GROUP: 4 Macro Economics

A n a n d K u m a r ( 2 ) , C h i r a g T h a k k a r ( 1 1 ) , D e va n s h S a xe n a ( 1 3 ) ,
Raj Shah (32), Rohan Nandi (36), Shahin Selkar (40), Souvik
B i s w a s ( 4 3 ) , Ve d a n t D h a k a t e ( 4 9 )
Presentation
INTRODUCTION
• United States of America (USA) is the world's largest economy by nominal
GDP
• The second-largest by purchasing power parity (PPP)
• US is the second largest exporting nation (after China) in 2017 with a value
of $ 1546.72 billions
• It has a Free-Trade Agreement (FTA) with several nations like Australia, South
Korea, Israel
UNEMPLOYMENT-INFLATION DATA (1/2)

Year Unemployment Inflation

2000 4 3.4
2001 4.7 2.8
2002 5.8 1.6
2003 6 2.3
2004 5.5 2.7
2005 5.1 3.4
2006 4.6 3.2
2007 4.6 2.8
2008 5.9 3.8
2009 9.4 -0.4
2010 9.6 1.6
2011 8.9 3.2
2012 8.1 2.1
2013 7.3 1.5
2014 6.1 1.6
2015 5.2 0.1
2016 4.9 1.3
2017 4.3 2.1
2018 3.9 2.4
 UNEMPLOYMENT-INFLATION DATA (2/2)

12 Unemployment Inflation
4.5

10 9.6 4 3.8
9.4
8.9
3.4 3.4
3.5
8.1 3.2 3.2
8
7.3 3 2.8 2.8
2.7

6.1 2.4
6 5.9 2.5 2.3
5.8
6 5.5 2.1 2.1
5.1 5.2
4.9 2
4.7 4.6 4.6
4.3 1.6 1.6 1.6
4 3.9 1.5
4 1.5 1.3

2
0.5
0.1

0
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -0.4

-0.5
Unemployment Inflation

-1
 PHILIP’S CURVE

Philips Curve
4.5

3.5

2.5

2
Inflation

1.5

0.5

0
0 2 4 6 8 10 12

-0.5

-1
Unemployement
EXCHANGE RATE DATA (1/2)

Units per 1 U.S. Dollar

Year German British French Canadian

Marks Pounds Francs Dollars

DEM GBP FRF CAD
2000 2.1229 0.66093 7.1198 1.4851
2001 2.1857 0.69466 7.3304 1.5488
2002 2.0782 0.66722 6.9699 1.5693
2003 1.7329 0.61247 5.812 1.4011
2004 1.5752 0.54618 5.2828 1.301
2005 1.5727 0.55 5.2747 1.2118
2006 1.5591 0.54349 5.2289 1.1344
2007 1.429 0.49977 4.7927 1.0741
2008 1.3352 0.54397 4.4781 1.067
2009 1.4079 0.64192 4.7219 1.1431
2010 1.4767 0.64718 4.9528 1.0302
2011 1.4069 0.62414 4.7187 0.9895
2012 1.5222 0.63305 5.1053 0.9992
2013 1.4731 0.63966 4.9404 1.0298
2014 1.4742 0.60773 4.9441 1.1061
2015 1.7635 0.65455 5.9145 1.2791
2016 1.7681 0.74063 5.9301 1.3254
2017 1.7356 0.777 5.8209 1.2977
2018 1.657 0.74958 5.5572 1.2958
2019 1.7629 0.8224 5.9124 1.2964
EXCHANGE RATE DATA (2/2)

Exchange Rate
8

5
Rate

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Years

DEM GBP FRF CAD

IS-LM-BP MODEL

LM

LM1
Interest (I)

BP

IS1

IS

Income (Y)
BALANCE OF PAYMENT
Observation Date Capital AC (million USD) Current Ac (million USD) BOP (million USD)
01-01-2000 -2 -403460 -403462
01-01-2001 13200 -389693 -376493
01-01-2002 -141 -450802 -450943
01-01-2003 -1820 -518747 -520567
01-01-2004 3047 -631590 -628543
01-01-2005 13115 -745246 -732131
01-01-2006 -1788 -805962 -807750
01-01-2007 384 -711033 -710649
01-01-2008 6010 -681391 -675381
01-01-2009 -140 -372522 -372662
01-01-2010 -157 -430702 -430859
01-01-2011 -1186 -444593 -445779
01-01-2012 6904 -426197 -419293
01-01-2013 -412 -349544 -349956
01-01-2014 -45 -373796 -373841
01-01-2015 -42 -434603 -434645
01-01-2016 -59 -451692 -451751
01-01-2017 24746 -466248 -441502
01-01-2018 3235 -490991 -487756
IMPOSSIBLE TRINITY

Fixed Exchange Rate

Perfect Capital Mobility Independent Monetary Policy

USA
GREAT RECESSION- INTRODUCTION
• The Great Recession in the United States was a severe financial crisis
combined with a deep recession. While the recession officially lasted from
December 2007 to June 2009, it took several years for the economy to
recover to pre-crisis levels of employment and output.
• It followed the bursting of the housing bubble, the housing market correction
and subprime mortgage crisis.
What are ‘Subprime Mortgages’?
• A subprime mortgage is a type of loan granted to individuals with poor credit
scores, as a result of their deficient credit histories, would not be able to
qualify for conventional mortgages
• There's a large amount of risk associated with any subprime mortgage. The
term subprime itself refers to the borrowers and their financial situation
rather than the the loan itself. Subprime borrowers are more likely to default
than those who have higher credit scores. Because subprime borrowers
present a higher risk for lenders, subprime mortgages usually charge interest
rates above the prime lending rate.
 GREAT RECESSION- PROCESS HISTORY

Change in Role of
Decrease in Boom in Rise in Home
Investment Investment
Interest Rates Real-Estate Loans
Preferences Banks (CDO)

Increase in Role of AIG Rise of Sub- Transfer of Credit

Interest Rates (CDS) Prime Loans Risks Ratings

Increase in Bankruptcy of
Loss of AIG &
Number of Investment
it’s Bailout
Defaulters Banks
GREAT RECESSION- EFFECTS
Rise in unemployment
• The Great Recession cost millions of jobs initially and high unemployment
lingered for years after the official end of the recession in June 2009.
• From November 2008 to April 2009, an average of 744,000 jobs were lost
per month.
Liquidity crisis
• The major investment banks at the core of the crisis obtained significant
funding in overnight Repo markets, which were disrupted during the crisis.
• In effect, there was a run on the essentially unregulated shadow
banking (non-depository) banking system, which had grown larger than the
regulated depository system.
• Unable to obtain financing, they were forced to merge , declare bankruptcy
(Lehman Brothers) or obtain federal depository bank charters and private
loans (Goldman Sachs and Morgan Stanley).
GREAT RECESSION- GOVERNMENT’S
ACTIONS
• Interest rates were at 5.25% in September 2007. By the end of 2008, the Fed
had reduced the target interest rate to zero percent to encourage borrowing
and, by extension, capital investment.
• In February 2008, President George W. Bush signed Economic Stimulus Act
into law. The legislation provided taxpayers with rebates ($600 to $1,200),
which they were encouraged to spend; reduced taxes; and increased the loan
limits for federal home loan programs.
GREAT RECESSION- GOVERNMENT’S
ACTIONS-TARP PROGRAM
• With fears that similar collapses could be sustained by other major financial
companies and banks, President Bush approved the Troubled Asset Relief
Program (TARP) in October 2008.
• TARP essentially provided the U.S. government with $700 billion in funds to
purchase the assets of struggling companies in order to keep them in
business. The deals would enable the government to sell these assets at a
later date, hopefully at a profit.
• Within a few weeks, the government spent $125 billion in TARP funds in
acquiring assets from nine U.S. banks. In early 2009, TARP funds were also
used to bail out automakers General Motors and Chrysler (a combined $80
billion) and banking giant Bank of America ($125 billion).
GREAT RECESSION- GOVERNMENT’S
ACTIONS-ARRA PROGRAM
• The launch of ARRA, The American Recovery and Reinvestment Act of 2009
(ARRA) was an economic stimulus bill created to help the United States
economy recover from an economic downturn that began in late 2007.
Congress enacted ARRA February 17, 2009.
• ARRA allocates $787 billion to fund tax cuts and supplements to social
welfare programs as well as increased spending for education, health care ,
infrastructure and the energy sector.
• Aim of ARRA was :
 To preserve and create jobs and promote economic recovery
 To assist those most impacted by the recession
 To provide investments needed to increase economic efficiency by spurring technological
advances in science and health
 To invest in transportation, environmental protection, and other infrastructure that will
provide long-term economic benefits
 To stabilize State and local government budgets, in order to minimize and avoid reductions
in essential services and counterproductive state and local tax increases