Macro Economic Strategy
...ces Take a Tumble, Propelled by Plunging Oil Price Plunging oil prices… sent Treasury prices tumbling and dealers scrambling for cover. The selling drove the yield of the benchmark 10-year note, which moves inversely with its price, back above 4%. Interpret “plunging oil prices” as a positive productivity shock (i.e. an exogenous increase in the average and marginal productivity of labor at all quantities of labor hours). Work through all of the macroeconomic affects of this shock, assuming the conditions that result in an increase in the interest rate. 2. The September budget report from the Congressional Budget Office made this observation about entitlement spending in the United States: Overall, CBO projects that under current law, mandatory spending (excluding offsetting receipts) will equal 11.5 percent of GDP in 2005 and increase thereafter, reaching 13.0 percent in 2014. Spending for Social Security, Medicare, and Medicaid combined is projected to grow from 8.3 percent of GDP in 2005 to 10.3...