Econ Problem set - Assignment Example

Econ Problem Set Q1. Household spending: In January, FOMC’s attributed increasing household spending to recentdeclines in energy prices, which increased purchasing power. In March, FOMC’s view on moderate increase in household spending appears to be attributed to long term energy price decline rather than specific periods. Business fixed investment: FOMC’s view on the growth of business fixed investment was the same for January and March, which it perceived to be advancing for both periods.

Inflation: for both January and March, FOMC’s reported inflation to have fallen further below the committee’s longer-run objective. Even though it appears that there is no difference in the January and March views, one can conclude that the inflation on March report is much lower than that of January. Inflation expectation: In January, FOMC expected inflation fall further, but rise gradually towards 2 percent over medium term following labor market improvements and decline in oil prices. In March FOMC anticipated inflation to remain near its low level, and then rise gradually toward 2 percents.

Risks to the economic outlook: There was no difference in risk to the economic outlook for the two periods. Target range for the federal funds rate: FOMC anticipated an increase the target range if there is faster achievement of desired employment and inflation rate of 2 percent in January. In March; the committee was more of not certain about the possibility of increasing the target rate, but remained open to the possibility upon market improvement. Open market operations (agency debt/securities; treasury securities): there is no difference between the January and March view on open market operations. Q2.a.

There was inaccurate forecasting in the Fed estimates because of major deviations from actual outcomes. b. The Fed’s thinking was guided by expansionary monetary policy. Q3.Present Value (PV) = FV /(1+i) nWhere: future value (FV) = $1,000 i= 6% = 0.06 n= 5 years.PV=1,000/(1.06)5 = $747.2581 =$747.25