### Macroeconomics Assignment 2 In Tutorial Library

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### TITLE: Macroeconomics Assignment 2

#### CLASS / COURSE: Macroeconomics

QUESTION DESCRIPTION:

Assignment #2

1.  Average Annual Growth Rate of Real GDP.  Go to the St. Louis Fed FRED research database (research.stlouisfed.org/fred2/categories).  Find the Real Gross Domestic Product series (use the search box).  The internal code for this series is GDPC1.  When selecting the series you will see a chart created automatically.  Your task is to get the underlying data so you can create your own chart in Excel.

Next, create an annual time series starting with 1960, 1961, 1962, etc. up to 2012.  This series will work better than the original Excel date (anyone know why?)  Plot ln(Real GDP) series against your year series, using an Excel Line Chart.  The horizontal axis should indicate the Year.  The vertical axis will be the log value of Real GDP, a number that by itself has no meaning to most people.  The visual look of the graph, however, should be easy to grasp.  The slope of this line, however, indicates the average annual percentage growth rate.  That’s the advantage at looking at the log of the series, rather than the actual level.

Once the graph is complete, the task is to determine numerically the long-run annual growth rate of the series.  One way to do this is to fit a regression line through the logarithmic values of the series.  The quickest way to do this is on the graph right-click the series, and add a trendline.  Select a linear trend, and choose the option of “Display Equation on Chart.”  The slope coefficient of the regression is the average annual growth rate.  In the Chart, add a text box with words to the effect: “Avg Annual Growth = xx%”, filling in the appropriate figure.

Your Excel submission for this problem should have two tabs, one for the data, one for the chart.  Label the tabs appropriately.

If you’d like (not required) you can use the Regression tool used for the last assignment to verify the result you got using the trend tool.

2.  Social Security Tax Rate.  Go to the Brookings/Urban Institute tax policy website  (www.taxpolicycenter.org/index.cfm).  Use the search tool to locate the table containing Historical Payroll Tax Rates.  (This table is in the “Tax Facts” section of the website.)  The table provides useful information, but would be more useful if it were in graphical form.  Download the data into Excel, and covert into an appropriately labeled Excel line chart.  I would like the chart to contain both the OASDI tax rate as well as the Maximum Taxable Earnings.  To be useful, of course, one of the series needs to be plotted on the secondary vertical axis.  This can be done by right-clicking one of the series, select Format series, then plot the series on secondary axis.

3.  Inflation Adjustment.  From my growing-up years, I recall the following prices, dating from around 1970:  gasoline 25 cents/gallon; local newspaper: \$2.25/month; salary of university professor \$14,000/year.  Find the inflation-adjusted values of these prices in 2013 terms.  Inflation adjustment may be done using the CPI available from the Bureau of Labor Statistics web page (www.bls.gov).  (There are many other sources, such as the FRED database used in problem 1.)  Use the CPI for All Urban Consumers.  You can use the search tool, or I found that when clicking the “Databases and Tools” tab on the home page, this series pops up on top, as it is so popular. The requested inflation adjustments should be made by using the CPI from January 1970 and January 2013.

In your spreadsheet (separate, labeled tab of course), create a table that does the computations and shows the final results.  Both the ppt used for the lecture and the textbook have information on how to do this computation.

Next, get the Dow-Jones Industrial Average from the FRED database.  In FRED, search for DJIA.  Set the data frequency to Monthly, and aggregation method to end-of-period.  Use the same Jan 1960 – Apr 2013 data range.

To adjust for inflation, get the monthly All Urban Consumers CPI series from the BLS webpage (or FRED) for the same months as your stock price index months.  You might have to do some copy/paste work to get the data into the right format.  The CPI series you download will have a particular period as the reference (for example 1982-84 = 100).  I want the analysis to be based on current dollars.  This means the CPI series should have April 2013 = 1.00  This can be done by taking your original CPI series and dividing each value in the series by the April 2013 value.  When properly done, your adjusted CPI now has April 2013 = 1.00.  Earlier months will tend to have values less than 1.00.

Inflation adjustment of the stock price series is accomplished simply by dividing it by the adjusted CPI series in Excel.  The April 2013 value will be unchanged, but the others will be generally higher than the unadjusted values.

Plot both the unadjusted DJIA and S&P 500 and the inflation-adjusted values.

Your submission should have three tabs: one for the data, and two others for the charts.

5.  People are worried about the rate of money creation as a result of the Fed’s actions.  Is the money supply getting out of control?  A useful way to address this question would be to compare the money supply with nominal (not real) GDP.  This is a free-form problem.  You figure out how to get the information and present it to address the concern.  (I think you know my feelings about graphics.)  Use M1 as your measure of the money supply.  Remember that FRED is your friend.

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