Macroeconomics Business Cycle Analysis Project
This project has the following requirements: It must be typed (except for graphs that you might draw). Each of the following questions will be answered on separate pages (multiple
pages may be required for a particular question). Copying and pasting from the text, my notes, or the internet is unacceptable. You may use any source (the text, my notes, or the internet) you wish, but your
project must be in your own words. This 100 point project requires effort and time. Plan accordingly.
1) Draw a representation of the business cycle.
a) Identify the various phases of the business cycle (both long and short-run) on your drawing.
b) Explain what happens to Real GDP, inflation, and unemployment in each phase.
c) Explain how economic growth is represented in this model.
2) Explain the relationship between the business cycle model and the PPF model.
a) Draw the necessary graphs showing the relationship between these two models.
b) Explain completely how the two models relate during the various stages of a cycle.
3) Draw and explain a complete recessionary cycle using the Aggregate Supply and Demand model,
beginning with an initial decrease in aggregate demand, and assuming a laissez-faire position for
government.
a) Begin at full employment and end at full employment.
b) Explain the adjustment process by which the economy returns to full employment
from the recessionary trough by itself.
i) Explain what causes the AS and AD curves to shift during the adjustment process.
ii) Explain why the AS and AD curves shift during the adjustment process.
4) Draw and explain a complete recessionary cycle using the Aggregate Supply and Demand model,
beginning with an initial decrease in aggregate demand, and assuming a Keynesian “intervention”
position for government.
a) Begin at full employment and end at full employment.
b) Explain the process by which the economy returns to full employment from the
recessionary trough with the help of fiscal policy.
i) Explain what causes the AS and AD curves to shift during the adjustment process.
ii) Explain why the AS and AD curves shift during the adjustment process.
5) Explain at least seven major problems with discretionary fiscal policy.
6) Discuss discretionary fiscal policy as a tool of economic stabilization including:
a) an explanation of the benefits of discretionary fiscal policy.
b) an explanation of the costs of discretionary fiscal policy.
c) State your position as to whether you are in favor of, or disapprove of discretionary fiscal policy.
d) Explain why you take the position you do. 1 7) Explain monetary policy and how it is supposed to work.
a) Explain the process by which monetary policy is implemented, including how the money
supply is changed
b) Using the Aggregate Supply and Demand model draw an AS/AD graph and explain
the process by which the economy returns to full employment from a recessionary
trough caused by a decrease in aggregate demand, with the help of monetary policy.
i) Explain what causes the AS and AD curves to shift during the adjustment process.
ii) Explain why the AS and AD curves shift during the adjustment process.
8) Explain at least four major problems with monetary policy.
9) Discuss monetary policy as a tool of economic stabilization including:
a) an explanation of the benefits of monetary policy.
b) an explanation of the costs of monetary policy.
c) State your position as to whether you are in favor of, or disapprove of monetary policy.
d) Explain why you take the position you do.
10) Gather data
a) Visit the Bureau of Labor Statistics website: www.bls.gov
Under “Subjects” in the black menu bar, click on the national unemployment rate
i) report the current unemployment rate (seasonally adjusted) for January 2017 analyze the 10 year historical data (click on the little green graph)
o Discuss what happened between January 2008 and January 2010.
o Explain the trend since about Jan 2010. “Change Output Options” from 2007 to 1990. Click “Go.”
o Is the business cycle evident in this data? Explain.
o Based on unemployment, how many recessions are evident? Explain.
Under “Subjects” in the black menu bar, click on the national unemployment rate
ii) report the current inflation rate use the CPI-U, US City Average, All Items Seasonally Adjusted (SA) analyze the 10 year historical data (click on the little green graph) NOTE: This data is rate of change
o Compare the inflation rate of change with the unemployment rate for 1/09.
(refer back to the 10 year historical data for unemployment)
o Explain any correlation.
b) Visit the Bureau of Economic Analysis website: http://www.bea.gov/
Click on the “Interactive Data” tab
Click the GDP & Personal Income tab.
Click “Begin using the data . . .”
Select SECTION 1 DOMESTIC PRODUCT AND INCOME and click Table 1.1.5. Gross
Domestic Product (A) (Q)
i) report the current GDP (4th quarter 2016) adjust the data by clicking on “MODIFY” Use the Quarterly series. First Year = 2007-A & Q Last Year = 2016-A & Q Refresh Table analyze the historical data
2 Continued on the next page
c) Using the top line (Gross Domestic Product),
Report: when the “Great Recession” started (the previous peak of the business cycle). when the trough was reached. how long the recession was. where the economy currently is on the business cycle. Explain how & why you reached your conclusion. 3


 

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