1 / 26

Moody's M3 Challenge: Modeling the Stimulus Plan

Moody's M3 Challenge: Modeling the Stimulus Plan. STAPLES HIGH SCHOOL, TEAM #143 KYLE BEATTY, JASON GANDELMAN, JUSTIN SHERMAN, NAVEEN MURALI, JONATHAN CHOI. American Recovery and Reinvestment Act. $787 billion stimulus package More disposable income  consumer spending  more employment

keala
Download Presentation

Moody's M3 Challenge: Modeling the Stimulus Plan

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Moody's M3 Challenge:Modeling the Stimulus Plan STAPLES HIGH SCHOOL, TEAM #143 KYLE BEATTY, JASON GANDELMAN, JUSTIN SHERMAN, NAVEEN MURALI, JONATHAN CHOI

  2. American Recovery and Reinvestment Act • $787 billion stimulus package • More disposable income  consumer spending  more employment • Goal: 3 million jobs by 2010 end

  3. Problem • Which elements of this $787 billion package are most likely to produce the greatest improvements in employment? • How quickly can they be expected to produce results? • There is considerable discussion about a second stimulus package. If it is needed, how large should it be, and how should it be structured?

  4. Assumptions All multipliers & MPC are constant with time Population is constant during 11 years. GDP deflator is constant for base year of 2000 There is no lag effect between spending, GDP, & employment

  5. Categorization • Title I – Agriculture, Rural Development, Food and Drug Administration, and Related Agencies • Title II – Commerce, Justice, Science and Related Agencies • Title III – Department of Defense • Title IV – Energy and Water Development • Title V – Financial Services and General Government • Title VI – Homeland Security • Title VII – Interior, Environment, and Related Agencies • Title VIII – Departments of Labor, Health and Human Services, and Education, and Related Agencies • Title IX – Legislative Branch • Title X – Military Construction and Veterans Affairs and Related Agencies • Title XI – State, Foreign Operations and Related Programs • Title XII – Transportations and Housing and Urban Development • Title XIV – State Fiscal Stabilization Fund

  6. Planning our Approach Spending: ARRA ? GDP ? Employment Rate

  7. Connecting GDP to Employment

  8. Keynesian Economics: Multiplier Effect • Multiplier Effect: increase in government spending creates multiplied increase in GDP • Why this works: • Marginal propensity to consume (MPC): fraction of every $1 received that is used for consumption

  9. Infinite Geometric Series Multiplier Effect Can be Modeled by an Infinite Geometric Series

  10. Applying Geometric Series Model • According to Council of Economic Advisors and Office of the Vice President-Elect: • Tax Relief multiplier: 0.98 • Infrastructure government spending multiplier: 1.75 • Non-infrastructure government spending multiplier: 1.30 • Multipliers were maximized after 8 quarters • Length of a spending round is approximately one quarter

  11. Calculating MPC Non infrastructure Infrastructure Tax Relief

  12. MPCs in Categorization • 6 Categories of ARRA • Tax Cuts • Aid for State and Local Governments • Relief • Infrastructure Spending • Energy Efficiency • Human Capital Uses Tax Cut MPC = 0.495 Uses Non Infrastructure MPC = 0.231 Uses Infrastructure MPC = 0.429 Uses Non Infrastructure MPC = 0.231

  13. Single GDP Multiplication

  14. Multiple Spending Installments Linear Conversion Factor: 0.422 Percent Change in Employment Rate Number of Jobs Created or Saved Percent Change in Real GDP per Capita Cumulative Benefit to GDP

  15. Jobs Created/Saved Through Tax Relief

  16. Jobs Created/Saved Through Infrastructure Spending

  17. Jobs Created/Saved Through Non-Infrastructure Spending

  18. Effectiveness of Different Spending • Tax cuts • Very inefficient (Multiplier=0.98) • Large amount of spending • Infrastructure • Most efficient (Multiplier: 1.75) • Low amount of spending

  19. Total Effectiveness 2010

  20. Second Stimulus? Will not meet goal (3 million jobs by 2010): only 2.26 million jobs created by 2010 0.74 million jobs must be saved Government Spending GDP • $176.2 billion would have to be added to GDP Employment Rate Number of Jobs

  21. Second Stimulus Plan Goal: to achieve required GDP increase with least amount of Government Spending Spending Priorities: Infrastructure Spending (Multiplier=1.75) Non-Infrastructure Spending Maximum Possible Spending Maximum Possible Spending (Multiplier=1.30) • Tax Cuts (Multiplier=0.98) Leftover

  22. Second Stimulus Plan Finite amounts of Infrastructure & Non-Infrastructure spending possible Maximum spending must be determined by Congress Hypothetical Second Stimulus Plan

  23. Conclusion • After 11 years, total 3.61 million jobs created/saved • Tremendous tax relief leads to greatest job creation (1.16 million) • Most efficient job creation: Infrastructure spending (1.75 multiplier) • Will not meet President Obama’s goal (3 million jobs by 2010): only 2.26 million created • Need 2nd stimulus plan: between $100 billion and $180 billion in additional spending

  24. References • http://www.recovery.gov/?q=content/our-mission • http://otrans.3cdn.net/ee40602f9a7d8172b8_ozm6bt5oi.pdf • http://www.measuringworth.org/usgdp/ • http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000 • Bade, Robin. Foundation of Economics: AP Edition. Pages: 770 • http://economistsview.typepad.com/economistsview/2008/12/woodward-and--1.html • The Job Impact of the American Recovery and Reinvestment Plan - Romer, Bernstein • http://kennebecjournal.mainetoday.com/view/columns/4738602.html • http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html • http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm • http://www.usnews.com/articles/opinion/2008/12/31/us-population-2009-305-million-and-counting.html?s_cid=rss:us-population-2009-305-million-and-counting

  25. Tax Multiplier • First round does not contribute to GDP • Tax Multiplier = MPC / (1-MPC)

  26. Why doesn’t the intercept matter?

More Related