Specifically, the following critical elements must be addressed:
I. Identification of Risk
a. Using the aspects of risk outlined in Chapters 5–8, identify the types of economic risk that certain
broad varieties of activities expose business entities to.
b. Identify and describe two areas of your chosen firm’s operations that are subject to significant
economic risk of each of the following: idiosyncratic, systematic, and systemic varieties.
c. Identify specific macroeconomic variables that are associated empirically with an increase in the
identified varieties of risk, and which may indicate increase or decrease in systematic and systemic risk
d. Graphically and/or mathematically illustrate a movement in macroeconomic variables that would
theoretically be associated with this risk. II. Analysis of Macroeconomic Data
a. Document recent fiscal and monetary actions taken by U.S. authorities addressing business cycle
b. Calculate annual percentage changes in GDP and the Consumer Price Index (CPI-U) in the United
States from 1948 to the current year.
c. Partition your data into the periods of 1948–1972, and from 1973 to the most recent year available.
Plot annual percentage changes in GDP for these two periods. Compute a trend and assess variation, and
describe patterns that you discern in relation to what you know about business cycle fluctuations.
d. Consult FRED (Federal Reserve Economic Data) to determine what has been identified to be the
natural rate of unemployment and the current rate of unemployment in the current period. Using the
FRED data, characterize the current relationship between actual and potential output (Okun’s law may
be used to guide your assessment).
e. In light of what you identify to be the current relationship between actual and potential output, and
the policy actions documented in “step a” above, graphically or mathematically illustrate the current
macroeconomic risk factors and explain why this result is of significance to the firm that you are
f. Describe the theoretical basis of each documented policy action that you have assembled and, using
data collected here, evaluate its effectiveness. Did the policy achieve its intended economic outcomes? If
so, what indicates that it was successful? If it was not successful, why did it fall short? Use examples to
illustrate your point and back up your argument with research.
III. Implications of Government Fiscal and Monetary Policies on Firm’s Business
a. Apply your analysis of macroeconomic data and recent policy and policy effectiveness completed in
Part II to predict trends in GDP growth, inflation, and interest rates. b. Identify likely effects of predicted trends on your chosen firm’s operations. In other words, what
should managers be especially attentive to, based on your research? Use examples to illustrate your
points and back up your argument with research.
c. Based on your conclusions regarding areas of risk that are systematic in origin, describe one or more
ways that the firm's operations may be significantly influenced by shifts in money and capital markets,
and government regulation of these.
d. Identify and describe one ongoing policy initiative currently underway that might raise or mitigate
systematic risk, if it is successful. Describe the empirical or historical basis of this action, and evaluate the
potential effectiveness of this policy. Illustrate the theoretical basis of this action using research. If this
action is successful, how will this be beneficial or detrimental to the firm you have selected to review
IV. Conclusion: Economic Risk Mitigation Proposal
a. Propose strategies to mitigate systematic economic risk for your firm. Be sure that your
strategies are justified, based on your own research of macroeconomic data, economic outlook,
and identification of possible risks expected in the next 1-5 years. Final Submission: Economic Risk Mitigation Proposal, you will submit a 12–14 page comprehensive
economic risk mitigation proposal. Your submission should be a polished artifact containing all of the
critical elements of the final project. Conclude your project with proposed strategies to mitigate systemic
economic risk as outlined in Section IV. It should reflect the incorporation of feedback gained throughout