ECO 202

I am looking for someone to complete this project in pieces. please be willing to to complete in pieces until completed Milestone 1 then work from there .

ECO 202 Final Project Guidelines and Rubric

Overview
The final project for this course is the creation of economic history analysis presentation. Macroeconomics is the part of the study of economics that is concerned
with the aggregate or the whole. Macroeconomics provides us with tools and methods to understand how our economy works as a whole. It deals with
economy-wide issues such as price levels, employment, national income, and growth. As a student of macroeconomics, you will learn how to understand the
changes occurring throughout our economy and how our economy is influenced by our decisions, by our government, and by other countries.

In this assignment, you will perform an in-depth analysis of a 10-year period in U.S. economic history between 1950 and today. In your analysis, you will examine
macroeconomic data, basic macroeconomic principles, government actions, and historical/current events to give a clear and comprehensive picture of your
chosen time period and detail how they are related to one another.

The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final
submissions. These milestones will be submitted in Modules Two, Four, and Five. The final project will be submitted in Module Seven.

In this assignment, you will demonstrate your mastery of the following course outcomes:

 Apply macroeconomic models to historical and current events for drawing connections between the events and their economic impact

 Determine the effects of government intervention and fiscal and monetary policy actions for their impact on the economy

 Analyze macroeconomic data for their implication to economic outcomes and forecasting

 Analyze macroeconomics trends and government policies for their influence on industries and households

Prompt
For this assignment, you will first need to choose a 10-year period in U.S. economic history between 1950 and today. You will then present the data collected
from government sources related to a variety of macroeconomic phenomena and analyze them in conjunction with the models and core principles to explain the
economy-wide changes during your chosen time period. You will also examine the events of the time in their relation to the macroeconomic issues as well as the
corresponding government actions taken (fiscal and monetary policies) to address the issues. The final presentation should be 15–20 slides using PowerPoint,
Prezi, Keynote, or PreZentit, including title and reference slides. Be sure to include speaker notes to accompany the data and graphs, information, and
explanations presented on the slide.

Specifically, the following critical elements must be addressed:

I. Examination of Macroeconomic Data (Be sure to include speaker notes to accompany all of your responses.)
a) Gross Domestic Product (GDP) and Growth

i. Analyze the annual GDP during the time frame to calculate specific growth rates and trends in the U.S. economy.

ii. Choose two or three of the most relevant historical and/or current events during this time period that impacted the U.S. economy. Apply
specific models developed throughout the course to demonstrate how these events influenced national output during this time.

b) Unemployment and Inflation
i. Analyze unemployment and inflation data during the time frame in their relation to output and growth, using macroeconomic principles

and models to explain their effect.
ii. Apply specific models developed throughout the course to demonstrate how the previously selected historical and/or current events

influenced both unemployment and inflation during this time.
c) Analyze interest rate fluctuations throughout this time period and their effects on other aspects of the economy. How would these fluctuations

affect inflation? Would investments and foreign trade rates increase or decrease? How would the GDP of the American economy be affected?
d) Foreign Trade

i. Analyze data representing levels of U.S. imports and exports during this time. How do they relate to other economic outcomes such as
the GDP, foreign exchange rates, and so on?

ii. Apply specific models developed throughout the course to demonstrate how domestic and foreign events (e.g., wars, changes in trade
barriers, development abroad) have impacted the level of and changes in imports and exports in the United States.

II. Government Policies (Be sure to include speaker notes to accompany all of your responses.)

a) Fiscal Policy
i. Examine the fiscal policies in place at the start of your specific time period in relation to their effects on macroeconomic issues. For

instance, consider level of government spending, taxation, subsidies, unemployment benefits, and so on.
ii. Analyze new fiscal policy actions undertaken by the U.S. government throughout the time period by describing their intended effects,

using macroeconomic principles to explain the actions.
iii. Explain the impact of the new fiscal policy actions on individuals and businesses within the economy by integrating the macroeconomic

data and principles.
b) Monetary Policy

i. Examine the monetary policies in place at the start of your specific time period in relation to their effects on macroeconomic issues. For
instance, consider the discount rate set by the Fed, the rates on reserves, open market operations, and so on.

ii. Analyze new monetary policy actions undertaken by the U.S. government throughout the time period by describing their intended
effects, using macroeconomic principles to explain the actions.

iii. Explain the impact of the new monetary policy actions on individuals and businesses within the economy by integrating the
macroeconomic data and principles.

III. Conclusion (Be sure to include speaker notes to accompany all of your responses.)
a) Summarize the overall trends and outcomes of this 10-year period by integrating the data, economic models, and historical analysis.
b) Defend your agreement or disagreement with the actions taken by the U.S. government during this time based upon your analysis and

application of the macroeconomic theories.

Milestones
Milestone One: Macroeconomic Data Report
In Module Two, you will submit the first three sections of your final project as outlined in Section I, parts a), b), and c).

1) Choose a 10-year period in the history of the U.S. between 1950 and today. All responses will be related to that timeframe.

b) Gross Domestic Product (GDP) and Growth
i. Analyze the annual GDP to calculate specific growth rates and trends in the U.S. economy.

ii. Choose two or three of the most relevant events from this time period that impacted the U.S. economy. Apply specific models
developed throughout the course to demonstrate how these events influenced national output during this time period.

c) Unemployment and Inflation
i. Analyze unemployment and inflation data as to their relation to output and growth, using macroeconomic principles and models to

explain their effect.
ii. Apply specific models developed throughout the course to demonstrate how the previously selected events influenced both

unemployment and inflation during this time period.
d) Analyze interest rate fluctuations throughout this time period and their effects on other aspects of the economy. How would these fluctuations

affect inflation? Would investments and foreign trade rates increase or decrease? How would the GDP of the American economy be affected?

2) Present your research with 4–6 slides in PowerPoint, Prezi, Keynotes, or PreZentit, not including title page and references. Be sure to include speaker
notes to accompany all of your responses.

3) Apply APA formatting to citations and references.

This milestone will be graded with the Milestone One Rubric.

Milestone Two: Fiscal Policies
In Module Four, you will submit a section of your final project pertaining to fiscal policies as outlined in Section II, part a).

1) Continue your observation of the 10-year period selected for Milestone One, and research the government policies implemented during those years.

a) Fiscal Policy
i. Examine the fiscal policies in place at the start of your specific time period in relation to their effects on macroeconomic issues. For

instance, consider level of government spending, taxation, subsidies, unemployment benefits, and so on. Analyze new fiscal policy actions
undertaken by the U.S. government throughout the time period by describing their intended effects, using macroeconomic principles to
explain the actions.

ii. Explain the impact of the new fiscal policy actions on individuals and businesses within the economy by integrating the macroeconomic
data and principles.

2) Present your research with 3–5 slides in PowerPoint, Prezi, Keynotes or PreZentit, not including title page and references. Be sure to include speaker
notes to accompany all of your responses.

3) Apply APA formatting to citations and references.

This milestone will be graded with the Milestone Two Rubric.

Milestone Three: Monetary Policies
In Module Five, you will submit a section of your final project pertaining to monetary policies as outlined in Section II, part b).

1) Continue your observation of the 10-year period selected for Milestone One and research the Government Policies implemented during those years.
a) Monetary Policy

ii. Analyze new monetary policy actions undertaken by the U.S. government throughout the time period by describing their intended
effects, using macroeconomic principles to explain the actions.

iii. Explain the impact of the new monetary policy actions on individuals and businesses within the economy by integrating the
macroeconomic data and principles.

2) Present your research with 3–5 slides in PowerPoint, Prezi, Keynotes or PreZentit, not including title page and references. Be sure to include speaker

notes to accompany all of your responses.

3) Apply APA formatting to citations and references.

This milestone will be graded with the Milestone Three Rubric.

Final Project: Economic History Analysis Presentation
In Module Seven, you will submit your final project. It will include new research on foreign trade practices (Section I, part d), will draw conclusions (Section III),
and integrate all milestones and feedback. It should be a complete, polished artifact containing all of the critical elements of the final product.

1) Research and present, in 3–4 slides, foreign trade practices and policies of the 10-year period you researched for Milestones One, Two, and Three.
a) Analyze data representing levels of U.S. imports and exports during this time. How do they relate to other economic outcomes such as the GDP,

foreign exchange rates, and so on?
b) Apply specific models developed throughout the course to demonstrate how domestic and foreign events (e.g., wars, changes in trade barriers,

development abroad) have impacted the level of and changes in imports and exports in the United States.

2) Draw conclusions to the research carried out throughout the course.
a) Summarize the overall trends and outcomes of this 10-year period by integrating the data, economic models, and historical analysis.
b) Defend your agreement or disagreement with the actions taken by the U.S. government during this time based upon your analysis and

application of the macroeconomic theories.

3) Incorporate and integrate this information with the slides developed during Milestones One, Two, and Three into a 15–20-slide presentation that covers
all the critical elements of the assignment. Be sure to include speaker notes to accompany all of your responses.

4) Apply APA formatting to citations and references.

The final project will be graded using the Final Project Rubric.

Deliverables

Milestone Deliverables Module Due Grading

1 Macroeconomic Data Report Two Graded separately; Milestone One Rubric

2 Fiscal Policies Report Four Graded separately; Milestone Two Rubric

3 Monetary Policies Report Five Graded separately; Milestone Three Rubric

Final Submission: Economic History
Analysis Presentation

Seven Graded separately; Final Project Rubric

Final Project Rubric
Guidelines for Submission: Your economic history analysis presentation should be 15–20 slides, including title and reference slides, and include speaker notes to
accompany the slides. Your reference list slide needs to be in APA format.

Critical Elements Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Examination: GDP:
Growth Rates and

Trends

Meets “Proficient” criteria and
explains relevance of the growth
rates observed

Accurately analyzes the annual
GDP during the time frame to
calculate specific growth rates
and trends in the U.S. economy
and provides information in
speaker notes

Analyzes the annual GDP during
the time frame to calculate
specific growth rates and trends
in the U.S. economy, but analysis
is inaccurate, or does not provide
information in speaker notes

Does not analyze the annual GDP
during the time frame

6.4

Examination: GDP:
Influenced National

Output

Meets “Proficient” criteria and
offers a nuanced insight into the
relationship between events and
national output

Applies specific models
developed throughout the course
to demonstrate how relevant
historical and/or current events
have influenced national output
during the time period, and
provides information in speaker
notes

Applies specific models
developed throughout the course
to demonstrate how relevant
historical and current events have
influenced national output during
the time period, but events
chosen are not relevant, or does
not provide information in
speaker notes

Does not apply specific models
developed throughout the course
to demonstrate influence on
national output

Examination:
Unemployment and

Inflation: Output and
Growth

Meets “Proficient” criteria and
explains how data is collected and
calculated

Analyzes unemployment and
inflation data during the time
frame in their relation to output
and growth, using
macroeconomic principles and
models to explain their effect,
and provides information in
speaker notes

Analyzes unemployment and
inflation data during the time
frame, but does not relate
analysis to output and growth,
does not use macroeconomic
principles and models to explain
their effect, or does not provide
information in speaker notes

Does not analyze unemployment
and inflation data during the time
frame

6.4

Examination:
Unemployment:

Events

Meets “Proficient” criteria and
offers a nuanced insight into the
relationship between events,
unemployment, and inflation

Applies specific models
developed throughout the course
to demonstrate how relevant
historical/or and current events
have influenced both
unemployment and inflation
during the time period, and
provides information in speaker
notes

Applies specific models
developed throughout the course
to demonstrate how relevant
historical and current events have
influenced both unemployment
and inflation during this time
period, but events chosen are not
relevant, or does not provide
information in speaker notes

Does not apply specific models
developed throughout the course
to demonstrate relevant events’
influence on unemployment and
inflation

6.4

Examination: Interest
Rate Fluctuations

Meets “Proficient” criteria and
relates fluctuations to all other
factors of the economy

Analyzes interest rate fluctuations
throughout the time period and
their effect on other aspects of
the economy, such as inflation,
investment, foreign trade, and
the GDP, and provides
information in speaker notes

Analyzes interest rate fluctuations
throughout the time period, but
does not relate this to their effect
on other aspects of the economy
such as inflation, investment,
foreign trade, and the GDP, or
does not provide information in
speaker notes

Does not analyze interest rate
fluctuations throughout the time
period

6.4

Examination: Foreign
Trade: Imports and

Exports

Meets “Proficient” criteria and
provides specific detail in
presenting the data

Accurately analyzes data
representing levels of U.S.
imports and exports during the
time period as they relate to
other economic outcomes, and
provides information in speaker
notes

Analyzes data representing levels
of U.S. imports and exports
during the time period, but does
not relate data to other economic
outcomes, does not provide
information in speaker notes, or
analysis is inaccurate

Does not analyze data
representing levels of U.S.
imports and exports during the
time period

6.4

Examination: Foreign
Trade: Models

Meets “Proficient” criteria and
offers a nuanced insight into the
relationship between events and
changes in imports and exports

Applies specific models
developed throughout the course
to demonstrate how domestic
and foreign events have impacted
the level of and changes in
imports and exports in the United
States, and provides information
in speaker notes

Does not apply specific models
developed throughout the course
to demonstrate impact of
domestic and foreign events on
foreign trade

6.4

Government Policies:
Fiscal: Policies

Meets “Proficient” criteria and
cites scholarly research to
support the relation between the
policies and the issues

Examines the fiscal policies in
place at the start of the specific
time period in relation to their
effects on macroeconomic issues,
and provides information in
speaker notes

Examines the fiscal policies in
place at the start of the specific
time period, but does not relate
this to their effects on
macroeconomic issues, or does
not provide information in
speaker notes

Does not explain the fiscal
policies in place at the start of the
specific time period

6.4

Government Policies:
Fiscal: Policy Actions

Meets “Proficient” criteria and is
well qualified and cites scholarly
research with specific examples
and references

Analyzes new fiscal policy actions
undertaken by the U.S.
government throughout the time
period by describing their
intended effects, uses
macroeconomic principles to
explain the actions, and provides
information in speaker notes

Analyzes new fiscal policy actions
undertaken by the U.S.
government throughout the time
period, but does not describe
their intended effects, does not
use macroeconomic principles to
explain the actions, or does not
provide information in speaker
notes

Does not analyze new fiscal policy
actions undertaken by the U.S.
government throughout the time
period

6.4

Government Policies:
Fiscal: Impact

Meets “Proficient” criteria and
uses concrete examples to
substantiate claims and to
comprehensively describe the
policy results

Comprehensively explains the
impact of the new fiscal policy
actions on individuals and
businesses within the economy
by integrating the
macroeconomic data and
principles, and provides
information in speaker notes

Explains the impact of the new
fiscal policy actions on individuals
and businesses within the
economy, but is not
comprehensive, does not
integrate the macroeconomic
data and principles, or does not
provide information in speaker
notes

Does not explain the impact of
the new fiscal policy actions on
individuals and businesses within
the economy

6.4

Government Policies:
Monetary: Policies

Meets “Proficient” criteria and
cites scholarly research to
support the relation between the
policies and the issues

Examines the monetary policies
in place at the start of the
selected time period in relation to
their effects on macroeconomic
issues, and provides information
in speaker notes

Examines the monetary policies
in place at the start of the
selected time period, but does
not relate them to their effects on
macroeconomic issues, or does
not provide information in
speaker notes

Does not examine the monetary
policies in place at the start of the
selected time period

6.4

Government Policies:
Monetary: Policy

Actions

Meets “Proficient” criteria and is
well qualified and cites scholarly
research with specific examples
and references

Analyzes new monetary policy
actions undertaken by the U.S.
government throughout the time
period by describing their
intended effects, uses
macroeconomic principles to
explain the actions, and provides
information in speaker notes

Analyzes new monetary policy
actions undertaken by the U.S.
government throughout the time
period, but does not describe
their intended effects, does not
use macroeconomic principles to
explain the actions, or does not
provide information in speaker
notes

Does not analyze new monetary
policy actions undertaken by the
U.S. government throughout the
time period

6.4

Government Policies:
Monetary: Impact

Meets “Proficient” criteria and
uses concrete examples to
substantiate claims and to
comprehensively describe the
policy results

Comprehensively explains the
impact of the new monetary
policy actions on individuals and
businesses within the economy
by integrating the
macroeconomic data and
principles, and provides
information in speaker notes

Explains the impact of the new
monetary policy actions on
individuals and businesses within
the economy, but is not
comprehensive, does not
integrate the macroeconomic
data and principles, or does not
provide information in speaker
notes

Does not explain the impact of
the new monetary policy actions
on individuals and businesses
within the economy

6.4

Conclusion: Trends
and Outcomes

Meets “Proficient” criteria and
highlights specific examples to
demonstrate trends and
outcomes

Summarizes the overall trends
and outcomes of the 10-year
period by effectively integrating
the data, economic models, and
historical analysis, and provides
information in speaker notes

Summarizes the overall trends
and outcomes of the 10-year
period, but does not integrate the
data, economic models, and
historical analysis effectively,
does not apply all three elements,
or does not provide information
in speaker notes

Does not summarize the overall
trends and outcomes of the 10-
year period

6.4

Conclusion:
Agreement or
Disagreement

Meets “Proficient” criteria, and
point of view is well supported
and plausible

Defends whether the student
agrees or disagrees with the
actions taken by the U.S.
government during the selected
time period based upon student’s
analysis and application of the
macroeconomic theories, and
provides information in speaker
notes

Does not defend whether the
student agrees or disagrees with
the actions taken by the U.S.
government during the selected
time period

6.4

Articulation of
Response

Submission is free of errors
related to citations, grammar,
spelling, syntax, and organization
and is presented in a professional
and easy-to-read format

Submission has no major errors
related to citations, grammar,
spelling, syntax, or organization

Submission has major errors
related to citations, grammar,
spelling, syntax, or organization
that negatively impact readability
and articulation of main ideas

Submission has critical errors
related to citations, grammar,
spelling, syntax, or organization
that prevent understanding of
ideas

Earned Total 100%

The American Economy
2008 ~ 2018

Latonya Parrish

Eco 202

Milestone one

Southern New Hampshire University

2008: The Global Financial Crisis
More than 25 subprime lenders filed for bankruptcy
2008: Congress Passes $700 Billion Bailout Bill
2009: The unemployment rate rose to 10.0%, the worst since the 1982 recession.

ECO 202

The 2000 – 2010 American Economy

A Macroeconomic Look
Karla Wilbur
ECO 202
Milestone One

Choose a title for your presentation.

Include your name, the course name and the assignment name.

ECO 202

2000-2010 American Economy Overview

The early 2000s began with the burst of the dot-com bubble. In March of 2000, many of these overvalued dot-com businesses went under, causing the stock market to crash. GDP growth slowed from 4.1% in 2000 to 1.0% in 2001. Thus began a recession with unemployment steadily climbing each year to a high of 6% in 2003. During this time, America was dealt a blow in the form of a major terrorist attack. The World Trade Center in New York City was brought down by planes hijacked by members of al-Qaeda, based in Afghanistan. Americans, seeking revenge, overwhelming supported the government’s decision to wage war with al-Qaeda. This set in motion a chain of wars that would cost the government billions of dollars and thousands of American lives.

In an effort to lead the United States out of its recession, the Federal Reserve lowered interest rates from 6.5% at the beginning of 2001

to 1.75% in December 2001. Suddenly, mortgage rates became ideal and Americans were encouraged to borrow and to buy. As it became easier to borrow money, more people were entering the market and the median price of homes began to increase. Businesses were flourishing and unemployment rates dropped to 4.3% by 2007.

As with the dot-com bubble, the housing bubble could not be sustained. Americans who had borrowed against the value of their home when it was high found themselves unable to repay what they owed, even if they sold their property. Subprime loans left many lenders, like Frannie Mae and Freddie Mac, on the verge of bankruptcy.

In response to the financial crisis, the Emergency Economic Stabilization Act was proposed, allowing the United States Secretary of Treasury to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities, and to supply cash directly to the banks. On September 29, 2008, the bill went before the House of Representatives and was voted down. In response, the DOW fell 777.68 points which was the highest single day drop in history. After some revisions, the bill was signed into law on October 3, 2008.

In February 2009, in an effort to stimulate the economy, lawmakers enacted the American Recovery and Reinvestment Act. The purpose of this act was to provide funds to states and localities, support people in need, purchase goods and services, and provide temporary tax relief for individuals and businesses. While the effects of this act were not immediately felt before the turn of the decade, it ended up playing a large role in creating jobs and pulling the country out of the recession soon after.

ECO 202

2000-2010 GDP Analysis
Source: U.S. Bureau of Economic Analysis
Year

While the chart shows GDP steadily increasing over the years, the rate of change fluctuated quite a bit during this decade. Trends in output and growth can be directly tied to a few major events that caused this decade to be labeled by many as the “lost decade”. The decade went through many business cycles facing a recession early on followed by a period of expansion, and then ending in another recession. Growth slowed from a 4.1% change in 2000 to a 1% change in 2001. 2004 saw the highest rate of change with 3.8%. When the housing bubble burst in 2007, GDP growth immediately declined to a 1.8% rate of change. As unemployment began to rise, personal consumption expenditures, especially on recreation, decreased. The decade ended with a -2.8% growth rate in 2009.

The burst of the housing bubble in 2007 caused a major shift in GDP as well. Gross private domestic investment, which includes real estate purchases, decreased by 30% in 2009 compared to 2006, with the residential sector dropping 53% in that same time period. The rate of growth for the construction industry decreased by almost 22% from 2006 to 2009. While growth slowed many times over the decade, 2009 is the only year that real GDP actually decreased. Personal consumption expenditures, gross private domestic investment, and net exports of goods and services decreased while government consumption expenditures and gross investment increased. During this recession, the government tried to increase employment and stimulate the economy by spending taxpayer dollars on government projects, like the American Recovery and Restoration Act of 2009.

ECO 202

GDP & the 9/11 Terror Attacks
U.S. Stock Market Exchange closes for SIX days following the attacks on 9/11
The DOW Industrial Average drops 648 points

U.S. tourism and domestic travel declined
Domestic flights within the U.S. decreased from 56.4 million passengers in August of 2001 to 30 million passengers in September of 2001.

Military spending increases
The US enters the War on Terror.
National Defense spending increases
Change in Real GDP from 2000-2003:

Year Percentage
2000 -0.9 %
2001 3.5 %
2002 7.0 %
2003 8.5 %

When the country was attacked on September 11, 2001, the economy also faced a huge challenge. The Twin Towers in NYC were taken down by planes hijacked by terrorists. The NYSE and NASDAQ closed for 6 days following the attack, the longest shutdown since 1933. Upon reopening, the market fell by 684 points in one trading day. The airline and insurance sectors experienced the selling of their stocks at a rapid pace. American Airlines and United Airlines, carriers whose planes were hijacked during the terrorist attacks, suffered the greatest loss on Wall Street.

The hijackings also incited fear of flying and tourism and domestic travel took a sharp decline. Domestic flights in the USA dropped from 56.4 million passenger enplanements in August of 2001 to 30 million passenger enplanements in September of 2001. The end of brought with it a 13.3% decline in gross output by the American airline industry, followed by another 6.1% decline in 2002.

The hijackers were members al-Qaeda, which originated out of Afghanistan. President George Bush vowed to win the war on terrorism and launched attacks that would result in two wars throughout the remainder of the decade. This resulted in a sharp increase in national defense spending. Government consumption expenditures for national defense increased by 3.5% of real GDP in 2001 and continued to increase each year. 2003 had the highest rate of change at 8.5% of real GDP when American entered into its second war of the decade with Iraq.

ECO 202

GDP & the Housing Bubble

Industry Percentage of Job Loss
Mortgage 54.5 %
Wood Product Manufacturing 35.0 %
Cement & Concrete Manufacturing 24.4 %

In 2007, the housing bubble burst. Americans who had borrowed against the value of their home when it was high found themselves unable to repay what they owed, even if they sold their property. Foreclosure filings spiked by more than 81% in 2008. The total of 861,664 families who lost their homes in 2008 is a 225% increase from 2006.

The rate of growth for the construction industry decreased by almost 22% from 2006 to 2009. As the demand for housing fell, industries that relied heavily on revenue from residential construction had to lay off workers. Employment in the mortgage industry decreased by 54.5% from 2006 to 2009. In the same period of time, there was a 35% loss of employment in wood product manufacturing and a 24.4% loss of employment in cement and concrete product manufacturing.

ECO 202

Unemployment and Inflation
Source: U.S. Bureau of Economic Analysis

Unemployment rates between 2000 and 2010 follow the business cycle. When the economy is growing, jobs are evolving and unemployment is declining. As more people are employed, personal consumption increases, and the consumer price index rises. Frictional and structural unemployment play a role as workers look for jobs and businesses work to find the right employees for their organizations. However, cyclical unemployment is likely responsible for the numbers above. From 2003 through 2007, unemployment decreased as demand throughout the nation grew. During the financial crisis leading into the Great Recession, demand decreased, resulting in a higher rate of unemployment.

The inflation rate is higher when unemployment is lower, and vice versa. With more money to spend, consumers purchase more and the inflation rate rises.

ECO 202

Unemployment & Inflation
The Dot-Com Bubble
Investors assume online businesses will be successful
Many e-commerce sites go to market with IPO and stock prices double, triple, and even quadruple in one day.
2000 – Many over-valued dot-com businesses fail
Leads to three year recession
Unemployment rises
2001: 4.4%
2002: 5.8%
2003: 6.0%
Federal Reserve lowers interest rates
6.5% to 1.75% in 2001
Borrowing increases and the economy grows.
Inflation begins to increase over next three years.

When the economy is growing, jobs are being created and more people are employed. As more people are employed, personal consumption increases, and the consumer price index rises. No matter how much a nation thrives, you will never see unemployment at 0%. Frictional and structural unemployment will always play a factor as workers look for jobs and businesses struggle to match candidates to the right roles within their organization. However, cyclical unemployment is likely responsible for chart above. From 2003 through the beginning of 2007, cyclical unemployment decreased as demand throughout the nation grew. During the financial crisis leading into the Great Recession, demand decreased, resulting in a higher rate of unemployment.

ECO 202

Interest Rates

2000-2010
Interest rates decline during periods of recession and increase during periods of economic growth
Interest rates change in response to demand for credit, growth, and inflation
Lower interest rates mean consumers spend more and save less.
2009 – CPI fell
deflation rate of 0.36%
The value of the dollar decreased
Imports decreased by 23%

This chart shows two periods of time when interest rates declined sharply, both during recessions. During the recession from 2001-2002, interest rates fell from 9.5% to 4.3% and the rate of inflation slowed from 3.3% in 2000 to 1.5% in 2002. During the Great Recession of 2008-2009, interest rates decreased again from 8.3% to 3.3%. The major difference between this recession and the one earlier in the decade was that instead of growth slowing down, the country actually experienced negative growth and a period of deflation. The GDP declined by 2.8% in 2009. During the same year, the rate of inflation was -0.36%, or “deflation.”

When interest rates are lowered, consumers are enticed to spend more and save less. In response to more demand for credit, interest rates are raised. This can be clearly seen in the chart above for the period between 2004 and 2007. During these years, the GDP was steadily growing as well. Additionally, as the housing bubble burst and the demand for credit decreased, interest rates plummeted, directly affecting the GDP in 2009.

ECO 202

Fiscal Policy and the New Millenium
1991 – 1992: Growing Deficit
1993: The Omnibus Budget Reconciliation Act enacted.
Raised taxes on wealthy
Raised gas tax
Extended limits on discretionary spending
Mandatory spending cut
1994 – 1997: Deficit begins to decrease
1998: Government runs first surplus since 1969.
$69.3 billion
Surplus continues to grow
1999: $125.6 billion
2000: $236.2 billion
Source: The White House – Office of Management and Budget

Fiscal policies have undergone many major changes in the United States, most commonly at the federal level. Just five months before President Clinton’s 1993 budget bill was passed, the Congressional Budget Office projected a 1998 deficit of $360 billion. One month after the bill was signed into law, the new estimate was down to just $200 billion. The Omnibus Budget Reconciliation Act of 1993 raised taxes on wealthy people, raised the gas tax, extended limits on discretionary spending and cut back on some mandatory spending. The CBO explained the dramatic improvement this way: “For the first time in two and one-half years, the deficit projections have taken a decided turn for the better. The reconciliation act is the reason for the improvement over the long run.” In 1998, the government ran a budget surplus for the first time since 1969. This surplus increased by 81% in 1999 and by another 88% in 2000. Judging by these events and changes to fiscal policy, we can assume that the decade was headed in the right direction.

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Fiscal Policy
The Economic Growth & Tax Relief Reconciliation Act (2001)
The Bill’s Purpose
Tax cuts
Stimulus money given to consumers
The Bill’s Goal
Encourage consumer spending
Fund the economy in the short term
The Bill’s Outcome
Economy is coming out of recession
Federal receipts decrease 12%
Federal outlays increase 21%
Surplus ends  deficit begins
Source: The White House – Office of Management and Budget

After the burst of the dot-com bubble, the economy quickly began to slide into a recession. In response, Congress and President George W. Bush passed The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This expansionary policy enacted wide-spread income tax cuts that reduced tax liabilities for almost every tax return. It initially helped the suffering economy by stimulating spending during the 2001 recession. It also gave income tax relief to families who would spend their money, further stimulating the economy. This increase in demand helped boost the economy and pull it out of recession. As shown in the chart above, Government receipts decreased by 12% between 2000 and 2003 while outlays increased by 21% in the same time. This resulted in the end of the budget surplus, leading the United States into the greatest deficit in history and a deficit we still find our country in today.

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Fiscal Policy
The American Recovery & Reinvestment Act (2009)
Source: The White House – Office of Management and Budget
The Bill’s Purpose
Individual tax cuts
Direct relief to state governments and individuals
Extended unemployment insurance, health coverage, and food stamps
Investments in environmental protection and infrastructure

The Bill’s Negative Effects
Contributed to largest deficit in history
$1.4 trillion

The Bill’s Positive Effects
Increased GDP 2.5%
Created 2.3 million jobs
Decreased unemployment
Prevented recession from becoming a full-blown depression

President Obama enacted the American Recovery and Reinvestment Act of 2009 (ARRA). This expansionary policy was in response to the recession brought on by the bursting of the housing market, discussed in slide 5. America was facing the worst economic and financial crisis since the Great Depression. In 2008, we saw the loss of trillions of dollars of household wealth and 4.6 million private sector jobs and GDP was rapidly falling. The act, signed into law on February 17, 2009, included individual income tax cuts, direct relief to state governments and individuals, extending unemployment insurance, health coverage, food assistance programs, and investments in transportation, environmental protection, and other infrastructure that were thought to provide long-term economic benefits.

This increase in government spending combined with a decrease in taxes created the largest deficit the United States had ever seen at $1.4 trillion. However, it contributed to stimulating the economy, increasing the GDP, and prevented the recession from becoming a full-blown depression. The increase in government spending had a multiplier effect in subsequent transactions as it passed through the broader economy. According to Congressional Budget Office, the act raised the nation’s GDP from 2% to 2.5% between the fourth quarter of 2009 and the second quarter of 2011. The CBO also estimates that the act was directly responsible for the creation of 2.3 million jobs in 2010. Government spending created new jobs, business tax relief allowed more companies to retain and/or hire workers and individual tax breaks and extended unemployment benefits put more money back in the pockets of consumers.

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Calculating Inflation
Changes throughout the Decade
2000 and Prior:
Consumer Price Index (CPI)
2000-2004:
Personal Consumption Index (PCE)
2004-Current:
Core-PCE
(excluding prices of food and energy)

Sometimes, monetary policies can help the Federal Reserve achieve one goal, while simultaneously impeding its other goals. When the Federal Reserve feels as though inflation is increase at an alarming rate, it can take action to slow it down. However, when the Federal Reserve increases interest rates to reduce the inflation rate, a recession can occur. This causes a slow in growth in aggregate demand, which can increase unemployment and decrease GDP.

One major change that took place regarding monetary policy was in regards to the way inflation was calculated. Prior to 2000, the inflation rate was always calculated by the Consumer Price Index (CPI). However, in 2000, the Chairman of the Federal Reserve, Alan Greenspan, began using the Personal Consumption Expenditure (PCE) to calculate the rate of inflation instead. PCE is the measurement of all goods and services consumed in the United States, including purchases made by consumers, employers, and federal programs. Chairman Greenspan argued that the PCE was more comprehensive and would be more consistent in the long run by more easily allowing revisions to be taken into account.

In 2004, Chairman Greenspan again changed the way inflation was calculated by removing the cost of food and energy. The belief was that the price of food and energy fluctuated by causes unrelated to general inflation and that these prices count not be controlled by monetary policy. The Federal Reserve began using the core-PCE price index to calculate inflation. The core-PCE is defined as “personal consumption expenditures (PCE) prices excluding food and energy prices” (The Bureau of Economic Analysis, 2016). As you can see in the chart above, there is a major difference between CPI, PCE, and core-PCE. While both CPI and PCE were showing the economy was in a significant period of deflation from the end of 2008 through the beginning of 2009, core-PCE continued to show a rate of growth.

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Monetary Policy
The New Millenium
1990 – 2000 was a period of relatively stable economic growth, inflation rate, and joblessness
CBO’s forecast for 2000-2009 shows anticipated continual growth (report released January 1999)
GDP growth rate: 2.3% average per year
Inflation rate: 2.6% average per year
Unemployment rate: 5.7% average per year
Monetary policies are based off of forecasted information
Both upcoming recessions were unanticipated

The Federal Reserve has the right to act “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”. They have four main goals: to establish price stability, to maintain high levels of employment, to ensure the stability of financial markets and institutions, and to encourage stable economic growth. The actions that the Federal Reserve takes to achieve these goals are monetary policy.

The federal funds rate is the interest rate at which banks lend money to other banks in order to meet the required reserve. These loans are usually very short term and often happen overnight. Although the Federal Reserve can not actually set the federal funds rate, it does have the ability to manipulate it indirectly. This is done by raising or lowering the discount rate at which the Federal Reserve loans money. Essentially, if the Federal Reserve lowers the discount rate below the federal funds rate, banks would be more likely to borrow from the Federal Reserve when they need money. This causes the federal funds rate to decrease in order to compete. However, if the discount rate is above that of the federal funds rate, banks will likely choose to borrow from each other instead, causing the federal funds rate to increase. Therefore, the discount rate and the federal funds rate usually rise or fall together.

The chart above shows the effective federal funds rate from 1995 through the end of 1999. While the rate spiked and dipped throughout these years, it remained fairly stable. This is a direct reflection of the stability in economic growth, the inflation rate, and joblessness that occurred throughout these years. Because the Federal Reserve’s essential function is to stabilize output, employment, and inflation, the 1990s were arguably a relatively easy decade for the Federal Reserve to handle. In January of 1999, the Congressional Budget Office (CBO) released a report outlining the economic and budget outlook for the years 2000 through 2009. In it, they forecasted that the GDP would grow by an average of 2.3% per year, inflation as measured by the consumer price index would increase by 2.6% per year, and that unemployment would average 5.7% per year. The Federal Reserve can only enact monetary policies based on forecasted information.

Because the forecast leading into the next decade showed continual growth, the Federal Reserve had no way of knowing that two recessions were on the horizon.

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Monetary Policy
The Housing Bubble
Monetary Policy:
Federal Reserve lowers interest rates from 6.5% to 1.75% in 2001
Goals:
Increase the money supply
Increase borrowing
Increase spending
Stimulate the economy
Negative Effects:
Higher demand leads to increase housing prices
Between 2000 to 2006
Housing prices increase over 200%
Rental prices increase only 25%
The housing bubble is created
Lower interest rates allowed for subprime lending,
creating a financial crisis when borrowers
could not repay
Positive Effects:
Lower interest rates result in banks lending more and consumers borrowing more
More first-time home buyers could obtain mortgages
Housing market boomed
Employment related to the housing/construction industry thrived

After the dot-com bubble burst, the economy experience a slight recession. This situation was compounded by the terrorist attacks in New York City on September 11, 2001. In an effort to stimulate spending, the Federal Reserve lowered interest rates from 6.5% at the beginning of 2001 to 1.75% in December 2001, applying downward pressure to the federal funds rate. Changes in the federal funds rate affects banks, which in turn affect mortgage rates. Historically low mortgage rates enabled more first-time homebuyers to obtain mortgages and enter the housing market. With so many consumers in the housing market, housing prices soared and employment related to the housing/construction industry thrived. The rate of unemployment in the construction industry decreased from 14% in January of 2003 to 4.5% in October of 2006. The gross output in the housing industry increased by 68% in the same time frame.

However, this monetary policy had negative effects as well. These low interest rates created capital liquidity allowing for banks to provide borrowers with the necessary funds to buy a home. There were many people who wanted to invest in a home but were excluded from securing favorable financing due to the underwritten guidelines used by the prime loan mortgage companies. The increase in capital coupled with the increase in demand for mortgages led most prime rate mortgage companies to relax their guidelines. Subprime mortgages are defined as a “type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages”. (Investopedia, 2016). At the time, lenders saw subprime mortgages as less risky than they were. Rates were low, the economy was thriving and borrowers were making payments on time. The size of the subprime loan market rapidly increased. In 1995, it was estimated that there were $65 billion in subprime mortgages. However, by 2007, of the $10 trillion in outstanding mortgages, subprime mortgages accounted for $1.3 trillion.

Typically, rental prices and housing prices increase at about the same rate. However, with the increase in demand for homes, housing prices began to surge. The graph above shows the correlation between housing prices and rental prices. As you can see, they remain very close together until 2001 when housing prices begin to drastically increase. From 2000 to 2006, housing prices increased by over 200% while rental prices increased by only 25% in the same time frame.

These events eventually led to the bursting of the housing bubble and the Great Recession.

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Monetary Policy
Bank Reserves
2008
Federal Reserve pushes target for federal funds rate to nearly zero
Federal Reserve begins paying 0.25% interest on bank reserves
Goals:
Increase reserves to meet demand
Banks would lend reserves to households and firms
Increase spending
Stimulate failing economy
Results:
Banks hesitant to lend money
Banks begin stockpiling reserves instead of lending to households and firms
Total bank reserves rise from < $50b in 2008 to > $900b in 2009

Before the Great Recession, Congress passed the Financial Services Regulatory Relief Act of 2006. This act authorized the Federal Reserve to begin paying interest to banks on the balance of their reserves. Although this legislation wasn’t supposed to go into effect until October 1, 2011, the financial crisis prompted quicker action. The failure of many high profile financial institutions in September of 2008 caused a huge sense of instability in the financial system. The Emergency Economic Stabilization Act of 2008 authorized the Federal Reserve to begin paying 0.25% interest on reserve balances. According to the Board of the Federal Reserve, “the payment of interest on excess reserves will permit the Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to support financial stability while implementing the monetary policy that is appropriate in light of the System’s macroeconomic objectives of maximum employment and price stability.”

The intention behind the interest payments was to increase bank reserves and avoid a potential bank run. The Federal Reserve was hoping that banks would then lend these reserves to households and firms. These households and firms would then spend the money, stimulating the economy, increasing jobs, and raising GDP. However, banks were hesitant to loan to anyone without stellar credit and once the Federal Reserve was authorized to pay interest on reserves, the amount of money banks kept in their reserves began to increase dramatically. As you can see in the chart above, reserve balances with Federal Reserve banks hovered consistently at just below $50 billion from 2000 through 20008. As indicated by the jagged peaks, once these reserves began earning interest, banks began stockpiling excess reserves instead of loaning out these funds. By 2009, Federal Reserve banks balances were over $900 billion.

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References
Bureau of Economic Analysis. (2016). National Data. Retrieved from http://www.bea.gov/iTable/index_nipa.cfm

Federal Reserve Bank of New York. (2016). Term Asset-Backed Securities Loan Facility. Retrieved from https://www.newyorkfed.org/markets/talf.html

Focus Economics. (2016). U.S. Economic Outlook. Retrieved from http://www.focus-economics.com/countries/united-states

Geier, Ben. (2015, March 12) What did we learn from the dotcom stock bubble of 2000? Time. Retrieved from http://time.com/3741681/2000-dotcom-stock-bust/

Board of Governors of the Federal Reserve System. (2015, November 24). Term Asset-Backed Securities Loan Facility. Retrieved from https://www.federalreserve.gov/monetarypolicy/talf.htm

Board of Governors of the Federal Reserve System. (2016). Bank Prime Loan Rate. Retrieved from https://fred.stlouisfed.org/series/MPRIME

White House, The. (2016). Historical Tables. Office of Management and Budget. Retrieved from https://www.whitehouse.gov/omb/budget/Historicals

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References Continued
Hubbard, R. Glenn & O’Brien, Anthony Patrick. (2015). Macroeconomics. Pearson Education Inc. Retrieved from https://view.ebookplus.pearsoncmg.com

Feldstein, Martin. (2002). Tax Cuts, Rate Cuts Put the Economy Back on Track. Wall Street Journal Online. Retrieved from http://www.nber.org/feldstein/wj031302

Meth, Madeline. (2011, March 7). RELEASE: The Real Heroes of the 1998 Budget Surplus: Clinton and His Economy. Center for American Progress. Retrieved from https://www.americanprogress.org/press/release/2011/03/07/14349/release-the-real-heroes-of-the-1998-budget-surplus-clinton-and-his-economy/

Nesvisky, Matt. (2001, December 1). U.S. Monetary Policy During the 1990s. The National Bureau of Economic Research Digest. Retrieved from http://www.nber.org/digest/dec01/w8471.html

Prante, Gerald. (2013, November 4) A Distributional Analysis of Fiscal Policies in the United States, 2000-2012. Tax Foundation. Retrieved from

http://taxfoundation.org/sites/taxfoundation.org/files/docs/wp9_sr211_

Redistribution_Working_Paper_2013_0

Choose a title for your presentation.
Include your name, the course name and the assignment name.
*
The early 2000s began with the burst of the dot-com bubble. In March of 2000, many of these overvalued dot-com businesses went under, causing the stock market to crash. GDP growth slowed from 4.1% in 2000 to 1.0% in 2001. Thus began a recession with unemployment steadily climbing each year to a high of 6% in 2003. During this time, America was dealt a blow in the form of a major terrorist attack. The World Trade Center in New York City was brought down by planes hijacked by members of al-Qaeda, based in Afghanistan. Americans, seeking revenge, overwhelming supported the government’s decision to wage war with al-Qaeda. This set in motion a chain of wars that would cost the government billions of dollars and thousands of American lives.
In an effort to lead the United States out of its recession, the Federal Reserve lowered interest rates from 6.5% at the beginning of 2001
to 1.75% in December 2001. Suddenly, mortgage rates became ideal and Americans were encouraged to borrow and to buy. As it became easier to borrow money, more people were entering the market and the median price of homes began to increase. Businesses were flourishing and unemployment rates dropped to 4.3% by 2007.
As with the dot-com bubble, the housing bubble could not be sustained. Americans who had borrowed against the value of their home when it was high found themselves unable to repay what they owed, even if they sold their property. Subprime loans left many lenders, like Frannie Mae and Freddie Mac, on the verge of bankruptcy.
In response to the financial crisis, the Emergency Economic Stabilization Act was proposed, allowing the United States Secretary of Treasury to spend up to $700 billion to purchase distressed assets, especially mortgage-backed securities, and to supply cash directly to the banks. On September 29, 2008, the bill went before the House of Representatives and was voted down. In response, the DOW fell 777.68 points which was the highest single day drop in history. After some revisions, the bill was signed into law on October 3, 2008.
In February 2009, in an effort to stimulate the economy, lawmakers enacted the American Recovery and Reinvestment Act. The purpose of this act was to provide funds to states and localities, support people in need, purchase goods and services, and provide temporary tax relief for individuals and businesses. While the effects of this act were not immediately felt before the turn of the decade, it ended up playing a large role in creating jobs and pulling the country out of the recession soon after.
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While the chart shows GDP steadily increasing over the years, the rate of change fluctuated quite a bit during this decade. Trends in output and growth can be directly tied to a few major events that caused this decade to be labeled by many as the “lost decade”. The decade went through many business cycles facing a recession early on followed by a period of expansion, and then ending in another recession. Growth slowed from a 4.1% change in 2000 to a 1% change in 2001. 2004 saw the highest rate of change with 3.8%. When the housing bubble burst in 2007, GDP growth immediately declined to a 1.8% rate of change. As unemployment began to rise, personal consumption expenditures, especially on recreation, decreased. The decade ended with a -2.8% growth rate in 2009.
The burst of the housing bubble in 2007 caused a major shift in GDP as well. Gross private domestic investment, which includes real estate purchases, decreased by 30% in 2009 compared to 2006, with the residential sector dropping 53% in that same time period. The rate of growth for the construction industry decreased by almost 22% from 2006 to 2009. While growth slowed many times over the decade, 2009 is the only year that real GDP actually decreased. Personal consumption expenditures, gross private domestic investment, and net exports of goods and services decreased while government consumption expenditures and gross investment increased. During this recession, the government tried to increase employment and stimulate the economy by spending taxpayer dollars on government projects, like the American Recovery and Restoration Act of 2009.
*
When the country was attacked on September 11, 2001, the economy also faced a huge challenge. The Twin Towers in NYC were taken down by planes hijacked by terrorists. The NYSE and NASDAQ closed for 6 days following the attack, the longest shutdown since 1933. Upon reopening, the market fell by 684 points in one trading day. The airline and insurance sectors experienced the selling of their stocks at a rapid pace. American Airlines and United Airlines, carriers whose planes were hijacked during the terrorist attacks, suffered the greatest loss on Wall Street.
The hijackings also incited fear of flying and tourism and domestic travel took a sharp decline. Domestic flights in the USA dropped from 56.4 million passenger enplanements in August of 2001 to 30 million passenger enplanements in September of 2001. The end of brought with it a 13.3% decline in gross output by the American airline industry, followed by another 6.1% decline in 2002.
The hijackers were members al-Qaeda, which originated out of Afghanistan. President George Bush vowed to win the war on terrorism and launched attacks that would result in two wars throughout the remainder of the decade. This resulted in a sharp increase in national defense spending. Government consumption expenditures for national defense increased by 3.5% of real GDP in 2001 and continued to increase each year. 2003 had the highest rate of change at 8.5% of real GDP when American entered into its second war of the decade with Iraq.
*
In 2007, the housing bubble burst. Americans who had borrowed against the value of their home when it was high found themselves unable to repay what they owed, even if they sold their property. Foreclosure filings spiked by more than 81% in 2008. The total of 861,664 families who lost their homes in 2008 is a 225% increase from 2006.
The rate of growth for the construction industry decreased by almost 22% from 2006 to 2009. As the demand for housing fell, industries that relied heavily on revenue from residential construction had to lay off workers. Employment in the mortgage industry decreased by 54.5% from 2006 to 2009. In the same period of time, there was a 35% loss of employment in wood product manufacturing and a 24.4% loss of employment in cement and concrete product manufacturing.
*
Unemployment rates between 2000 and 2010 follow the business cycle. When the economy is growing, jobs are evolving and unemployment is declining. As more people are employed, personal consumption increases, and the consumer price index rises. Frictional and structural unemployment play a role as workers look for jobs and businesses work to find the right employees for their organizations. However, cyclical unemployment is likely responsible for the numbers above. From 2003 through 2007, unemployment decreased as demand throughout the nation grew. During the financial crisis leading into the Great Recession, demand decreased, resulting in a higher rate of unemployment.
The inflation rate is higher when unemployment is lower, and vice versa. With more money to spend, consumers purchase more and the inflation rate rises.
*
When the economy is growing, jobs are being created and more people are employed. As more people are employed, personal consumption increases, and the consumer price index rises. No matter how much a nation thrives, you will never see unemployment at 0%. Frictional and structural unemployment will always play a factor as workers look for jobs and businesses struggle to match candidates to the right roles within their organization. However, cyclical unemployment is likely responsible for chart above. From 2003 through the beginning of 2007, cyclical unemployment decreased as demand throughout the nation grew. During the financial crisis leading into the Great Recession, demand decreased, resulting in a higher rate of unemployment.

*
This chart shows two periods of time when interest rates declined sharply, both during recessions. During the recession from 2001-2002, interest rates fell from 9.5% to 4.3% and the rate of inflation slowed from 3.3% in 2000 to 1.5% in 2002. During the Great Recession of 2008-2009, interest rates decreased again from 8.3% to 3.3%. The major difference between this recession and the one earlier in the decade was that instead of growth slowing down, the country actually experienced negative growth and a period of deflation. The GDP declined by 2.8% in 2009. During the same year, the rate of inflation was -0.36%, or “deflation.”
When interest rates are lowered, consumers are enticed to spend more and save less. In response to more demand for credit, interest rates are raised. This can be clearly seen in the chart above for the period between 2004 and 2007. During these years, the GDP was steadily growing as well. Additionally, as the housing bubble burst and the demand for credit decreased, interest rates plummeted, directly affecting the GDP in 2009.

*
Fiscal policies have undergone many major changes in the United States, most commonly at the federal level. Just five months before President Clinton’s 1993 budget bill was passed, the Congressional Budget Office projected a 1998 deficit of $360 billion. One month after the bill was signed into law, the new estimate was down to just $200 billion. The Omnibus Budget Reconciliation Act of 1993 raised taxes on wealthy people, raised the gas tax, extended limits on discretionary spending and cut back on some mandatory spending. The CBO explained the dramatic improvement this way: “For the first time in two and one-half years, the deficit projections have taken a decided turn for the better. The reconciliation act is the reason for the improvement over the long run.” In 1998, the government ran a budget surplus for the first time since 1969. This surplus increased by 81% in 1999 and by another 88% in 2000. Judging by these events and changes to fiscal policy, we can assume that the decade was headed in the right direction.
*
After the burst of the dot-com bubble, the economy quickly began to slide into a recession. In response, Congress and President George W. Bush passed The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This expansionary policy enacted wide-spread income tax cuts that reduced tax liabilities for almost every tax return. It initially helped the suffering economy by stimulating spending during the 2001 recession. It also gave income tax relief to families who would spend their money, further stimulating the economy. This increase in demand helped boost the economy and pull it out of recession. As shown in the chart above, Government receipts decreased by 12% between 2000 and 2003 while outlays increased by 21% in the same time. This resulted in the end of the budget surplus, leading the United States into the greatest deficit in history and a deficit we still find our country in today.
*
President Obama enacted the American Recovery and Reinvestment Act of 2009 (ARRA). This expansionary policy was in response to the recession brought on by the bursting of the housing market, discussed in slide 5. America was facing the worst economic and financial crisis since the Great Depression. In 2008, we saw the loss of trillions of dollars of household wealth and 4.6 million private sector jobs and GDP was rapidly falling. The act, signed into law on February 17, 2009, included individual income tax cuts, direct relief to state governments and individuals, extending unemployment insurance, health coverage, food assistance programs, and investments in transportation, environmental protection, and other infrastructure that were thought to provide long-term economic benefits.
This increase in government spending combined with a decrease in taxes created the largest deficit the United States had ever seen at $1.4 trillion. However, it contributed to stimulating the economy, increasing the GDP, and prevented the recession from becoming a full-blown depression. The increase in government spending had a multiplier effect in subsequent transactions as it passed through the broader economy. According to Congressional Budget Office, the act raised the nation’s GDP from 2% to 2.5% between the fourth quarter of 2009 and the second quarter of 2011. The CBO also estimates that the act was directly responsible for the creation of 2.3 million jobs in 2010. Government spending created new jobs, business tax relief allowed more companies to retain and/or hire workers and individual tax breaks and extended unemployment benefits put more money back in the pockets of consumers.
*
Sometimes, monetary policies can help the Federal Reserve achieve one goal, while simultaneously impeding its other goals. When the Federal Reserve feels as though inflation is increase at an alarming rate, it can take action to slow it down. However, when the Federal Reserve increases interest rates to reduce the inflation rate, a recession can occur. This causes a slow in growth in aggregate demand, which can increase unemployment and decrease GDP.
One major change that took place regarding monetary policy was in regards to the way inflation was calculated. Prior to 2000, the inflation rate was always calculated by the Consumer Price Index (CPI). However, in 2000, the Chairman of the Federal Reserve, Alan Greenspan, began using the Personal Consumption Expenditure (PCE) to calculate the rate of inflation instead. PCE is the measurement of all goods and services consumed in the United States, including purchases made by consumers, employers, and federal programs. Chairman Greenspan argued that the PCE was more comprehensive and would be more consistent in the long run by more easily allowing revisions to be taken into account.
In 2004, Chairman Greenspan again changed the way inflation was calculated by removing the cost of food and energy. The belief was that the price of food and energy fluctuated by causes unrelated to general inflation and that these prices count not be controlled by monetary policy. The Federal Reserve began using the core-PCE price index to calculate inflation. The core-PCE is defined as “personal consumption expenditures (PCE) prices excluding food and energy prices” (The Bureau of Economic Analysis, 2016). As you can see in the chart above, there is a major difference between CPI, PCE, and core-PCE. While both CPI and PCE were showing the economy was in a significant period of deflation from the end of 2008 through the beginning of 2009, core-PCE continued to show a rate of growth.
*
The Federal Reserve has the right to act “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”. They have four main goals: to establish price stability, to maintain high levels of employment, to ensure the stability of financial markets and institutions, and to encourage stable economic growth. The actions that the Federal Reserve takes to achieve these goals are monetary policy.
The federal funds rate is the interest rate at which banks lend money to other banks in order to meet the required reserve. These loans are usually very short term and often happen overnight. Although the Federal Reserve can not actually set the federal funds rate, it does have the ability to manipulate it indirectly. This is done by raising or lowering the discount rate at which the Federal Reserve loans money. Essentially, if the Federal Reserve lowers the discount rate below the federal funds rate, banks would be more likely to borrow from the Federal Reserve when they need money. This causes the federal funds rate to decrease in order to compete. However, if the discount rate is above that of the federal funds rate, banks will likely choose to borrow from each other instead, causing the federal funds rate to increase. Therefore, the discount rate and the federal funds rate usually rise or fall together.
The chart above shows the effective federal funds rate from 1995 through the end of 1999. While the rate spiked and dipped throughout these years, it remained fairly stable. This is a direct reflection of the stability in economic growth, the inflation rate, and joblessness that occurred throughout these years. Because the Federal Reserve’s essential function is to stabilize output, employment, and inflation, the 1990s were arguably a relatively easy decade for the Federal Reserve to handle. In January of 1999, the Congressional Budget Office (CBO) released a report outlining the economic and budget outlook for the years 2000 through 2009. In it, they forecasted that the GDP would grow by an average of 2.3% per year, inflation as measured by the consumer price index would increase by 2.6% per year, and that unemployment would average 5.7% per year. The Federal Reserve can only enact monetary policies based on forecasted information.
Because the forecast leading into the next decade showed continual growth, the Federal Reserve had no way of knowing that two recessions were on the horizon.
*
After the dot-com bubble burst, the economy experience a slight recession. This situation was compounded by the terrorist attacks in New York City on September 11, 2001. In an effort to stimulate spending, the Federal Reserve lowered interest rates from 6.5% at the beginning of 2001 to 1.75% in December 2001, applying downward pressure to the federal funds rate. Changes in the federal funds rate affects banks, which in turn affect mortgage rates. Historically low mortgage rates enabled more first-time homebuyers to obtain mortgages and enter the housing market. With so many consumers in the housing market, housing prices soared and employment related to the housing/construction industry thrived. The rate of unemployment in the construction industry decreased from 14% in January of 2003 to 4.5% in October of 2006. The gross output in the housing industry increased by 68% in the same time frame.
However, this monetary policy had negative effects as well. These low interest rates created capital liquidity allowing for banks to provide borrowers with the necessary funds to buy a home. There were many people who wanted to invest in a home but were excluded from securing favorable financing due to the underwritten guidelines used by the prime loan mortgage companies. The increase in capital coupled with the increase in demand for mortgages led most prime rate mortgage companies to relax their guidelines. Subprime mortgages are defined as a “type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages”. (Investopedia, 2016). At the time, lenders saw subprime mortgages as less risky than they were. Rates were low, the economy was thriving and borrowers were making payments on time. The size of the subprime loan market rapidly increased. In 1995, it was estimated that there were $65 billion in subprime mortgages. However, by 2007, of the $10 trillion in outstanding mortgages, subprime mortgages accounted for $1.3 trillion.
Typically, rental prices and housing prices increase at about the same rate. However, with the increase in demand for homes, housing prices began to surge. The graph above shows the correlation between housing prices and rental prices. As you can see, they remain very close together until 2001 when housing prices begin to drastically increase. From 2000 to 2006, housing prices increased by over 200% while rental prices increased by only 25% in the same time frame.
These events eventually led to the bursting of the housing bubble and the Great Recession.
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Before the Great Recession, Congress passed the Financial Services Regulatory Relief Act of 2006. This act authorized the Federal Reserve to begin paying interest to banks on the balance of their reserves. Although this legislation wasn’t supposed to go into effect until October 1, 2011, the financial crisis prompted quicker action. The failure of many high profile financial institutions in September of 2008 caused a huge sense of instability in the financial system. The Emergency Economic Stabilization Act of 2008 authorized the Federal Reserve to begin paying 0.25% interest on reserve balances. According to the Board of the Federal Reserve, “the payment of interest on excess reserves will permit the Federal Reserve to expand its balance sheet as necessary to provide the liquidity necessary to support financial stability while implementing the monetary policy that is appropriate in light of the System’s macroeconomic objectives of maximum employment and price stability.”
The intention behind the interest payments was to increase bank reserves and avoid a potential bank run. The Federal Reserve was hoping that banks would then lend these reserves to households and firms. These households and firms would then spend the money, stimulating the economy, increasing jobs, and raising GDP. However, banks were hesitant to loan to anyone without stellar credit and once the Federal Reserve was authorized to pay interest on reserves, the amount of money banks kept in their reserves began to increase dramatically. As you can see in the chart above, reserve balances with Federal Reserve banks hovered consistently at just below $50 billion from 2000 through 20008. As indicated by the jagged peaks, once these reserves began earning interest, banks began stockpiling excess reserves instead of loaning out these funds. By 2009, Federal Reserve banks balances were over $900 billion.
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Years 2000-2010

Joshua Taylor

ECO 202

Milestone Two

ECO 202

Fiscal Policy
Contractionary Fiscal Policy leading into the 2000’s in the Clinton Administration
Raised Taxes
Cut spending by reforming TANF program
Implemented NAFTA
Expansionary Fiscal Policy starting in 2001 with President Bush
Tax relief for recession

ECO 202
During the time with Bill Clinton, he implemented contractionary fiscal policy. He raised taxes across the board, cut spending by reforming the TANF program, and implemented NAFTA (Amadeo, 2017). Early in the decade, President Bush used expansionary fiscal policy to help the economy during recession 2001
2

Fiscal Policy Actions
This rubric element wants you to examine what the fiscal policy initiatives were going forward to respond to the changing economic landscape.
You should specifically state what the intent of the actions was—for instance, it could be to decrease unemployment.
Then, use our macroeconomic principles and models (like the AD-AS model or Keynesian consumption function) to explain why the action would lead to the outcome desired by the government.
Keep the main points (and any use of graphs to show the economic models) on the slide, and use the speaker notes to add full explanation.
Scholarly research is required here as well (this may overlap with research from the previous element, as appropriate).

ECO 202

Fiscal Policy Impact
After looking at what the government set out to do and why, you will now examine whether it actually worked.
You will look at the macroeconomic data (which you already gathered in Milestone One) to see if policy actions achieved their goals. For instance, President Johnson’s “War on Poverty” aimed to reduce poverty in the U.S. and, in doing so, create a stronger economy. With less poverty, we should see increased consumption and higher growth rates.
Keep in mind that there may be times when the government misread the economy and implemented a policy that had unintended effects, so it is important to compare what was observed after the policy in the macroeconomic data to what the policy objectives were.

ECO 202
References
Amadeo, K. (2016, October 19). What Was Obama’s Stimulus Package? Retrieved January 19, 2017, from https://www.thebalance.com/what-was-obama-s-stimulus-package-3305625
Amadeo, K. (2017, January 21). Compare Obama vs Bush on Economic Policies and the Debt. Retrieved January 28, 2017, from https://www.thebalance.com/how-do-obama-and-bush-compare-on-their-economic-policies-3305622
Amadeo, K. (2017, January 21). President Bill Clinton’s Economic Policies. Retrieved January 27, 2017, from https://www.thebalance.com/president-bill-clinton-s-economic-policies-3305559
Dubay, C. S. (2013, February 20). The Bush Tax Cuts Explained: Where Are They Now? Retrieved January 28, 2017, from http://www.heritage.org/research/reports/2013/02/bush-tax-cuts-explained-facts-costs-tax-rates-charts

ECO 202

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