Macroeconomic Performance 23b (1)

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Ayse Aydan YETKIN Econ 1720-91 Macroeconomics Question set macroeconomic performance Please see the introduction to these questions in the Macroeconomics Performance Unit area of content. These questions are copyrighted. Sharing without permission is not permitted. © Peter Lawson Important Textbook reference: Economic Performance Questions. These questions relate to the material in chapters 26, 27, and 28 which the class is covering soon. For now, you may want to read chapter 30 as it discusses the Federal Reserve system. Please see the comments about expansionary and contractionary monetary policy. By far the most important traditional method of affecting the money supply is through the Federal Reserves Fed Fund rate. By lowering this rate, the Fed is pursuing an expanding money supply policy and trying to stimulate the economy. By raising the rate, the Fed is restricting the money supply and attempting to cool off the economy. The concern of the Fed in terms of expanding or contracting the economy is discerned by looking at the Federal Open Market Committee’s action regarding the Fed Fund Rate and how they change it. Here are the questions for this unit. Please see the inline links and the links at the bottom of this question list to help you with the answers. Please list the questions and then answer the following questions and post them in the "Macroeconomic Performance Folder” assignment folder. Check the calendar for the due date.

Questions: Business Cycle Using the following link briefly describe or define the unemployment rate. See this link: https://fred.stlouisfed.org/series/UNRATE 1. Use the following link to discuss the following questions. Give an approximate level of the unemployment statistic. See this link: https://fred.stlouisfed.org/series/UNRATE List the approximate unemployment rate for the following dates: A. May 2007 4.4 B. Sept 2009 9.8 C. January 2020 3.5 C. April 2020 14.7 D. March 2022 3.6 E. For the period 2007 to 2022, what timeframe had the highest unemployment rate? April 2020 (14.7) F. For the period 2007 to 2022, what timeframe had the lowest unemployment rate? Sep 2019, Jan 2020, Feb 2020, Jul 2022, Dec 2022, Sep 2022 (3.5) 2. Using the following link briefly describe or define the Nonfarm payroll number. See this link: https://fred.stlouisfed.org/series/PAYEMS (All employees Total Nonfarm Payroll) Find approximate non-farm payroll data for A. May 2007 137,993 B. Sept 2009 130,240

C. January 2020 152,098 C. April 2020 130,430 D. March 2022 151,424 3A. For the period 2007 to 2022, explain using the unemployment rate, when where the peaks of the business cycle? Your answer should include the approximate months and years. According to the unemployment rate for the period from 2007 to 2022, the peak points of the business cycle are Sep 2019, Jan 2020, Feb 2020, Jul 2022, Dec 2022, Sep 2022 with the lowest (3.5) unemployment rate. 3B. For the period 2007 to 2022, explain using the nonfarm jobs number when where the troughs of the business cycle. Your answer should include the approximate months and years. For the period from 2007 to 2022, using the number of nonfarm jobs, we find the bottom of the business cycle to be Feb 2010, with the lowest employment rate (129,700). 3C. Briefly explain, how do the unemployment rate and the nonfarm payroll number change in terms of the business cycle. Unemployment Rate reached its highest level in April 2020, with its ups and downs over time. In the All Employees, Total Nonfarm chart, the same date shows us the time when the chart reached its lowest level. 3D. What is the relationship between changes in unemployment and changes in the Nonfarm Payroll number? (As one number changes what is happening to the other number?) Give an example. There is an inverse proportion between these two graphs. In Apr 2020, when the unemployment rate was at its highest point at 14.7, the All Employees, Total Nonfarm chart shows us the lowest level of the chart, showing the rate of 130,430. 3E. What is the relationship between unemployment and nonfarm jobs numbers to aggregate demand? Explain the relationships. The All Employees, Total Nonfarm chart shows us a gradual increase over the years. The Unemployment Rate chart continues with clearer ups and downs in certain rate ranges. In the years when unemployment was at its highest, the All Employees, Total Nonfarm graph reached its lowest level, showing that the two graphs can be related in inverse proportion. Monetary Policy

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4. Using the link provided below: Fed Funds Rate: https://fred.stlouisfed.org/series/FEDFUNDS (Fed Funds Rate) What were the approximate levels and the direction of the Effective Federal Funds Rate from the following dates? (Meaning provide the approximate rate and describe if the rate is increasing, holding steady, or decreasing.) 4A. The later part of April 2004 to June 2006? We see steady progress between Apr 2004 and Jun 2004. We see a steady increase in rates from this date until May 2006. The Federal Funds Effective Rate, which was 1.03 in Jun 2004, reached 4.99 in May 2006. 4B. From June 2006 to Mid-2007? We observe a sharp increase between Jun 2006 and Jul 2006. The Federal Funds Effective Rate jumps from 4.99 to 5.24 within 1 month. After this date, rates remained stable for approximately one year and the Federal Funds Effective Rate was observed as 5.25 in Jun 2007. 4C. From September 2007 to June 2009? We observe a gradual decline between Sep 2007 and Dec 2008. The Federal Funds Effective Rate, which was 4.94, decreases to 0.16. After this date, the graph continues steady and the Federal Funds Effective Rate is observed as 0.21 in Jun 2009. 4D. - From June 2009 to November 2015. The graph fluctuates between June 2009 and November 2015. The Federal Funds Effective Rate, which was 0.21 on the starting date, ends with a rate of 0.12 in November 2015. 4E. From December 2015 to March 2019. The chart, which started with a rate of 0.24 in Dec 2015, rises slowly to 0.38 in Feb 2016. We observe steady progress between this date and Nov 2016. After November, the graph gradually increases to 2.42 in Apr 2019. 4F. - What is the current Federal Funds rate? The current Federal Funds rate is 5.33. 5. In your own words, what was the concern for the economy up to mid-2007?

In 2007, losses on mortgage-related financial assets began to cause strains in global financial markets, and in December 2007 the US economy entered a recession. That year several large financial firms experienced financial distress, and many financial markets experienced significant turbulence. 6. As you can see the monetary policy changed in the later part of 2007 and the rate started to drop. What was the new concern of the Federal Reserve starting in September 2007? Explain why they would change policy and drop the Fed Funds Rate. Home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011. This decline in home prices helped to spark the financial crisis of 2007-08, as financial market participants faced considerable uncertainty about the incidence of losses on mortgage-related assets. Federal Reserve Policy 7. Review the following recent FOMC statement. 7A - List the date of the FOMC Press release. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including

readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments. 7 B - In your own words, list the major ideas from the FOMC concerning the direction of the economy, inflation, and growth. What does the statement say about employment? What does the statement say about inflation? Include the current FOMC monetary policy regarding the Fed Funds rate in terms of the level of the Fed Funds rate and if there is a change proposed in the rate either up or down? FOMC Link: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230920a.htm Although the inflation rate and unemployment rate were high and job gains were slow, positive messages were tried to be given. Since inflation is not reliable, tighter credit conditions of banks will create an indefinite pressure on economic activity, employment and inflation. The committee aims to achieve maximum employment and inflation of 2 percent in the long term. To support these goals, the Committee will maintain the target range for the federal funds rate between 5-1/4 and 5-1/2 percent. The Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. It will continue to reduce its holdings of Treasury bonds, corporate debt and corporate mortgage-backed securities. The Committee will continue to monitor the effects of incoming information on the economic outlook while evaluating the appropriate stance of monetary policy. The Committee will be prepared to adjust its monetary policy stance as appropriate should risks emerge that could prevent it from achieving its objectives. The committee's assessments will take into account a wide range of information, including labor market conditions, inflation pressures and inflation expectations, and readings on financial and international developments.

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8 . Using the following link to The Federal Reserve’s September 2022 projections, and using Page 4, titled Figure 2. FOMC Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate, what can you say about the level and direction of the Fed Funds rate in the upcoming years. List the years and the range of the Fed Funds Rate. Link: https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did not submit longer-run projections for the federal funds rate. 2022 %4.37 2023 %4.87 - %5.67 2024 %5.67 - %3.25 2025 %2.37 - %5.67 9. Also due to global events, please see the following press release. What was the Federal Reserve’s action about the coronavirus? Explain why they would take this policy action. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1 - 1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy. (End.) These questions are copyrighted. Sharing without permission is not permitted. © Peter Lawson

Macroeconomic Performance 23b (1)

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