Assignment -
In the Macro paper, students develop their forecast of economic activity for the last quarter of 2017, the 4 quarters of 2018 and the years 2017 and 2018 (Quarter III GDP numbers are released on 10-27-17.) Student forecasts are based on the expected monetary, fiscal and regulatory policies. Students can use forecasts of economists as guidelines but this is your forecast of economic activity. Important: the monetary, fiscal and regulatory policies are the ones expected to be in effect -- not the policies you think should be but rather the policies that the monetary authorities and politicians are likely to implement.
Part I -
Monetary policy
Students need an assumption of: 1) the level of the federal funds rate at year-end 2017 and 2018 and 2) the inflation rate. Does the Fed need to raise interest rates? Did quantitative easing -- QE -- of the Federal Reserve work? How does monetary policy work - use the concepts from the text and work through money demand and money supply. How do money and taxes affect the AD and AS curves. (Don't confuse money supply with the aggregate supply or money demand with the aggregate demand curve).
Tax policy
Use tax concepts from Chapter 16 in this section of your paper and the idea of Hauser's law.
Students need to use: GDP * tax rate = Federal tax revenue. Take a position on the tax base and the tax rate. Do you want to grow the base or increase the tax rate and/or what and why? How do tax rates influence economic activity? What are the effects on the aggregate demand and aggregate supply curves? What are the effects of taxes and regulations on business formation? (For the business formation question, review unit 1 and the tax and regulatory impact on the supply curve.)
Budget policy - Does size of the Federal deficit and outstanding Treasury debt relative to the size of the U.S. economy and interest rates impact economic growth? Students can go to "Treasury Debt to Penny" in the webliography to obtain the U.S. outstanding Treasury debt. Currently it is $20.4 trillion. In January 2017, it was approximately $19.9 trillion. This compares to approximately $10.6 trillion in January 2009 and $5.7 trillion in January 2001. Students need to take a position on how to reduce the Federal deficit: a) Is it through increasing Federal tax rates, b) through slowing the rate of growth in Federal outlays or c) through increasing economic growth. How do you close a 2018 Federal budget deficit that is projected at over $700 billion by Wells Fargo?
Trade policy -- does the current account deficit remain the same or increase as a percent of GDP?
Other - Regulatory policy.
Part II -
The BEA release on October 27, 2017 will be for the 3rd quarter 2017. RGDP and its components and can be obtained. The release will provide actual absolute numbers for Q3 2017, see Table 3, in billions of chained (2009) dollars. Also see "Important" below. Students forecast the last quarter of 2017 and each of the four quarters of 2018 (the annual absolute number is obtained as the average of the 4 quarterly absolute respective numbers and the annual percent is obtained from the annual absolute.) and 2016 annual and 2017 annual. The percentages for historical quarters are from Table 1 in the BEA release.
Real GDP numbers can be obtained at bea.gov, then click on gross domestic product to obtain the table with the real GDP numbers (2009) dollars. Note: the components of real GDP - consumption, business investment (which is nonresidential investment made up of equipment and intellectual property plus structures), residential investment, government spending, net exports, and change in inventory do not exactly add to real GDP - note the last 2 paragraphs in this Macro Paper comments for why.
Students can utilize information from the Wells Fargo site listed in the webliography plus other sites students may have. Students can also utilize information from the Wall Street Journal Survey and the Blue Chip Survey - both in Doc Sharing. For the absolute GDP and its components for the history and forecast, be sure to use billions of chained (2009) dollars. (This means numbers are inflation-adjusted.)
Attachment:- Assignment Files.rar