Module 2 Assignment - Case Study Example

CPI/Original Year CPI) * 100 = ((234-217)/217)*100 =7.834 Part III: 1. Unemployment Rate = (Number of people Unemployed / Number of people in the civilian labor force) * 100 = (2500/30000) * 100 = 8.33 % 2. Now 500 people have stopped looking for a job so they will not be counted, as unemployed neither they will be counted in the total labor force. So now unemployment rate is: ={(2500-500)/(30000-500)} * 100 =(2000/29500) * 100 =6.78% Part IV: 1. As we can see that the interest rates on the treasury bonds tends to increase over the years.

The difference among the rates in the bonds is caused by Maturity Risk Premiums. This is because to invest for a longer period is relatively risky due to the uncertainty in the economic conditions. 2. The statement that ‘the liquidity premium requires that an asset can be sold both quickly and for fair market value’ is false. This is because the liquidity premium is paid to the investors as a security. Since, the bonds ‘cannot be easily converted to cash’. They are paid a premium to compensate for the illiquidity. 3. Inflation over the years = (Change in CPI / Original CPI) * 100 = ((105-102.5)/102.5)*100 = 2.

439 % Therefore, annual inflation rate over the 3 years is 1.02439. Divide 1 by the number of years, so we get 1/3. Now, 1.02439 ^ (1/3) is 1.00806. And subtracting 1 from 1.00806 will give us the annual inflation rate, which is 0.008064 or 0.8064 %. Investors should require a 0.8064% inflation premium. 4. The yield curve will not have an upward slope but rather a flatter curve since the investors will not get high rates of interest on purchasing bonds as the risk of investing is zero and the value of their capital will remain the same.

Part V: 1. As we compare the GDP levels of the US, Japan, Canada and the UK, we can see the trends of the rate of their GDP growth in the respective years from 2008 till present. During 2008, the GDP of all the countries increased by a similar figure that is around 1 to 1.5 percent. During 2009 the trends changed for all countries as we can see however to varying extents. The GDP of all countries decreased. This is visible from the negative rate of growth as we can see where the GDP of Japan was highly affected and it fell by 9 percent.

However, the GDP of UK fell by 6 percent, of US around 5 percent and 4 percent for Canada. After 2010, the economic situation seemed better and the economies started to recover where Japan hit the rate of almost 14 percent, from a negative rate of 9 % to a positive 5. Other countries GDP also increased with UK increasing least. In 2011, the trend seemed somewhat stable for the US and Canada. The rate decreased a little for the UK. However, it was very static in the case of Japan until 2012. 2.

The prices were increasing persistently during 2008 in all the countries. However, inflation rate in the US and in the UK was highest of about 4 percent. The inflation rate in Canada was about 3 percent while in Japan it was 2 percent. During 2009, because of the economic crisis prices actually decreased, as it is visible from the figure, with Japan facing deflation 2 percent and the US of about 1.75 percent. Canada faced deflation of about 1 percent. While the prices in the UK did not decrease, they rose at a lesser rate.

Gradually prices started rising during 2010 until 2012, with UK facing highest rate of inflation, following the US and Canada at a similar pace. And Japan was still stuck in