Bank of Green Student Coaching 1 What

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Bank of Green Student Coaching 1

What is the Case About? n n Review Federal Reserve Stabilization Policy Play with Some Economic Numbers Apply Statistical Regression Incorporate Findings in Report Intended for Your Peers at the bank 2

Basics of Stabilization Policy (Standard Fed Version) n n Economy Fluctuates Around a Trend Rate of Growth Too Fast Growth is Bad as it Leads to Inflation Too Slow Growth is Bad as it Causes Unemployment Stabilization Policy n n Forecast Inflation and Output Growth in the Near Future “Lean Against the Wind” 3

Question 1: Looking at the Data on the Spreadsheet n n Percent Change = (New Value – Old Value) Old Value E. g. Percent Change = (101 – 100)/100 =. 01 or 1% Inflation is Calculated as the Percent Change in the GDP Price Deflator GDP Deflator = 100*(Nominal GDP)/(Real GDP) E. g. Deflator = 100*(4000)/(5000) = 80. 0 4

Question 2: Aggregate Demand – Aggregate Supply n n n Aggregate Demand (AD) – Quantity of Goods and Services that Households, Firms, and the Government Want to Buy at Each Price Level Long Run Aggregate Supply (LRAS) – Production of Goods, Services (Real Output) Depends on Supply of Labor, Capital, Natural Resources, Technology – Price Level Does Not Affect Short Run Aggregate Supply (SRAS) – Quantity of Real Output Supply at Each Price Level 5

Question 2: Aggregate Demand – Aggregate Supply 6

Question 3: Money Supply and Interest Rates n n n Interest Rate (Price of Money) - Determined in a Market for Loanable Funds Money Demand Curve Shows Relationship between Money Demand Interest Rates Money Supply – Quantity of Money Fixed by the Federal Reserve 7

Question 3: Money Supply and Interest Rates 8

Question 5: Scatter Plot n n n Click Insert/Chart/XY (Scatter) then click Next. Be Sure Cursor is on Data Range Window, Highlight Two Data Columns, then Click Next. Add Titles to Chart & Click Next. Check New Sheet and Click Finish. Click a Datum Point on Chart with Right Mouse Key, Add Trendline, & Click Linear. 9

Question 5: Regression Analysis n n n Click Data/Data Analysis on right /Regression & Click OK. On New Window Check Labels Box and Put Cursor on X Range. Highlight X Data Including Label. Put Cursor on Y Range & Highlight Y Data (Including Label), Then Click OK. Click Format/Column/Auto. Fit to Widen Columns. 10

Question 5: Regression Analysis n n n R Square – Coefficient of Determination – Percent Variation in Rate of Inflation (Y) Accounted for by Variation in Growth Rate of Money (X). X Coefficient Measures Slope of Trend Line. (Positive Sign - Positive Relationship, Negative Sign – Negative Relationship) P-Value Measures Observed Level of Significance. (Probability of Error) 11

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