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MOODY’S MEGA MATH CHALLENGE

MOODY’S MEGA MATH CHALLENGE. TEAM #058. American Recovery and Reinvestment Act of 2009. Section Effectiveness Expected Timeline of Results A Second Stimulus?. Roots of The Crisis. $787bn Stimulus Package. Increase consumer spending Buoy up Asset Prices Restore lending Preserve jobs.

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MOODY’S MEGA MATH CHALLENGE

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  1. MOODY’S MEGA MATH CHALLENGE TEAM #058

  2. American Recovery and Reinvestment Act of 2009 Section Effectiveness Expected Timeline of Results A Second Stimulus?

  3. Roots of The Crisis

  4. $787bn Stimulus Package • Increase consumer spending • Buoy up Asset Prices • Restore lending • Preserve jobs

  5. Global Assumptions

  6. Stimulus Effectiveness How many jobs will the stimulus save?

  7. How will the stimulus create jobs? • Direct employment: The ‘First Wave’ • Indirect employment: The ‘Second Wave’

  8. Local Assumptions Standard Industry Classifications Accurate Multipliers

  9. Direct Employment

  10. - 1,184,026 First Wave Jobs Created Money Invested Direct Employment Jobs

  11. Indirect Employment Job Creation

  12. The Multiplier Effect • Infinite timeframe • MPC Unknown • Estimates by Mark Zandi (Moody’s Economy.com)

  13. The Multiplier Effect

  14. GDP Change

  15. Okun’s Law • Growth rate form of Okun’s law • Relates real ΔGDP to Δunemployment • Empirical observation ∆u = -0.01365236

  16. -1,947,220 Second Wave Jobs Created Money Invested Indirect Employment Jobs

  17. - 3,131,246 Total Jobs Created Money Invested Total Employment Jobs

  18. Stimulus Efficiency by Section

  19. Historical Analysis 1930s; 1960s; 1980s

  20. Local Assumptions • Current recession can be modeled from previous ones • 1930s • 1960s • 1980s • Low-range extrapolation possible

  21. Modeling Unemployment in Recessionary Times

  22. Modeling Unemployment in Recessionary Times

  23. Modeling Unemployment in Recessionary Times

  24. Modeling Unemployment in Recessionary Times

  25. Modeling Unemployment in Recessionary Times

  26. Modeling Unemployment in Recessionary Times

  27. Modeling Unemployment in Recessionary Times

  28. Modeling Unemployment in Recessionary Times

  29. Modeling Unemployment in Recessionary Times Anticipated unemployment rate: ~6.2%

  30. Great Depression Model Error Analysis • Regression assumptions and conditions met for a t-distribution • Standard error of slope: • Error in the slope for 95% confidence interval: ME = ± 2*0.513*2.365 = ±1.215 • Interval for the slope: [0.512, 2.942]

  31. Testing the Model

  32. Testing the Model

  33. Do we need a second stimulus?

  34. Local Assumptions

  35. Unemployment Target for 2012 ~6.2%

  36. Second Stimulus Composition

  37. Size of second stimulus

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