Comments on Macro Paper -- note the syllabus and example Macro paper in doc sharing

Check the syllabus for the Macro paper due date. When complete, upload your paper to post MACRO paper in Doc sharing. The post MACRO paper folder is located in the folder directly below the Unit 12 link in Doc Sharing. Click upload, share with instructor only, upload. (Note how to incorporate the excel table into your paper it is the last paragraph of this paper.) Be sure to place your name on the first page of your paper.

In the Macro paper, students make their forecast of economic activity for the remaining 2015 quarters and the year 2015 based on the expected monetary, fiscal and regulatory policies. You 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 or already have implemented. Part I

Monetary policy

You need an assumption of: 1) the level of the federal funds rate at year-end 2015 and 2) the inflation rate. Does the Fed need to raise interest rates in 2015? Did quantitative easing -- QE -- of the Federal Reserve work? Why did the Federal Reserve use QE and what is its purpose? 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. (Dont 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 Hausers law.

Students need to cover: 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. In July 2015 it was approximately $18.2 trillion compared to approximately $10.7 trillion at the end of 2008 and $5.6 trillion at the end of 2000. The size of the Federal deficit tells us the approximate annual increase in the outstanding debt. Students need to take a position on how to reduce the Federal deficit is it through increasing Federal tax revenue or through slowing the rate of growth in Federal outlays. How do you close an approximate 2015 approximate $500 billion Federal budget deficit?

Trade policy -- does the current account deficit remain the same or increase as a percent of GDP?

Other Regulatory policy. Do you think the Patient Protection & Affordable Care Act will have no influence or add to or slow business formation and economic growth and why?

Part II

The BEA release on June 24, 2015 for the first quarter 2015 RGDP and its components can be obtained at http://www.bea.gov.. (Students can use the release of June 24 for their paper their paper.) This provides actual absolute numbers through Q4, 2014, see Table 3, in billions of chained (2009) dollars. Also see Important below. Students forecast the remaining 2015 quarters and annual forecast (the annual percent number is obtained from the quarterly absolute GDP numbers.) The percentages for historical quarters are from Table I in the BEA release. (ON July 30, 2015 there will be a new GDP release for the 2^nd quarter of 2015 plus BEA will revise all recent historical data.) It probably easier for most students to use the June 24 release since the paper is due August 2.

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.

Students can utilize information from the Wells Fargo site in the webliography plus other sites you 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.)

Money numbers, historically, can be obtained from http://www.federalreserve.gov/econresdata/releases/statisticsdata.htm and then click on money stock measures the H 6 report. Money numbers are monthly, so add the relevant 3 months together for each quarter and divide by 3. Use the monthly M2 seasonally adjusted numbers. Add 3 months together and divide by 3. Or FRED can be used.

CPI numbers can be obtained from FRED along with the above M2 numbers. http://research.stlouisfed.org/fred2/tags/series/?

http://research.stlouisfed.org/fred2/tags/series/?

On FRED, scroll through the various categories until you find the series needed. Students need to use the absolute CPI level to obtain the percent change.

Interest rates can be obtained from FRED or the above federal reserve site H 15 weekly report. Go to H 15 weekly report and click on historical data at the top, scroll down the page to obtain the series you want, click monthly, add 3 months together and divide by 3. The two series you want are under "Treasury Constant Maturities," the 3-month and the 10-year.

Housing forecast housing starts in millions of units for the relevant time periodsgo to the following link, then go to table 3, first column: Or use FRED

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

Motor vehicle sales in millions of units can be obtained from FRED: http://research.stlouisfed.org/fred2/search?+Weight+Vehicle+Sales%3A+Autos+%26+Light+Trucks

Alternative Data Source: students can also go to the following St. Louis Federal Reserve Data Base called FRED and find all of the above data. There is an app for FRED for your iPhone and/or tablet. Students might also download Bloomberg Finance for news on the economy and financial markets. Other alternatives are to use CNBC and Market Watch.

Important

The percentage change in quarterly GDP numbers, by convention, is at annual rates. The absolute numbers reflect the quarterly change but the quarterly percent change can be multiplied by 4 to obtain the approximate annual percentage change from quarter to quarter (check the BEA.gov numbers to verify this). Some information on the process is at:

http://baselinescenario.com/2009/04/30/gdp-growth-rates-for-beginners/

The material in this link is very dated but it goes through the process.

The quarterly absolute numbers are relative to the prior quarter and are a quarterly change. The quarterly percentages, in comparison, are at an annual change relative to the prior quarter.

Important -- The real GDP numbers for the 4 quarters of 2014 are given.

Percentage numbers in your paper follow the same process as in the above rectangle. And the annual numbers for your paper follow the same process as the annual numbers in the above rectangle.

Concepts

Concepts for this paper are from the chapters in our text on macroeconomics but in particular Chapters 3, 16, 26, 27, 29, 30 and 33. Figure 33.5 in Chapter 33 on pp. 684-685 pulls the graphs together.

Students can include graphs and citations in an appendix to the 3-page paper and refer to them in your first three pages if you wish.

Other

Blue Chip Economic Indicators, in Doc Sharing, on pp. 4 & 5, lists the annual forecasts for a number of economists. P. 7 lists the quarterly averages for those economists.

The Wall Street Journal Survey, in Doc Sharing, also lists forecasts for a number of economists.

Value Line Investment Survey in the Library Database click on Library Information under Course Home and scroll down to databases. Value Line updates their economic forecast from time to time and I dont know when their last update was but it can be found in the Selection and Opinion report when they do.

General Comment -- Important

Students provide the forecast of real GDP and its major components for the time period indicated reflecting Part I policies. Students might have real GDP running at the 3%/yr. rate or more if students believe the current monetary, budget, tax and regulatory policies are pro-growth and will have a positive impact on the economy following textbook theory. However if students believe the current set of monetary, tax, budget and regulatory policies are not pro-growth, following the textbook theory, then students might have real GDP running at a somewhat slower rate of growth. The U.S. economy is a lot like a business. Leaders of a business entity may implement a set of strategies that are conducive to growth in corporate sales and profits such as Apple or Google. Or corporate leaders may implement a set of strategies that aren't such as at JC Penny. Some companies consistently have success while others do not.

It is the same way for economies. Some do well and others don't depending on the political leadership and that leaderships selection of tax, budget and regulatory menus. In a democracy, that has a limited degree of corruption, citizens generally have the macroeconomic tax, budget and regulatory policies implemented that reflect the voting preferences of a majority of the voters. Political leaders also appoint central bankers. Thus the elected leadership and a countrys voters also influence the implementation of monetary policy (remember that political leaders of a country may have a vested interest in higher inflation as the oustanding national debt is paid back in cheaper dollars.)

Excel Table

1. Insert the excel spreadsheet into your Word Document and resize the spreadsheet so it fits the margin width of your paper and post the paper. Go to (Insert, Object, Create from file when in Word) then resize it. Then upload the paper in Word with the excel sheet in it. DO NOT upload the excel table by itself.

Other Information this is FYI on real GDP & its components

Q: Should real GDP equal the sum of its components? (Source: pp. near the end of the GDP release next to the last paragraph of the GDP news release)

A: Real GDP will not equal the total of real consumption, real investment, real government spending, and real net exports because of the chain-weighted procedure. The Bureau of Economic Analysis uses a chain-weighted procedure that fixes aggregate real GDP growth rate for a year and the growth of individual components. A series whose growth bears a fixed relationship to the growth of its components cannot be re-expressed to equal the sum of the components. This issue doesnt apply to nominal GDP. Therefore, if you want to see the relative importance of consumer spending for the economy it's best to use nominal GDP.

This issue is not isolated to aggregate GDP. The components of real spending, investment, etc., will not necessarily sum up the total. A measure of the extent of the difference is captured by a residual in the historical data, which indicates the difference between GDP (or other major aggregate) and the sum of the most detailed components.