WORKING WITH MACROECONOMIC DATA

For data to use in these exercises, go to the Federal Reserve Bank of St. Louis FRED database at fred.stlouisfed.org.

1. Using quarterly data since 1959, graph Federal govern­ment expenditures and receipts as a percentage of GDP.

2. Using quarterly data since 1948, graph the Federal deficit as a percentage of GDP. What is the cyclical behavior of the Federal deficit?

Repeat this exercise for the deficits of state and local governments. Are state and local deficits more or less cyclically sensitive than Federal deficits?

3. Go to the website of the Congressional Budget Office (www.cbo.gov) and find projections for the govern­ment budget deficit for the coming five years. Compare the size of the deficit and the full-employment deficit (which the CBO calls the budget deficit with­out automatic stabilizers) relative to potential GDP in those years, and compare your results to the history shown in Fig. 15.5. What macroeconomic or political factors have caused the changes you observe in the deficit measures?

4. In Section 15.4, we discuss the potential relationship between government deficits and inflation. In this question, you will investigate the data on govern­ment debt as a share of GDP and the monetary base as a share of GDP. First, find data on the amount of U.S. Federal government debt held by the public as a share of GDP. Then find data on the monetary base and divide it by GDP, noting that the monetary base is available at a monthly frequency and GDP is avail­able at a quarterly frequency, so you will need to cre­ate a quarterly series for the monetary base. One way to create such a quarterly series is to compute quar­terly averages of the monthly monetary base series. (FRED does this automatically.) Plot the debt-to-GDP data and the monetary base-to-GDP data on the same graph. Does there appear to be a relationship between the two variables? How did the relationship change in the Great Recession of 2007-2009? Can you explain this change, given what you learned about the finan­cial crisis in Chapter 14?