I do not care what number you choose, as long as you can support it with a one-sentence reasonable argument. I will use the forecast to evaluate whether your policy makes sense.

1. the GDP growth rate

2. the inflation rate

3. the unemployment rate

Make Policy

This part will determine 45% of your grade on this project. Based on the current data, your analysis of the current data and your forecast of the economy over the next 12 months, determine the following policies:

1. Should the Fed increase, decrease, or hold constant the fed funds rate? Why?

2. Should fiscal policy-makers cut taxes or raise taxes? Why?

3. Should fiscal policy-makers reduce defense and non-defense spending or increase defense and non-defense spending? Why?