ECN101 Spring 2022 MACRO Unemployment Inflation Policy Supply Shock
Microsoft Word - ECN101 Spring 2022 MACRO Unemployment Inflation Policy Supply Shock.docx ECN101 – PRINCIPLES OF ECONOMICS Macro Assignment Answer the following questions using the information given in the text below. It is your responsibility to refer to alternate sources to make your arguments in answering questions asked. Make sure you have answered all of the questions and that you provide appropriate APA referencing where required. Questions 1. Discuss the difference between real and standard unemployment. What are the metrics used by BLS (Bureau of Labor Statistics) US to define the types of unemployment? Refer Charts (released by BLS) for the period (Jan 2020 – Jan 2022) and explain the macro factors behind the trendline. 2. How does inflation impact the health of the economy, please elaborate one positive and one downside of having high inflation? Illustrate this with a real economic scenario, you can choose any country worldwide for this answer, (the scenario should have occurred/occurring in real time, predictive scenarios would not count towards the answer) 3. It is expected that oil and gas prices would decrease in 2022, assuming this happens explain the impact, a decrease in the oil and gas prices would bring on the economy and how would it impact the real GDP of the US economy? 4. Do you agree with the Fed’s policy of the interest rates kept under check in the pandemic hit economy, provide your reasons for your choice of Yes/No 5. How do you explain the situation of the supply shock in the US economy vis-à-vis labor shortage and “the great resignation”? What is the long-term impact of these on the US economy? The US economy has been in an unprecedented situation ever since March 2020, about the time the pandemic hit global economies on a massive scale – the US economy was not an exception. The US economy has recovered since then, but there is lot of ground to be covered before the economy can be said to be in the state it was pre-pandemic. Post vaccination and currently the economy is opening up and gradually moving towards a state of well-being, the whole economy has to be recalibrated to bring it into positive territory. The critical components of the economy are GDP (Gross Domestic Product), unemployment, inflation, interest rates, they serve as key performance indicator (KPI) for the functioning state of the economy. Additionally, other factors like oil and gas prices and climate change becomes equally important in deciding the health of the economy. Gross Domestic Product: The most critical economic indicator is GDP, which measures the nation's production of goods and services. Gross domestic product (GDP) is the total value of everything produced within a country's borders. The components of GDP include personal consumption expenditures (C), business investments (I), government spending (G), exports (X), and imports (M). GDP is equal to C + I + G + (X - M) The new recession, which began in March 2020, ended 128 months of expansion, the longest in U.S. history. In Q2, the economy contracted by a record 31.2%. Quarterly GDP had never experienced a drop greater than 10% since record-keeping began in 1947 In April 2020, retail sales were down 14.7% as governors closed nonessential businesses, but by May sales recovered, increasing by 18.3% as shops and restaurants slowly reopened safely. While there have been several months in late 2020 and early 2021 with small declines, none have been as dramatic; by June 2021, sales were up 0.6%. Also, in April 2020, the unemployment rate skyrocketed to 14.8% as companies furloughed workers. It remained in the double digits until August, when it began to steadily decline. In the week ending January 9, 2021, though, claims rose to 904,000. That marked the largest number of initial claims filed since mid-August. The economy recovered in the third quarter (Q3) of 2021 expanding by 33.8%. Although a record, it was not enough to offset earlier losses, including the 5% decline in real GDP at an annual rate in the first quarter, signalling the onset of the 2020 recession. According to the most recent forecast released at the Federal Open Market Committee (FOMC) meeting on June 16, 2021, U.S. GDP growth is expected to rise by 7% in 2021. It is estimated to then drop to a 3.2% growth rate in 2022 and slow further to 2.4% in 2023 Unemployment The Federal Open Market Committee (FOMC) estimated the employment rate to be 4.5% for the year2021. It is expected to gradually decline in the coming years, down to 3.8% in 2022 and 3.5% in 2023. The rate spiked to a number in the range of 14.8% in April 2020 as workers were released from their jobs in response to the pandemic. The unemployed rate is ratio of the number of unemployed people and total labour force. As per the metrics of Bureau of Labour US, the people who are not actively looking for the job are not counted as part of the unemployed population. The unemployed criteria therefore extend to two possible economic interpretation, real and standard unemployment. The real unemployment also includes the discouraged and marginally attached workers. Jobs The Bureau of Labor Statistics US (BLS) publishes an occupational data each year that goes into great detail about each industry and occupation. Overall, the BLS expects total employment to increase by six million jobs over the period of next 8 years. Inflation The core inflation rate was predicted to be 3% in 2021, dropping to 2.1 in 2022 and 2023. The Fed's target inflation rate has always been 2%. The core inflation rate—the Fed's preferred rate when setting monetary policy—does not include gas consumption and food prices. Interest Rates In March 2020, the FOMC held an emergency meeting to address the economic impact of the COVID-19 pandemic, which lowered the fed funds rate to a range of 0% and 0.25%.Oil and Gas Prices The U.S. Energy Information Administration (EIA) provides an outlook on oil and gas prices from 2020 to 2050. In June 2021, crude oil prices averaged $73 per barrel for Brent global, $33/barrel higher than in June 2020. The EIA estimated that this will remain stable throughout the second half of 2021, with decreases in the year 2022. Climate Change The Federal Reserve is concerned about how climate change will affect the economy. Research from the Richmond Fed estimates that, if the country continues to produce emissions at a high rate, climate change could reduce the annual GDP growth rate by up to a third of the historical average. In 2020, the U.S. experienced damage from both hurricanes and wildfires, as it has in past years. Global damage from natural disasters associated with climate change, such as hurricanes, floods, and wildfires, was $210 billion in 2020, up significantly from $66 billion in 2019. Grading Criteria (What constitutes a good assignment?): Grading criteria judges the following: § Adequacy of research. Evidence of sufficient breadth and depth of research and sufficient and appropriate sources and data. Please cite at least 5 different sources, with at least one from a peer-reviewed journal or published book. Data sources must be clearly identified. The assignment must contain a reference list or bibliography. § Use of Concepts: The assignment must make specific reference to microeconomic concepts, frameworks and theories introduced during the course. § Graphs and Figures: The assignment must contain at least one graph and one figure. Where the graph may illustrate a concept or represent actual data relationships such as a trend-line, bar chart, scatter plot etc. The figure may be a map, photo, or drawing etc. Please label figures and graphs and cite data sources. § Form: Is the writing clear, professional, logical and well presented? § Content: Does the content adequately do what the assignment specifies? Is the analysis intelligent well-constructed? REFERENCES: Economic trends to watch in 2021. J.P. Morgan. (n.d.). Retrieved January 3, 2022, from https://www.jpmorgan.com/commercial-banking/insights/5-economic-trends-to-watch- in-2021 Amadeo, K. (2021, October 6). US economic outlook for 2021 and Beyond. The Balance. Retrieved January 3, 2022, from https://www.thebalance.com/us-economic-outlook-3305669 The Balance. (2018, January 8). The balance. The Balance. Retrieved January 3, 2022, from https://www.thebalance.com/ Cambon, S. C. (2021, November 18). U.S. unemployment claims steady in tight job market. The Wall Street Journal. Retrieved January 3, 2022 from https://www.wsj.com/articles/weekly- jobless-claims-11-18-2021-11637179231 Kelly, J. (2021, December 10). The 'great resignation' is a workers' revolution: Here's what real leaders must do right now. Forbes. Retrieved January 3, 2022, from https://www.forbes.com/sites/jackkelly/2021/10/08/the-great-resignation-is-a-workers- revolution-heres-what-real-leaders-must-do-right-now/?sh=5f546b6f514f The Wall Street Journal. (n.d.). Breaking news, business, Financial & Economic News, World News and Video. The Wall Street Journal. Retrieved January 3, 2022, from https://www.wsj.com/ Microsoft Word - ECN101 Spring 2022 MACRO Unemployment Inflation Policy Supply Shock.docx ECN101 – PRINCIPLES OF ECONOMICS Macro Assignment Answer the following questions using the information given in the text below. It is your responsibility to refer to alternate sources to make your arguments in answering questions asked. Make sure you have answered all of the questions and that you provide appropriate APA referencing where required. Questions 1. Discuss the difference between real and standard unemployment. What are the metrics used by BLS (Bureau of Labor Statistics) US to define the types of unemployment? Refer Charts (released by BLS) for the period (Jan 2020 – Jan 2022) and explain the macro factors behind the trendline. 2. How does inflation impact the health of the economy, please elaborate one positive and one downside of having high inflation? Illustrate this with a real economic scenario, you can choose any country worldwide for this answer, (the scenario should have occurred/occurring in real time, predictive scenarios would not count towards the answer)