November 15 2016 SSEMA 1 The student will

November 15, 2016 SSEMA 1: The student will illustrate the means by which economic activity is measured. SSEMA 2: The student will explain the role and functions of the Federal Reserve System. SSEMA 3: The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. • • Tuesday Wednesday Thursday Friday Macroeconomics Project Thanksgiving Economic Fun

November 16, 2016 SSEMA 1: The student will illustrate the means by which economic activity is measured. SSEMA 2: The student will explain the role and functions of the Federal Reserve System. SSEMA 3: The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. • Wednesday Macroeconomics Project • Thursday Macroeconomics Project • Friday Thanksgiving Economic Fun

Macroeconomics Project • Your team is tasked to create a visual presentation from the two scenarios in the handout. • You may use whatever visual means your team decides: i. e. Google slides, Powerpoint, Prezi, or poster • You have at least 4 full class days to work together.

Macroeconomics Project Macroeconomics Fed Activity Part I The economy of Zimbabwe is doing well. The economy is growing and we know this because GDP has increased for the fourth consecutive year. The number of unemployed workers is 1. 5 million out of a labor force of 37 million. Last year, the unemployment rate was at 7. 2%. However, since last year the CPI has risen from $121 to $138. Assuming the Zimbabwe government can use fiscal policy and that they have something similar to our Federal Reserve System called the Zed, answer the following questions: (1) Create a visual (business cycle) representing the current state of the Zimbabwe economy using the data from the scenario above. (2) Calculate the new unemployment rate and show the change from last year on your visual. (3) Calculate the inflation rate and illustrate it on your visual. (4) Decide what action the government should take and illustrate it on your visual. (5) Decide what action the Zed should take and illustrate it on your visual. Part II The economy of the United States is not doing well. The GDP has been decreasing for 18 months. The number of unemployed workers is 19 million out of a civilian labor force of 200 million. This is compared to last year’s unemployment rate of 7. 6%. Use the above information to conduct the following tasks and to answer the following questions: (1) Create a visual (business cycle) representing the current state of our economy using the data from the scenario above. (2) Calculate the new unemployment rate and show the change from last year on your visual. (3) Decide what action the government should take and illustrate it on your visual. (4) Decide what action the Fed should take and illustrate it on your visual.

The Business Cycle Expansion Contraction Expansion ove ry Reco ion ess Trough Rec ion ess Trough Peak Rec very Peak Contraction Trough

Inflation rate

Macroeconomics Project Unemployment Rate Unemployment rate is the percentage of labor force that is currently unemployed but was available for job in last four weeks and was actively seeking employment in that period. It is the ratio of the number of unemployed people to the sum of the number of employed and unemployed people. It is arguably the single most important economic statistic. The closer the rate is to the natural rate of unemployment, the healthier the economy is. An unemployment rate significantly higher than the natural rate of unemployment means that the economy is in recession. Unemployment Rate = Unemployed Employed + Unemployed

Unemployment Rate

The Government, Spending and Fiscal Policy

Spending • The economy grows when spending increases: GDP = C+I+ G+N – Consumer Spending X – Business Spending (Capital Investment) – Government Spending (Public Goods) – Foreigners Spending on US Goods (Exports) • This spending increases GDP.

Fiscal Policy • tools that governments have at their disposal to manage the economy. • Tools Include: – Taxing – Spending

Taxing • The government can increase taxes to slow down the economy. • The government can decrease taxes to stimulate the economy and create economic growth. • How does it work? – An increase in taxes will reduce consumer spending. – A decrease in taxes will increase consumer spending.

Spending • If the government increases spending, then GDP will increase and companies will hire new workers. • If the government decreases spending, then GDP will decrease and companies will slow down hiring new workers.

Using Fiscal Policy • If the economy is in recession, then Keynesian economics states the gov’t should: – Increase spending – Cut/Decrease Taxes • If the economy has high inflation, then Keynesian economics states the gov’t should: – Decrease spending – Raise/Increase Taxes

The Federal Reserve & Monetary Policy

The Three Tools of The Fed Monetary Policy 1. The Reserve Requirement 2. Open Market Operations 3. The Discount Rate

The Reserve Requirement • The Fed can affect the money supply by changing the reserve requirement. • The Fed requires that member banks keep a certain percentage of their deposits in reserve. • Every time a bank customer makes a deposit, the bank must set aside a portion of the deposit as reserves.

Open Market Operations • The Fed can affect the money supply by buying and selling government securities (open market operations). • If the Fed sells securities, then it removes money from circulation. • If the Fed buys securities, then it puts more money into circulation.

The Discount Rate • The Fed can affect the money supply by changing the discount rate - the interest rate the Fed charges on loans to financial institutions. • Raising the discount rate will decrease the money supply. • Lowering the discount rate will increase the money supply.

Monetary policy: The actions of a central bank to influence the cost and availability of money and credit to achieve the national economic goals. Tools that the Fed has in its toolbox to influence money supply/interest rates: • Discount rate: The interest rate charged by the Fed to banks for loans obtained through the Fed's discount window. • Open-market operations: The buying and selling of government securities through primary dealers by the Fed in order to influence the money supply. • Reserve requirements: Funds that Banks must hold in cash, either in their vaults or on deposit at a Reserve Bank. • Interest on reserves: Interest paid by Federal Reserve Banks on required and excess reserves held by banks.

The Fed and Monetary Policy Money Federal Reserve Primary Fed buys bonds Dealers Bank reserves increase Bonds Expansionary monetary policy: Actions taken by the Federal Reserve to increase the growth of the money supply and the amount of credit available. Interest rates decrease Borrowing increases

The Fed and Monetary Policy Bonds Federal Reserve Fed sells bonds Primary Dealers Bank reserves decrease Money Contractionary monetary policy: Actions taken by the Federal Reserve to decrease the growth of the money supply and the amount of credit available. Interest rates increase Borrowing decreases