macro econ term paper

Econ. 3200/Spring 2016/Dr. J. Devine

Short Term Paper (5 to 10 pages).

For the term paper, choose one year’s annual edition of the Economic Report of the President (the ERP, available at https://fraser.stlouisfed.org/title/?id=45) or an article from a major business magazine such as The Economist. (Recent copies are available at http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=ERP.) There will be a sign-up sheet so that each student chooses a different year’s edition of the ERP. If you choose to use an article, you must show it to me as soon as possible to make sure that it is acceptable. In addition, you must provide a copy along with your term paper.

The term paper must use one or more of the graphs describing a model introduced in this course to analyze what the ERP says (after the introduction by the President) about two or more of the following types of policies actually applied during the year discussed (see below for a list of types). Note that each ERP describes policies in the previous year, so you are analyzing events during the year before the book’s publication. First, what were the macroeconomic problems that were addressed (high inflation, unemployment, etc.) by policy-makers during the year described? Second, what were the stated goals of the policy-makers (the Fed and/or the U.S. federal government) at the time? Third, what specific policies were used to address the problems seen during the year? Fourth, use the appropriate graph(s) to predict the effects on key macroeconomic variables (such as inflation and unemployment rates) of these policies. Fourth, describe whether or not the actual events described by the ERP correspond to the predictions of your model.

Each of your neatly-drawn and well-labelled graph(s) count as one page. The term paper is due at the start of class on Monday, April 25. Any late paper will have its letter grade reduced by one-third of a grade for each day that it’s late (e.g., from B+ to B ). A rough draft version of your paper is due at the start of class on Friday, April 15.

Some Major policy goals:

Low unemployment.

Stable prices: a low and steady inflation rate.

Attain the NAIRU, to have unemployment as low as can be sustained without persistently increasing inflation.

Faster long-term growth of potential output.

Encouraging efficient long-term economic growth, with minimal external costs (to reduce global warming, etc.)

Keep the dollar exchange rate constant vis-à-vis gold or some other currency (as before 1973).

Some Major types of policies:

Monetary policy.

Fiscal policy (not only the amount of changes, but the type of changes).

Incomes policies: wages and price controls.

Labor-market policies aimed at reducing the extent of turnover, mismatch, Classical, or bargaining-power unemployment.

Some examples of policy moves:

Keynesian stimulus or restraint aimed at increasing or decreasing the demand for real GDP.

Rule-based policies, setting a regular pattern for future policies.

“Supply Side” changes in taxes or government regulation aimed at raising potential output.

Doing nothing: let markets solve the problem.

The application of policy does not have to be active: what’s central is that it’s explicitly stated.

Major graphs: IS / LM , AS / AD , WS / PS , the SR & MR Phillips Curve, or the Solow growth model.

Some General Comments on Last Semester’s Term Paper

1. Use short sentences to avoid run-ons and awkward combination sentences linked by “and.”

2. Do not write any sentence if you don’t understand what it means. If you use a term such as the “structural budget deficit,” for example, either look it up and define what it means in the paper or don’t use that term at all.

3. Underline the titles of books. But after the first time, you can use abbreviations such as “ERP” (without the quotation marks) for the Economic Report of the President. Once the year of publication is identified, only page numbers of that book are required.

4. A large number of quotations isn’t needed – but, if you quote the ERP or anything else, put it in quotation marks or set it apart as a separate indented paragraph. Mostly, the ERP is all that’s necessary for this paper.

5. If you paraphrase the ERP or anything other source, be clear that you’re doing so rather than speaking for yourself.

6. The ERP is not a statement of truth but rather a statement of educated opinion by the President’s Council of Economic Advisers. It makes claims, promises, and predictions, all affected by the president’s political perspective (whether Republican or Democratic). The policy proposals in the ERP and their predicted results are promises, not reality.

7. What government officials say that they are trying to achieve with their policy proposals (usually, serving the national interest) may differ from their actual goals (often, serving campaign contributors’ interests).

8. Integrate your graphical analysis into the paper rather than simply tacking it on at the end.

a. Label and define all variables and curves.

b. Be clear what curve(s) shift and why. Those curves should be labelled.

9. Do not include irrelevant details, i.e., those that don’t fit with the point of your term paper.

10. Please put page numbers on each page of your paper.

11. Any statistics require comparison: for example, billions or trillions of dollars have little meaning out of context (and if they are not uncorrected for inflation). Thus, do not report the size of the government deficit in dollars. The deficit is best stated as a ratio to GDP to indicate its importance relative to the size of the economy and to correct for inflation.

12. Be careful with the phrase “economic growth” or just “growth.” Politicians and journalists often mix meanings.

a. What they often say is that their policies promote growth of the supply side (potential output) but what it usually means in practice is usually promotion of aggregate spending and demand, encouraging higher inflation rates and/or lower unemployment rates.

b. Of course, some kinds of demand growth can promote long-run supply-side growth, as with private fixed investment or government investment in education, basic research, infrastructure and public health.

13. In economics, “money” refers to an amount of currency in circulation + bank-account deposit balances in the economy at a specific time. It’s not the same as income, i.e., the amount of money that’s flowing into people’s pockets from working or allowing others to use their property.

14. Deficits due to fiscal policy have no direct impact on the money supply:

a. if the government spends $1 billion more, either on increased outlays or tax cuts, that increases the money supply by $1 billion. But the increased deficit of $1 billion implies that the government must sell $100 worth of T-bills (etc.), which takes $1 billion out of the economy (as people use their money to buy the T-bills, etc.) The change in the money supply due to the increased deficit is thus cancelled out.

b. It’s monetary policy which changes the money supply (the amount of money in circulation). To increase the money supply, it takes T-bills (etc.) out of the economy and replaces them with money in circulation.

15. Please do not refer to the “Public” or “National” debt. From an accounting perspective, it you should call it the government’s debt (since that debt is to the public, most often inside the nation).

16. Math is not required for this paper, but if you use it, define all terms.

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