Macroeconomic Analysis of US Economy Harvard Case Solution & Analysis

Fiscal & Monetary Actions taken by US Authorities

            The Federal Reserve chairman of the US has said in one of his speeches that if the countries of the world do not deal with the fiscal problems, then the monetary issues of that country become utterly irrelevant. Therefore, in order to respond to the financial crisis that had emerged in the year 2007, the US government and FED had taken actions in order to foster the price stability and maximum employment in the US economy.

            A number of programs had been fostered by the US government in order to improve the conditions of the financial markets and support the liquidity of the financial institutions. As a result of these changes, the balance sheet of FED Reserve had also changed. First of all, the US government had set a number of the tools in order to provide the necessary liquidity to the investors and the borrowers in the key credit markets of the country.

            Furthermore, the traditional tools associated with the open market operations had also been expanded by the Federal Reserve in order to support the functioning of US credit markets, purchasing of more long term assets for FED Reserve and putting pressure on the long term interest rates of the country. Along with this, significant actions had also been taken regarding the unemployment rate, which stood at 5.3% in July. 215,000 of total jobs had been added in July and as a result of this, a feat of consistency had been observed in the market. If the current job market continues in the same pace then the unemployment rate is likely to fall to a level below 5%. However, the number of the jobs created in August was lower than expected therefore, the FED decided to raise the rate of funds by 25 basis points. Nonetheless, the decision regarding how long the state will maintain this rate of funds, the FED will assess the objectives of 2% inflation and maximum employment objectives in the US.


            The annual percentage changes for Gross Domestic Product and Consumer Price Index for US have been computed in the excel spreadsheet for the period from 1948 to 2015. Moreover, the GDP variation in percentage has been divided in two periods. The first period ranges from 1948 to 1973 and the second period range is from 1974 to 2015. If we look at the trend of the first period, then it could be said that the volatility has been consistent and the variation has been low. The same trend has been followed by US GDP for this period. The graph for the second period is as follows:

            However, if we analyze the trend and the variation of the GDP for the second period, then it could be seen that for most of the year a declining trend has been followed by GDP and the variation in GDP from each year is quite high. A declining trend has been observed during this second period for the entire set of the data. Nonetheless, recently in the second quarter of the current year, the GDP annual rate had increased to 3.7% from 2.3%, which was reported last month and this had been due to the increase in the government expenditures to 3.3% as compared to 2.5% of what has been previously reported and the consumer spending increased by 3.1% as compared to 2.9% in the previous month.Love and Intimacy Case Solution

            This investment spending is an important factor in boosting the economy in terms of the business cycle. The sudden increase in the GDP of the US could also be accounted for as a result of the inventory accumulation of worth of $ 121.1 billion during the inventory cycle. Overall, this could be considered as recovery in terms of the business cycle of the US economy.

Actual & Potential Output Relationship

The natural rate of unemployment and the current rate of the unemployment have been taken from the FRED website(Abel, 2005). The natural rate of unemployment is 5.06% for the current year, whereas the current rate of unemployment for the current year is 5.60%. In order to determine and the assess the relationship between the actual and the potential output of US, the Okun’s Law can be used here in order to understand and assess this relationship based on the FRED data.........................

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