Macroeconomic Report: US Economic Events and Policies (2000-2010)

This report provides a comprehensive macroeconomic analysis of the US economy from 2000 to 2010. It examines significant economic events, including the tech bubble burst in 2001 and the housing crisis in 2008, and their impact on economic growth. The analysis covers key indicators such as GDP, unemployment, and inflation, illustrating their trends over the decade. It also explores the fluctuations in interest rates and foreign trade, highlighting the US trade deficit. Furthermore, the report delves into the government's fiscal and monetary policies, detailing measures taken during recessions, such as fiscal stimulus packages and adjustments to interest rates by the Federal Open Market Committee (FOMC). The conclusion summarizes the decade's economic challenges and the resilience demonstrated through policy interventions.

Macroeconomics
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Introduction
• Series of economic events from 2000 to 2010
• Two significant events
• Tech bubble bust in 2001
• Housing crisis in 2008
• Recessions damage the economic growth.
• More severe impact than the great depression
• Fiscal and monetary policy actions

Economic Growth
• GDP: measures of economic activity
• Real GDP was 13.13 trillion dollars in 2000
• Growth rate was 4.1 percent
• Growth declined to 1 percent in 2001
• Because of tech bubble burst
• 9/11 attacks, war on terror, Iraq war
• Slow recovery Figure 1: Real GDP and
associated GDP growth rate from
2000 to 2010

Economic Growth
• Growth slightly declined to 3.5 percent in 2005
• Hit of Katrine and introduction of Bankruptcy act
• Growth further declined to 2.9 percent
• Tight monetary policy
• Increase in interest rate
• Economic downturn since the end of 2007
• Financial crisis that fully occurred in 2008

Dot Com Bubble
• Bursting of tech bubble from early 2000 to 2001
• Rapid spread of internet stocks
• Web failure
• Lofty promises were not materialized
• NASDAQ peaked at 5,048.62 on March 10, 2000
• Index began to fall since March 13, 2000
• NASDAQ lost nearly 9 percent in just six days
• Decline in growth, higher unemployment Figure 2: Dot com bubble

Housing Bubble
• Housing bubble was related to real estate market
• Housing price peaked in 2006
• Then started to decline
• Case-Shiller home price index recorded the largest drop
• Severe recession from 2007 to 2009
• Economy wide impact
• Decline in growth and investment
• Millions of people to lost their jobs Figure 3: Case Shiller Index
and housing market crisis

Unemployment
• Track economic health of a nation
• Associated with phases of economic growth
• In 2000, accounted rate was 3.9 percent
• Increase unemployment to 6.0 percent in 2002
• tech bubble bust, 9/11 terror attacks, war on terror
• Slow expansion and decline in unemployment
• Recession in 2008 and increased unemployment
• Rate was as high as 9.9 percent in 2009
Figure 4: Trend
unemployment rate in US
from 2000 to 2010

Inflation
• Economic expansion in 2000
• 3.4 percent inflation
• Economic trough in November 2001
• Inflation fell to 1.6 percent
• Rate was 4.1 percent in 2007
• Severe recession in 2008
• Inflation declined to 0.1 percent
• Economic recovery
• Rate stabled at 1.5 percent in 2010
Figure 5: Trend inflation rate in US
from 2000 to 2010

Interest rate fluctuation
• Interest rate: cost of borrowing
• Fell from 6.8% to 1.55% between 2000 and 2004
• Decline in inflation expectation
• Slow growth, ageing population, low investment
• Economic recovery stimulated real interest rate
• Rate was 5.25 percent in 2007
• Rate again declined 3.07 percent in 2008
• Lower inflation expectation
• Expansionary fiscal policy Figure 6: Real interest rate in
US over the decade

Foreign trade
• Export and import increased over time
• Trade deficit
• Import growth exceeded export growth
• Export grew on average by 14 percent
• Industrial supplies, consumer goods, capital goods
• Import grew on an average by 19 percent
• Industrial goods, capital goods, petroleum productsFigure 7: Export, Import and
Trade balance of US over the
decade

Government Policies
• Government plays a crucial role in the economy
• Two main policy instruments
• Fiscal policy and Monetary policy ‘
• Fiscal policy: Adjustment through government spending and tax
• Monetary Policy: Adjustment through money supply and interest
• Federal Open Market Committee (FOMC): acting committee that
control Fed’s open market transaction
• FOMC takes decision related to money supply and interest rate.

Fiscal Policy
• Active fiscal policy measures during recession in 2001
• Accounted half of the budgetary spending
• Bursting of tech bubble
• Attack on September 11 and ongoing war on terrorism
• Spending on the defense and homeland security
• Economic Growth and Tax Relief Reconciliation Act of 2001
• Introduced Job Creation and Worker Assistance Act (JCWAA) of 2002