ECONOMICS - Fiscal & Monetary Policies TEXT: Money, Banking, and Financial Markets by Stephen Cecchetti & Kermit Schoenholtz The final project for this course is the creation of an economic risk mitigation Professionals working in areas of finance and economics combine understanding of the business and management issues related to the real-world activities of public and private entities worldwide, with a sound knowledge of macroeconomic theory and policy tools and technical skills. They are frequently asked to interpret data to draw research-based conclusions regarding activities of the firms they manage, in relation to broader macroeconomic phenomena. In this project, you will develop the ability to understand how economy-wide or regional economic forces affect decisions of senior business management officials in the private sector. The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three, Five, and Seven. Your comprehensive proposal will be submitted in Module Nine. In this assignment, you will demonstrate your mastery of the following course  Propose strategies to enhance business opportunities by applying advanced macroeconomic theory to senior management level decisions  Evaluate the implications of government fiscal and discretionary policies for business practice  Draw connections between the business cycle and economic policies and trends in planning for business contingencies  Assess the interrelationships between monetary policy and shifts in money and capital markets for their effects on the business climate  Evaluate fiscal and monetary policies for their effectiveness in achieving their intended economic outcomes With attention to the amount of information you are able to derive from sources reasonably available to you and which are amenable to citation and verification, select a publicly traded company headquartered in the United States and listed on a national securities exchange. Imagine that you have been hired to consult with the publicly traded company's management team during a period of managerial transition. You have been hired to evaluate the risks this firm faces in the near and medium term, to allow the management team to advise the board of directors appropriately. Assume managers are new to the firm and unfamiliar with its operations and the economic environment in which it operates, but that they are familiar with general business practice. Evaluate the implications of government fiscal and monetary policies and business cycle phenomena for the firm you selected. In light of existing evidence, assess which areas of this firm's operations are significantly influenced by macroeconomic fluctuations in output, interest and prices associated with business cycle phenomena, or policy decisions made by the federal government. Present conclusions that can be drawn regarding challenges or opportunities specific to this firm, and provide a plan for mitigating any risks that the firm might face due to systematic factors in particular. For your economic risk mitigation proposal, you must create a professional paper and apply the theories and concepts from the course to construct a polished proposal encompassing your analysis of systematic risks faced by this company, its economic outlook, and a plan that may be implemented to mitigate risks. Specifically, the following critical elements must be addressed: I. Identification of Risk a. Using the aspects of risk outlined in Chapters 5–8, identify the types of economic risk that certain broad varieties of activities expose business entities to. b. Identify and describe two areas of your chosen firm's operations that are subject to significant economic risk of each of the following: idiosyncratic, systematic, and systemic varieties. c. Identify specific macroeconomic variables that are associated empirically with an increase in the identified varieties of risk, and which may indicate increase or decrease in systematic and systemic risk specifically. d. Graphically and/or mathematically illustrate a movement in macroeconomic variables that would theoretically be associated with this risk. II. Analysis of Macroeconomic Data a. Document recent fiscal and monetary actions taken by U.S. authorities addressing business cycle phenomena. b. Calculate annual percentage changes in GDP and the Consumer Price Index (CPI-U) in the United States from 1948 to the current year. c. Partition your data into the periods of 1948–1972, and from 1973 to the most recent year available. Plot annual percentage changes in GDP for these two periods. Compute a trend and assess variation, and describe patterns that you discern in relation to what you know about business cycle fluctuations. d. Consult FRED (Federal Reserve Economic Data) to determine what has been identified to be the natural rate of unemployment and the current rate of unemployment in the current period. Using the FRED data, characterize the current relationship between actual and potential output (Okun's law may be used to guide your assessment). e. In light of what you identify to be the current relationship between actual and potential output, and the policy actions documented in "step a" above, graphically or mathematically illustrate the current macroeconomic risk factors and explain why this result is of significance to the firm that you are considering. f. Describe the theoretical basis of each documented policy action that you have assembled and, using data collected here, evaluate its effectiveness. Did the policy achieve its intended economic outcomes? If so, what indicates that it was successful? If it was not successful, why did it fall short? Use examples to illustrate your point and back up your argument with research. III. Implications of Government Fiscal and Monetary Policies on Firm's Business a. Apply your analysis of macroeconomic data and recent policy and policy effectiveness completed in Part II to predict trends in GDP growth, inflation, and b. Identify likely effects of predicted trends on your chosen firm's operations. In other words, what should managers be especially attentive to, based on your research? Use examples to illustrate your points and back up your argument with c. Based on your conclusions regarding areas of risk that are systematic in origin, describe one or more ways that the firm's operations may be significantly influenced by shifts in money and capital markets, and government regulation of d. Identify and describe one ongoing policy initiative currently underway that might raise or mitigate systematic risk, if it is successful. Describe the empirical or historical basis of this action, and evaluate the potential effectiveness of this policy. Illustrate the theoretical basis of this action using research. If this action is successful, how will this be beneficial or detrimental to the firm you have selected IV. Conclusion: Economic Risk Mitigation Proposal a. Propose strategies to mitigate systematic economic risk for your firm. Be sure that your strategies are justified, based on your own research of macroeconomic data, economic outlook, and identification of possible risks expected in the next 1-