ECO 3622 University of South Florida Stock Index Economics Worksheet
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UNIVERSITY OF SOUTH FLORIDA
Department of Economics
Spring 2022
ECO 3622 001
8 points
The following plot shows the Standard and Poors 500 stock index starting in January 2003 and
ending in June 2011. The data are an index with January 2003 set equal to 100.
S&P 500 Index, January 2003 – June 2011
200
180
160
January 2003 = 100
1.
Michael Loewy
Problem Set #6
due 4/21/22
140
120
100
80
60
40
20
0
01-2003
01-2004
01-2005
01-2006
01-2007
01-2008
01-2009
01-2010
01-2011
a.
In terms of how much it increased from its starting point to its peak and then how much it
decreased from its peak to its trough, how does the behavior of the S&P 500 index over
this 8.5-year period compare to what occurred between January 1925 and June 1932? Use
Figure 23.4 to help answer this question.
b.
If investors had looked to the 1920s and 1930s for guidance, would it have been obvious
to them to start selling in October 2007? Why or why not?
c.
If you had invested in the stock market in January 2003 and held your stocks through the
Great Recession, when would you have seen your portfolio return to its initial value? In
terms of time, how does this recovery compare to what someone investing in 1928 would
have needed to return to their initial value?
2
2.
8 points
Over the past couple of decades, several countries have exhibited sustained periods of sluggish
economic performance. This has led to a line of research led to the development of a definition of
a great depression. Specifically, when the following two conditions hold, a great depression
occurred:
(1)
(2)
Real GDP per person fell at least 20% below its trend growth path
Real GDP per person must fall at least 15% below its trend growth path within the first ten
years of the on-set of the depression
a.
In the Excel spreadsheet associated with this problem set, you will find annual data for
1906 through 1917 and for 1929 through 1940 on the ratio of actual real GDP per person
to its trend value based upon a 2% annual rate of trend growth. The ratio appears as an
index with the first data point assigned a value of 100. Plot the data in two separate graphs,
one for 1906 1917 and one for 1929 1940. Include these two plots as part of your
answers.
b.
According to the definition above, did US economic performance between 1906 and 1917
satisfy the definition of a great depression? Why or why not? Note that to qualify as a
great depression, the index number must be less than 80 at some point (condition (1)) and
must be below 85 within the first ten years of the depression (condition (2)).
c.
According to the definition above, did US economic performance between 1929 and 1940
satisfy the definition of a great depression? Why or why not? Use the same measures as
described in part b.
d.
Based upon the plot below of the ratio of US real GDP per person to trend real GDP per
person for 2007 through 2018, did US economic performance between 2007 and 2018, a
period of time that includes the Great Recession, satisfy the definition of a great
depression? Why or why not?
US Real GDP per Person Relative to Trend, 2007 – 2018
105
100
95
90
85
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
3
3.
4 points
a.
Milton Friedman and Anna Schwartz argue that the decline in the stock of money was one
of the primary causes of the Great Depression. According to them, was this decline due to
a decrease in the supply of or demand for money? What evidence do they provide to
support their position?
b.
Peter Temin argues that a decline in consumer spending was one of the primary causes of
the Great Depression. According to him, this led to a decline in the stock of money. In
this view, was the decline in the stock of money due to a decrease in the supply of or
demand for money? What evidence does he provide to support his position?
Year
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
Relative GDP Index
100
94.48879
78.89227
88.42737
84.14116
83.92846
84.9018
84.8459
75.1524
74.55354
82.12671
77.19844
Year
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
Relative GDP Index
100
88.65928
80.74273
68.39932
65.73095
70.9346
75.26452
82.8141
84.95718
79.75943
83.86944
88.0973
Year
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
Relative GDP Index
100
94.48879
78.89227
88.42737
84.14116
83.92846
84.9018
84.8459
75.1524
74.55354
82.12671
77.19844
Year
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
Relative GDP Index
100
88.65928
80.74273
68.39932
65.73095
70.9346
75.26452
82.8141
84.95718
79.75943
83.86944
88.0973
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Explanation & Answer:
5 pages
Tags:
economics
stock
index
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