Real Gross Domestic Product and Effective Federal Funds Rate

Go to the Federal Reserve Bank of Saint Louis FRED database (https://fred.stlouisfed.org/). Search for “real GDP” in the search bar. Then, click on the series called “Percent Change from Preceding Period, Quarterly, Seasonally Adjusted Annual Rate.” In the screen that follows you’ll have a graph of the growth rate of U.S. real GDP. Select the maximum amount of data by clicking on “max.” Take a screenshot of this graph and paste it into a Word file.

Now, return to the main page of FRED and search instead for “Federal Funds Rate.” Click on “Effective Federal Funds Rate.” In the screen that follows you’ll have a graph of the U.S. federal funds rate. Select once more the “max” option. Then, click on “Edit Graph.” Under “Modify frequency” select “quarterly” and close the “Edit Graph” menu. Take a screenshot of this graph and paste it in the same Word file you pasted in the earlier graph.

In both graphs, the shaded areas denote recessionary periods. Moreover, we have both series at quarterly frequency, so the behavior of one can be compared to that of the other.

In the remainder of the Word file, evaluate the following. What relationship do you see, if any, between the federal funds rate and the growth rate of GDP? Does any one relationship change in recessions versus expansions? Why do you think there is or isn’t any relationship between these variables? Are there any particular periods during which the behavior of these variables seems abnormal and/or exhibits more of a pattern than average or less of a pattern than average, conditional on there being a pattern to begin with? This is an essay question, so your response should be in that spirit. Your response should be single spaced, 250 words minimum, 300 words maximum.

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