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Assignment

Real GDP (Y) can be decomposed into the sum of spending by consumers (C), firms (I), the government (G) and net exports (X-M). Y = C + I + G + NX. A common approach taken in exploring real GDP developments is to explore how each of these four spending components identified will develop in the near future. For example, if consumer confidence (an example of a forward looking indicator) is increasing, this is usually taken as a signal that C will be increasing at a 'healthy' growth rate in the near future. If consumer confidence is decreasing, then C is expected to be flat. Since the spending components feed into real GDP (go back to the circular flow diagram), the development of C gives some indication about near future developments in real GDP or economic growth. Thus, one can explore expected changes in C, I, G, and NX to get a handle on the expected real GDP growth for the next quarter or year.

Your assignment is to develop a report that describes expectations for US RGDP in the short term (6 months to 1 year) and medium term (2 to 3 years). This type of macroeconomic outlook report is important and of interest to every type of business enterprise as it is the basic indicator of future output and input market conditions. Your report should be addressed to someone who has only a basic understanding of economics; thus, you should as part of your report, explain the definition of each of the spending components (an any other technical terms you use). You may use charts and graphs as appropriate. The finished report should be 3 to 5 pages, and include a Executive Summary of no more than 200 words.

While you are free to use whatever references you want (please make sure that your report appropriately documents any resources), here are a few suggestions:

The Federal Reserve's Semiannual Report on Monetary Policy. The Fed is required to provide a semiannual report to Congress on the state of the economy and plans for monetary policy. Part 1 of this report, typically includes a discussion of the current state and expectations for the spending categories. You can find the most recent report and links to past reports at https://www.federalreserve.gov/monetarypolicy/mpr_default.htm

The Conference Board. The Conference Board is a private company that provides economic data and analysis to the business community, worldwide. They publish, among other things, a well know set of Leading Indicators, Coincident Indicators, and Lagging Indicators for the US economy (which are used to track and predict the business cycle). While you have to purchase access to those datasets, the CB produces a monthly press release that describes changes in these series. (You can access these press releases at https://www.conference-board.org/data/bcicountry.cfm?cid=1).

The CB also produces the most cited measure of consumer confidence

(see https://hcexchange.conference-board.org/data/consumerconfidence.cfm) and CEO confidence

(https://hcexchange.conference-board.org/data/ceoconfidence.cfm).

Historical GDP and Components. In December 2014, Forbes magazine published an interesting article outlining the changes in the relative size of the spending components from 1929 to 2011.

(See https://www.forbes.com/sites/mikepatton/2014/12/30/a-historical-look-at-the-components-of-u-s-gdp-1929-to-2011/).

You can also easily look at this data (and even more detail) first had on the Bureau of Economic Analysis (BEA) web site.

(Go to https://www.bea.gov/iTable/index_nipa.cfm and click "Begin Using the Data".

Open "Section 1 Domestic Product and Income" and use Table 1.1.3 Real Gross Domestic Product Quantity Indexes. Once the table opens click the "modify" button to change the dates to see historical data. If you would like to see international comparisons, such data is easy to get for members of the Organization for Economic Cooperation and Development (OECD).

(Go to https://stats.oecd.org/Index.aspx?querytype=view&queryname=206# you can change countries by using the "Country" pull down menu, and see the components of GPD by using the "Variable" pull down menu).