Analyzing The Behavior Of The Fed Before And After The Most Recent Recession

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This paper will analyze the behavior of the FED before, during and after the most recent recession. The analysis will begin in 2003 and continue through 2013. This paper will be divided into three parts. First, it will analyze the economic situation the FED faced in the time period aforementioned. Second, it will explain the FED’s actions during this time period, focusing on various monetary tools discussed in class. Third, it will explain whether the author thinks that the FED acted appropriately given the economic situation. It will consider six variables: the civilian unemployment rate, the personal consumption expenditures chain-price index, the M2 money stock, the velocity of the M2 money stock, the effective federal funds rate and…show more content…
During this period personal consumption expenditures increased from 1.978% in 2003 to 2.504% by 2007. Personal consumption expenditures peaked at 2.852% in 2005. During this period the velocity of the M2 money stock steadily increased from 2003 to 2005. From 2003 to 2005 the velocity of M2 increased from -1.976% to 2.235%. However, in 2006 the velocity of M2 decreased to 0.546% and continued to fall to -1.581% in 2007. From 2003 to 2007 the federal funds rate steadily increased. The two biggest increases in the federal funds rate during this period occurred from 2003-2005 and 2005-2006, respectively. In 2003 the federal funds rate was 1.13% and by 2005 it had risen to 3.21%. From 2005 to 2006 the federal funds rate rose from 3.21% to 4.96%. The federal funds rate reached its highest point during this period in 2007, when it reached 5.02%. The money stock decreased from 2003 to 2005 and then began increasing from 2005 to 2007. The money stock dropped from 6.974% in 2003 to 4.304% in 2005, hitting its lowest point of this time period, but rose to 6.210% by 2007. The amount of excess reserves did not change dramatically, but remained low throughout this period. From 2003 to 2004 excess reserves decreased from $1,808 million dollars to $1,643 million dollars and rose to $1,742 million dollars in 2005. Excess reserves decreased again in 2006, falling to $1,676 million dollars before increasing to $1,879 million dollars in 2007. During this period the
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