ECON 402 HW #1
1. Q1
ANNUAL GROWTH RATE FOR GDPCA, GPDICA, PCECCA
0.3
0.2
0.1
-0.2
-0.3
GDPCA
GPDICA
PCECCA
a. Consumption and investment are pro-cyclical because the consumption rate is
correlated to the investment rate. They both increase and decrease at the same
times.
b. No consumption and investment do not have a phase shift because they increase
and decrease at the same time.
c. Consumption GDP are about the same volatility because the consumption rate
changes at about the same rate as GDP. Investment is more volatile than GDP
because the change in investment is greater between years.
2013-01-01
2011-01-01
2009-01-01
2007-01-01
2005-01-01
2003-01-01
2001-01-01
1999-01-01
1997-01-01
1995-01-01
1993-01-01
1991-01-01
1989-01-01
1987-01-01
1985-01-01
1983-01-01
1981-01-01
1979-01-01
1977-01-01
1975-01-01
1973-01-01
1971-01-01
1969-01-01
1967-01-01
1965-01-01
1963-01-01
-0.1
1961-01-01
0
2. Q2
Money Supply vs Inflation 2004-2014
0.16
0.14
Money Supply
0.12
0.10
0.08
0.06
0.04
0.02
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
Inflation
Money Supply vs Inflation 2013-2014
0.14
0.12
0.10
Money Supply
0.08
0.06
0.04
0.02
(0.05)
-
0.05
0.10
0.15
0.20
0.25
0.30
(0.02)
(0.04)
Inflation
a. The quantity theory of money is clearly shown in the 2004-2014 graph but it is
not as evident in the 2013-2014 graph. The theory work better in the 2004-2014
graph.
0.35
19
75
-0
119
0
76 1
-0
119
0
77 1
-0
119
0
78 1
-0
119
0
79 1
-0
119
0
80 1
-0
119
0
81 1
-0
119
0
82 1
-0
119
0
83 1
-0
119
0
84 1
-0
119
0
85 1
-0
101
FPCPITOTLZGUSA
16.000000000000000
14.000000000000000
12.000000000000000
10.000000000000000
8.000000000000000
6.000000000000000
4.000000000000000
2.000000000000000
0.000000000000000
1985-01-01
1984-07-01
1984-01-01
1983-07-01
1983-01-01
1982-07-01
1982-01-01
1981-07-01
1981-01-01
1980-07-01
1980-01-01
1979-07-01
1979-01-01
1978-07-01
1978-01-01
1977-07-01
1977-01-01
1976-07-01
1976-01-01
1975-07-01
1975-01-01
3. Q3
a. Diagrams on lined paper
FEDFUNDS
25.00
20.00
15.00
10.00
5.00
0.00
Annual Growth GDP
19
75
-0
101
19
76
-0
101
19
77
-0
101
19
78
-0
101
19
79
-0
101
19
80
-0
101
19
81
-0
101
19
82
-0
101
19
83
-0
101
19
84
-0
101
19
85
-0
101
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
-0.01
-0.02
-0.03
4. Q4
b. Volcker was successful in bringing down inflation rates. A negative side effect
from his policies is that unemployment was very high.
a. The IS curve would shift left causing interest rates and output to fall,
consumption would fall. Investment would rise because interest rates are low
and unemployment rises because output is lower.
b. Diagrams on lined paper
c. According to the IS-LM model increasing government expenditures would be
more effective at stimulating the economy.