The assignment is due in my mailbox on May 6th, 2016 at 5pm. The mailbox is located in

Lowenstein LL 924. No late submissions will be accepted.

1 Data

1. For January 1981 to February 2016, use the data on unemployment, inflation and interest

rates to plot these three lines. Unemployment and inflation can be plotted on the same graph,

and the interest rate will be plotted on a separate graph.

2. Plot the GDP data for January 1981 to October 2015. Please note that the GDP data is

quarterly, in contrast to the above series, which are monthly.

3. Using the recession dates from NBER (link given below), discuss how the unemployment,

inflation and GDP numbers changed over 2 years before a recession, and for 2 years after a

recession for the three most recent recession in the U.S. For each recession, make a separate

table with the value of these variables. You can use the values at the start of every quarter

(January, April, July and October).

4. Corresponding to these series for the three most recent recession, also tabulate how the interest

rate changed, two years before the start of the recession, and 2 years after it ended (also use

quarterly data here).

5. How was the recession of 2007-2009 different from the previous two recessions in terms of

these variables?

NBER recessions: http://www.nber.org/cycles.html

2 Analyzing the Crisis

1. Read the article on the crisis posted on Blackboard. Pgs. 49-58 provide you with some

context of the crisis. For the purpose of the questions below, you will be specifically focusing

on Pgs. 58-70.

1

2. Suppose the economy was at equilibrium before the start of the recession. Show this using

the IS-LM, Keynesian cross, AD-SRAS-LRAS and money market spaces.

3. Following the start of the recession, what happened to aggregate demand and output? (You

should be able to see this from the plots in section 1 above). Show this shift in AD and IS

curves.

4. If the Federal Reserve and government had not intervened, explain how the economy would

have adjusted back to the long-run equilibrium.

5. How could monetary policy have ensured a faster return to the long-run equilibrium? Use

the money market and LM curves to show this.

6. The Federal Reserve undertook several measures to deal with the crisis. Using the section

on “Policy Responses to the financial crisis” (Pg. 58), discuss two unconventional policy

measures undertaken.

7. Using the discussion of fiscal policy on pgs. 63-65, discuss two fiscal policy actions that were

taken. Which components of planned expenditure would be affected by these fiscal actions?

8. In your view, why were unconventional monetary policy actions needed?

9. Using the interest rate data plotted above, has monetary policy returned to “normal” opera-

tions after the 2007 crisis, relative to the previous two recessions?