Eco360 Final. Mathematics and Economics Assignment.

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ECO360 Final
Response to Question 1
COVID 19 has affected the United States economy significantly. For instance, it has caused a supply shock by bringing many people into the health systems. Besides, the United States has resulted in shutting down the economy by discouraging and prohibiting citizens from going to work (Curcuru et al.). Supply is measured by what is produced collectively in a country. Unfortunately, the virus caused the labor supply's sudden contraction. Such has reduced the level of confidence among people therefore leading to the demand shock. It is also an indirect impact because of the vital contraction in people's ability to produce goods and services. As a result, the primary economic variables in the United States have changed significantly since March. Such variables include unemployment rate, real GDP per capita, inflation, real interest rate, money velocity, stock price index, and stock price index.
Unemployment Rate
The following table shows the changes in the United States unemployment rate from May 2019 to April 2020. Source: "Trading Economics"
Month (Since May 2019 to April 2019)Unemployment RateMay-193.6Jun-193.7Jul-193.7Aug-193.7Sep-193.5Oct-193.6Nov-193.5Dec-193.5Jan-203.6Feb-203.5Mar-204.4Apr-2014.7
The Following graph shows the changes in the United States unemployment rate from May 2019 to April 2020.
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The table and graph above show the significant changes in the United States unemployment rate. As seen, in April 2020, the unemployment rate increased to 14.7%. It is the highest rise compared to the 16% market expectations ("Trading Economics"). The inevitable rise is primarily caused by COVID 19, which caused many people to lose their jobs. Besides, those seeking employment are not able to find jobs, resulting in a high increase in the unemployment rate. For instance, the aggregate number of unemployed individuals in the United States increased to 23.1 million, because 15.9 million people become unemployed in the period. Besides, the number of employed people decreased by 22.4, and as such, only 133.4 million remained employed. Besides, the participation rate of the labor force decreased by 2.5% in April, indicating that the aggregated participation rate is 60.2%, which is the lowermost rate since 1973.
Real GDP per Capita
The following table shows the changes in the United States' real GDP per capita since the third quarter of 2019. Source: "Federal Reserve Economic Data | FRED | St. Louis Fed."
Observation DateReal GDP per capita, Chained 2012 Dollars, Quarterly, Seasonally Adjusted Annual Rate 2019-07-01581672019-10-01583922020-01-0157621
The following graph shows the changes in the United States' real GDP per capita since the third quarter of 2019.


The graph and table above show that the real GDP per capita in the United States has decreased substantially in the first quarter of 2020. The decrease is primarily caused by COVID 19 pandemic "Federal Reserve Economic Data | FRED | St. Louis Fed". The contraction rate is identified to be 4.8%. As such, the United States has seen the first decline in real GDP in six years. Before the outbreak of the pandemic, the U.S real GDP was increasing at approximately 2.5% yearly over the first three years of Donald Trump's presidency. The decrease in real GDP per capita caused by COVID 19 pandemic resulted from a reduction in consumer spending, as Americans curtail aggregate spending to respond to COVId-19.
Inflation
The following table shows the changes in the United States inflation rate from May 2019 to April 2020. Source: "Trading Economics."
MonthInflation rateMay-191.8Jun-191.6Jul-191.8Aug-191.7Sep-191.7Oct-191.8Nov-192.1Dec-192.3Jan-202.5Feb-202.3Mar-202.5Apr-200.3
The following graph shows the United States inflation rate from May 2019 to April 2020.
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The table and graph above showcase the inflation rate in the United States. As seen, the monthly inflation rate decreased to 0.3% in April, while in march 2020, the inflation rate decreased to 1.5% ("Trading Economics"). The decrease is below the 0.4% market expectations. The inflation rate is the lowest since October 2015, because of the 32% decrease in gasoline prices. COVID 19 caused lockdown restrictions, which contributed to a 5.7% decrease in apparel cost, and a 5.5 percent decrease in transportation services cost. Besides, food prices rose by 3.7%, which is the highest rise since 2012 February. Moreover, consumer prices decreased by 0.8%, which is the highest decrease since 2008 December. The decrease in consumer prices was primarily caused by the 20.6% decrease in gasoline price. However, the Indexes for airline fares, motor vehicle insurance, apparel, and tourism decreased considerably as well. Furthermore, excluding energy and food, core inflation decreased by 1.4%, which is the lowest rate since 2011 April.
Real Interest Rate
The following table shows the changes in the United States' real interest rate since May 2019. Source: "Federal Reserve Economic Data | FRED | St. Louis Fed"
Observation DateInterest Rates 2019-05-013.002019-06-013.002019-07-013.002019-08-012.752019-09-012.502019-10-012.252019-11-012.252019-12-012.252020-01-012.252020-02-012.252020-03-010.25
The following graph shows the changes in real interest rates in the United States since May 2019.


The table and graph above show a substantial decrease in interest rates. For instance, the interest rates decreased to 0.25% in March 2020 from 2.25% in February 2020. The COVID 19 pandemic primarily caused a decrease in interest rates ("Federal Reserve Economic Data | FRED | St. Louis Fed"). The real interest rate is also known as the inflation rate or "nominal interest rate." The decrease in real interest rate in the United States as a result of COVID 19 indicates that investors are not able to invest, and that people are not in a position to save their money. Besides, borrowers can easily borrow money from the banks.
Money Velocity
The following table shows the changes in the United States money velocity since the second quarter of 2019. Source: "Federal Reserve Economic Data | FRED | St. Louis Fed."
Observation dateMoney Velocity2019-04-011.4552019-07-011.4422019-10-011.4272020-01-011.374
The following graph shows the changes in the United States' money velocity since the second quarter of 2019.


The velocity of money denotes the frequency whereby consumers use a unit currency to purchase products and services locally in a given time ("Federal Reserve Economic Data | FRED | St. Louis Fed"). The table and graph above shows that money velocity has decreased significantly in the first quarter of 2020. Such indicates that the government, businesses, and families are not utilizing money to purchase products and services as they used to do in previous years.
Consumer Price Index
The following table and graph show the United States' consumer price index since May 2019. Source: "Trading Economics."
Observation DateConsumer Price Index May-19255.167Jun-19255.402Jul-19256.087Aug-19256.294Sep-19256.593Oct-19257.229Nov-19257.824Dec-19258.444Jan-20258.82Feb-20259.05Mar-20257.953Apr-20255.902
 EMBED Excel.Chart.8 \s 

Consumer price index (CPI) is used to measure the aggregate change in the prices paid by consumers for the products and services in the market ("Trading Economics"). The table and graph above show that CPI decreased to 257.953 and 255.902 in March 2020 and April 2020, respectively. The decrease in the consumer price index is primarily caused by COVID 19. As such, the prices paid by consumers for products and services in the market decreased because of the lockdown effect and loss of employment.
Response to Question Two
The COVID 19 crisis in the United States caused the implementation of policies such as working from home, event cancellations, and business closure. The policies triggered a profound economic shock of unknown duration. The federal reserve responded by implementing actions to minimize economic damage caused by the pandemic (Rogers & Wu). For example, the federal reserve responded by availing approximately $2.3 trillion to...