Assignment:
1. Using data from the St. Louis Federal Reserve (https://fred.stlouisfed.orel) (or other sources but you need to cite the source of the data), analyze real GDP,
a. Find the most recent values and values from one year earlier for nominal Gross Domestic Product (GDP) and the GDP Implicit Price Deflator.
b. Using the data from above, compute the real GDP for the most recent period and for the period one year earlier.
c. Growth in the economy is usually measured as growth in real GDP. Using the two computed real GDP values, find the growth rate of the economy from the first period to the second period.
d. Using the result in (a), calculate the inflation rate for the most recent year.
2. Using data from the St. Louis Federal Reserve (https://fred.stlouisfed.orga analyze real and nominal interest rates,
a. Find the most recent values for the following four variables:
i. 15-Year Fixed Rate Mortgage Average in the United States (MORTGAGE15US)
ii. Moody's Seasoned Aaa Corporate Bond Yied (AAA),
iii. the 3-Month Treasury Bill: Secondary Market Rate (TB3MS)
iv. University of Michigan Inflation Expectation (MICH).
b. Using the most recent expected inflation rate, compute the expected real interest rate for each of the above three borrowing rates (for i, ii and iii).
c. Suppose the actual inflation rate is less than the expected inflation rate. Will borrowers or lenders be made better off?
3. At the Treasury Web site (www.treasury.gov), go to the Resources tab and find Data and Charts Center. Then locate the Daily Treasury Yield Curve Rates.
a. For the most recent date, graph the yield curve. Then explain how yield changes with the maturity of the Treasury security.
b. Graph a yield curve for any one of the days in 2007. Indicate what date you choose.
c. Is the yield curve in "a" different from the yield curve in "b"? How? Can you infer anything about the current state of the economy?
4. Using data from the St. Louis Federal Reserve, analyze bond prices and interest rates,
a. Find the most recent values and the values from the same month 1 year and 2 years earlier for the 1-Year Treasury Bill: Secondary Market Rate (TB1YR).
b. Suppose the 1-Year Treasury bill has a face value of $2,000. Using the interest rates found above, calculate the price of a 1-Year Bill for each of the 3 periods.
c. From the previous computations, what can you determine about the relationship between interest rates and bond prices?