Question: Principles of Macroeconomics

TOPIC: Recent US Macroeconomic Performance and Prospects

A short paper that sets out your view of recent US macroeconomic performance and the prospects for the US economy looking forward. The paper should be five pages in length, not counting any graphs or tables you attach.

I) Topic and Generic Outline

In this paper you systematically summarize the material you have been reading in the newspapers and online about the US economy. You will have read different authors, banks and blogs all of which present a particular view of the near-term prospects (or outlook) for the US economy. Which factors and policies seem like they will be the most important determinants of the future course of the economy?

You should note carefully the two quarter period that will be your "forecast period".
Course Paper Forecast Sources. These sources all have tables that you can use to build your own forecast table. Many of these sources also have short discussions of the outlook for the US economy, although a few of them are just tables of predictions. Remember to put your own forecast numbers in your table!

This is a generic outline. It is typical for the economic outlook papers written by banks and other institutions year in and year out. You should deviate from it in order to emphasize issues that are especially important right now or to accommodate one or two issues that caught your interest and you want to emphasize. You could reorder the material and insert a section or two. You obviously can't write about everything that I mention in the generic outline, but you should say something that speaks to the major headings: Labor, Demand, Financial Markets, Supply and International.

I) Introduction: Where is the US economy in the cycle? (Starting an expansion? Ending an expansion? When was the last "turning point" of the US economy?) Are the forecasts for the US economy split between optimists and pessimists, or do they all seem to say pretty much the same thing? What growth rate do you think is likely for the US economy in the forecast period? (This will be based on your reading and synthesis of professional forecasts.) What are the key issues that you want to draw special attention to in the sections that follow?

II) Labor Market Developments: What has been happening to the growth of jobs and wages? (Strong? Weak?) What are forecasters expecting? What about unemployment and participation rates? Are there some other important things about the labor market you encountered that you want to note?

III) Demand. The GDP report, especially table two "Contributions to GDP growth", will tell you exactly which sources of demand have accounted for recent growth. The Atlanta FRB GDPNow forecast (or Nowcast) will tell you what seems to happening right now. The Dismal Scientist will also do this and forecast into the future. Have you read anything about why particular components of spending (C, I, G, NX) have been weak or strong? You may want to say that you will come back to some of them later. (For instance, NX net exports reappear later in this generic outline.) Fiscal Policy affects spending directly through G and affects consumption via taxes.

IV) Financial Markets and the FRB. What has FRB monetary policy been and what is it expected to be in the near future? What have some important interest rates been and how are they expected to change? Have stock prices been rising or falling recently? Have you read anything about whether changes in the stock market have affected consumption or investment? Do you happen to have a strong opinion on what direction stock markets are headed?

V) Supply Side and International Linkages. Does the economy appear to be near or away from its potential output? How fast is potential output growing (due to the growth of productivity as well as labor and capital)? US exports and imports can be important influences on the economy. Have they been large recently? Is the US dollar expected to get stronger, weaker, or stay about the same in the near future?

VI) Conclusion. Which of the aspect of the economy you discussed above seem to be most important or interesting to you and why?

VII) References. A good mix of a few government reports, some economic outlooks from financial institutions, and newspaper articles you cited in the paper.

VIII) Tables and Figures. The first thing here should be your forecast table. Your forecast table should have updated forecasts of some important variables from several sources. At the top of your table should be your forecast clearly labeled as yours. Your forecast could be an average of the forecasts you copied from professional sources, or you may have a forecast that is remarkably different than the consensus.

You should attach at least a few additional graphs or tables. These should be numbered (Figure One, Figure Two, etc.). Each figure should be discussed in the paper and should have had an important influence in shaping your thoughts or the argument of the paper. Attaching random material will significantly reduce your grade. Be selective and thoughtful.