Macro-Economic Indicators: GDP, CPI, Unemployment, Interest Rates

There are probably a thousand macro economic indicators, some measure the overall national economy, some are more limited in scope. The three most often quoted and publicized are the Gross Domestic Production Index (GDP), the Consumer Price Inflation Index (CPI) and the Unemployment Index.

1. Assume that consumer spending is $1,000, government expenditures are $250, investments by industry are $200, and the excess of exports over imports is $300. Compute the GDP. (please show your work)
2. If we are able to increase our domestic energy production, and that allows us to import less oil from foreign countries, briefly explain what will happen to the GDP.
1. If the CPI went from 106 to 111 during the past year, the rate of inflation, in percent, was?
2. If the CPI went from 217 to 234 over the past year, the rate of inflation was?
1. Assume the total civilian labor force is 30,000 people and the number of unemployed is 2,500 people. Compute the unemployment rate, in percent. (please show your work)
2. As with the above problem, assume the total civilian labor force is 30,000 people, but, 500 of the unemployed have now given up and have stopped looking for work. Compute the unemployment rate, in percent. (please show your work)
Yield Curve Links:
The link below takes you to a site that shows you various Treasure security yields and how short and long-term yields differ. This is called the term structure of interest rates and when graphed it is called a yield curve. Access this link and the PowerPoint link below it and then answer the questions that follow.
• http://www.treasury.gov/resource-center/data-chart-center/Pages/index.aspx
For Yield Curve Powerpoint click HERE
Questions:
1. Assume interest rates on Treasury bonds, with the indicated time to maturities as follows:
15 years = 7.72%
20 years = 8.72%
25 years = 9.64%
30 years = 10.18%
The differences in rates among these bonds is caused by: (please briefly explain your choice)
a. Tax effects
b. Maturity risk premiums
c. Default risk premiums
d. A down sloping yield curve
e. Liquidity risk premiums
2. Which statement is False? (please briefly explain your choice)
a. The market risk premium is added to all bonds, even U.S. Government ones.
b. The liquidity premium requires that an asset can be sold both quickly and for fair market value.
c. The inflation premium is added on to the required return to protect the purchasing power of an investors earnings.
d. The default risk premium is applied to all bonds including U.S. Government ones.
3. Over the next 3 years inflation is expected to be: Year one 2.5%, year two 4.5%, year three 5.0%. What should investors require for an inflation premium on a Treasury bond with a three-year maturity? (please show your work)
4 If the rate of inflation is expected to be 0% for the next 4 years will the yield curve have an upward slope? (please briefly explain your answer)
Examine the most recent issue of International Economic Trends, published by the Federal Reserve Bank of St. Louis. The figures you see in the graphs are percent changes compared to the year before, in economic data for seven countries and the Euro Area. Your assignment is to compare indicators for the United States, Japan, Canada, and the United Kingdom.
International Economic Trends is found at this site:
• http://research.stlouisfed
You must use this site for your base information but you are welcome to use one or more other sites to help you in your analysis.
When you click on the link above you come to a summary screen with several economic indicators for several different countries. Scroll down and you will see a cross country comparison that you can access, and this is best for the multiple country comparisons you will be doing. When using the cross country comparison first make sure you choose the graph that compares the US, Japan, Canada, and the United Kingdom, because other comparisons will also be shown. Second, make sure you choose the correct chart because several will be displayed for each economic classification. You will need to access:
Output and growth (GDP), and this will be the first graph on your screen.
Inflation and prices (CPI), and this will be the second graph on your screen.
Labor markets (employment), and this will be the third graph as you scroll down.
For each of the three comparisons below you need to utilize the latest available information shown in the graphs. It is extremely important that this most recent data be included.
1. Compare the four countries in terms of Output and Growth (Real GDP). The analysis should only cover the period from the beginning of 2008 to the present.
2. Compare the four countries with respect to Inflation and Prices (CPI). The analysis should only cover the period from the beginning of 2008 to the present.
3. Compare the four countries regarding the Labor Market (Unemployment Rate). The analysis should only cover the period from the beginning of 2008 to the present.
4. Provide a conclusion, with supporting justification, as to which country has had the best overall economc recovery since 2008.
Optional readings
The following shows you the yields on all the maturities issued by the Treasury in the form of a table. You can also see a graph of the current yields, the yield curve, by clicking on the Data and Charts Center located on the left column of the page. Be patient, it is slow to load.
• http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
The following gives you a hypothetical yield curve (not based on current data) but the value is in the explanations that are below the curve.
• http://www.investopedia.com/terms/y/yieldcurve.asp#axzz1VCSWJAY8

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