Mapping Business Cycles using FRED graphs
This material is replicated on a number of sites
as part of the
SERC Pedagogic Service Project
Initial Publication Date: February 9, 2017
Summary
In this activity, students plot U.S. data for key macroeconomic variables over last fifty years and analyze their correlation. Students examine how unemployment rate and inflation rate change during expansions versus contractions. Using the Aggregate Demand-Aggregate Supply model, students compare and contrast changes in unemployment and inflation due to supply shocks versus demand shocks.
Learning Goals
This activity focuses on the causes of business cycles and supply shocks versus demand shocks
After completing the activity, students should be able to
1. Use FRED to find and transform data to plot appropriate graph.
2. Distinguish between levels and growth rates while transforming data series.
3. Analyze data movements to find positive or negative relationship between Real GDP growth, unemployment rate and inflation rate
4. Compare and contrast US stagflation of 1973-75 to other US recessions
5. Understand the difference between cost-push inflation and demand pull inflation
6. Compare and contrast the effects of supply shocks and demand shocks in the AD-AS model.
After completing the activity, students should be able to
1. Use FRED to find and transform data to plot appropriate graph.
2. Distinguish between levels and growth rates while transforming data series.
3. Analyze data movements to find positive or negative relationship between Real GDP growth, unemployment rate and inflation rate
4. Compare and contrast US stagflation of 1973-75 to other US recessions
5. Understand the difference between cost-push inflation and demand pull inflation
6. Compare and contrast the effects of supply shocks and demand shocks in the AD-AS model.
Context for Use
This activity can be used at the end of the semester in Principals of Macroeconomics course. It can be used at the beginning of the semester in a Money and Banking or Intermediate Macroeconomics course.
For small classes, activities could be individual assignments while for large classes, they could be group activities.
This assignment can be used in face-to-face as well online classes.
For small classes, activities could be individual assignments while for large classes, they could be group activities.
This assignment can be used in face-to-face as well online classes.
Description and Teaching Materials
This assignment is divided in two parts. The first part is finding and transforming data to plot graph. The second and more important part is to examine and explain the graph. The first part is ideally given as homework while the second part could be homework or in-class. It could be a short answer written assignment or oral presentation. Please see both the assignments attached below.
For the first part of this assignment, students will need detailed directions, particularly if they are not familiar with using FRED. It is better for the instructor to show how to transform and plot the graph in class. It takes about ten minutes of the class time. Then it is given as a homework assignment with detailed directions. It could be online homework using the school's LMS or could be turned in on paper.
For the second part of the assignment to explain the graph, a set of questions help students to focus on the learning goals. It could be first given as in-class group work or discussion and then again as homework to instill the concepts. It could take 20-25 minutes for class discussion.
Business cycle assignment: Graph (Microsoft Word 2007 (.docx) 15kB Oct3 16)
Business cycle assignment:Explanation (Microsoft Word 2007 (.docx) 286kB Oct3 16)
For the first part of this assignment, students will need detailed directions, particularly if they are not familiar with using FRED. It is better for the instructor to show how to transform and plot the graph in class. It takes about ten minutes of the class time. Then it is given as a homework assignment with detailed directions. It could be online homework using the school's LMS or could be turned in on paper.
For the second part of the assignment to explain the graph, a set of questions help students to focus on the learning goals. It could be first given as in-class group work or discussion and then again as homework to instill the concepts. It could take 20-25 minutes for class discussion.
Business cycle assignment: Graph (Microsoft Word 2007 (.docx) 15kB Oct3 16)
Business cycle assignment:Explanation (Microsoft Word 2007 (.docx) 286kB Oct3 16)
Teaching Notes and Tips
This activity is effective after the AD-AS model is introduced in the class. This activity could also be used as a short lecture on U.S. economic history for the last fifty years or so. The causes for the various expansions and contractions in the U.S. economy for the last fifty years could be discussed in the class.
It is important to make students understand the difference between levels and growth rates. Students typically confuse between a decrease in inflation and decrease in the CPI or between a decrease in the economic growth rate and decrease in the Real GDP.
For further sophistication, similar FRED graphs could be plotted for other countries.
It is important to make students understand the difference between levels and growth rates. Students typically confuse between a decrease in inflation and decrease in the CPI or between a decrease in the economic growth rate and decrease in the Real GDP.
For further sophistication, similar FRED graphs could be plotted for other countries.
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Assessment
The assignment of plotting the FRED graph is given as homework. In the next class a written assignment to explain the graph could be given as in-class group work/ think-pair-share or as a graded homework. This activity could be recaptured as a test question again later in the semester.