|Perfect Number of Pages to Order||5-10 Pages|
In 1992, the U.S. The economy began a long period of expansion.. For the rest of the decade, GDP growth? was positive and high. In 2000, however, the expansion came to an end. From the third quarter of? 2000 to the fourth quarter of 2001, GDP growth was either positive and close to zero or negative.? Based on data available at the time, it was thought that growth was negative through the first three??
quarters of 2001. Based on revised data, it appears that growth was actually small but positive in the second quarter. (These data revisions happen often, so that what we see when we look back is not? always what national income statisticians perceived at the time.) The NBER concluded that the U.S.? economy had indeed had a recession in 2001, starting in March 2001 and ending in December 2001.??
What triggered the recession was a sharp decline in investment demand. The cause was the end of? what Alan Greenspan, the chairperson of the Fed at the time, had dubbed a period of irrational exuberance: During the second part of the 1990s, firms had been extremely optimistic about the? future, and the rate of investment had been very high.?
There is a consensus that the recession could have been much worse. However, it was met by a? strong macroeconomic policy response, which limited the depth and the length of the recession.?
To analyze this fact, follow these steps:?
1- Go to the Federal Reserve Economic Data (FRED) https://fred.stlouisfed.org/. Download the? series FGEXPND, FGRECPT, GPDI, GPDIC1, GDP, and GDPC1 since 1990. Notice that some of these quarterly series are in nominal terms and others in real terms. Compile a single spreadsheet with? these series.?
2- In this spreadsheet, normalize the real GDP and real Investment by setting 100 in 2000.Q2.? 3- Go back to the FRED and download FEDFUNDS since 1990. Use the monthly version and keep this serie as a separate spreadsheet.?
a. Construct measures of government spending, revenues, the fiscal deficit (revenues – spending), and investment as a share of GDP from 1999.Q1 to 2003.Q4.?
b. Construct a graph of investment as a share of GDP from 1999.Q1 to 2003.Q4 to observe? the decline in investment (as a share of GDP) during the crisis.?
c. Construct a graph of real investment and real GDP from 1996.Q1 to 2003.Q4 using the normalized series with 2000.Q2=100. Verify that GDP slowed down while investment? declined in real terms.
d. Fill in the following table with the change (variation) for each period??
(change in real terms)?
(I) 2000.Q2 – 2001.Q1?
(II) 2001.Q1 – 2001.Q4?
Total (sum of I + II)?
(change in real terms)?
e. Monetary policy. Starting in early 2001, the Fed, feeling that the economy was slowing? down, started increasing the money supply and therefore decreasing the federal funds rate aggressively. Construct a graph of the Fed funds rate from 1999 to 2002. What was? the rate in January 2001 and what end up being in December 2001??
f. Fiscal policy. During 2000, it became clear that the economy was slowing down, so the? 2001 budget included reductions in tax rates. On the spending side, the events of? September 11, 2001 lead to an increase in spending, mostly on defense and homeland? security. This combination of revenues and spending lead to a fiscal expansion. Construct? a graph of government spending and revenue as a share of GDP between 1999 and 2003.? What was the fiscal deficit in 2001.Q1 and what end up being in 2001.Q4? Discuss how? spending increased and revenues decreased during 2001.?
g. For this part, use a separate file or Word document. Consider the IS-LM framework? starting from an equilibrium and then??
i. Using a graph, show the effect of a drop in investment.??
ii. From that new equilibrium, show how the monetary expansion and the fiscal? expansion (qualitatively) affected the interest rate and the level of output.