1.
Macroeconomic Study of USA
Abhishek Sao - 1502008
A Vineel Chandra – 1502021
Jitendra Agarwal - 1502082
Koushik Ghosh – 1502094
Rashi Gupta - 1502148

2.
GDP of USA
 The Gross Domestic Product (GDP) in the United States was worth 17947 billion US
dollars in 2015.
 The GDP value of the United States represents 28.95 percent of the world economy.
 GDP in the United States averaged 6557.34 USD Billion from 1960 until 2015, reaching
an all time high of 17947 USD Billion in 2015 and a record low of 543.30 USD Billion in
1960.
- .

3.
GDP Annual Growth Rate of USA
 The Gross Domestic Product (GDP) in the United States expanded 1.20 percent in the
second quarter of 2016 over the same quarter of the previous year.
 GDP Annual Growth Rate in the United States averaged 3.21 percent from 1948 until
2016, reaching an all time high of 13.40 percent in the fourth quarter of 1950 and a record
low of -4.10 percent in the second quarter of 2009.

4.
GDP Per Capita of USA
 The Gross Domestic Product per capita in the United States was last recorded
at 51486 US dollars in 2015.
 The GDP per Capita in the United States is equivalent to 408 percent of the
world's average.
 GDP per capita in the United States averaged 34604.71 USD from 1960 until
2015, reaching an all time high of 51486 USD in 2015 and a record low of
17036.90 USD in 1960

5.
GNP of USA
 Gross National Product in the United States decreased to 16668.30 USD Billion in the first
quarter of 2016 from 16668.40 USD Billion in the fourth quarter of 2015.
 Gross National Product in the United States averaged 8102.05 USD Billion from 1950
until 2016, reaching an all time high of 16668.40 USD Billion in the fourth quarter of 2015
and a record low of 2098.40 USD Billion in the first quarter of 1950.

6.
US GDP Per Capita PPP
 The Gross Domestic Product per capita in the United States was last recorded at 52549.01
US dollars in 2015, when adjusted by purchasing power parity
 The GDP per Capita, in the United States, when adjusted by Purchasing Power Parity is
equivalent to 296 percent of the world's average.
 GDP per capita PPP in the United States averaged 45637.85 USD from 1990 until 2015,
reaching an all time high of 52549.01 USD in 2015 and a record low of 36543.08 USD in
1991.

7.
MONETORY POLICY
The Federal Reserve manipulates money supply in three ways -
1. Open Market Operations
• The buying and selling of government-issued securities (such as U.S.T-bills) by
the Federal Reserve
• The short-term purpose to obtain a preferred amount of reserves held by the
central bank and to alter the interest rate through the federal fund rate.
• Fed buys T-bills  Increased liquidity in market  Decreased Interest rates
2. Reserve Requirements
• The Reserve ratio is the portion of depositors' balances that banks must have on
hand as cash.
• Decreased Reserve ratio  Increased Lending  Increased Money supply
• The Federal Reserve requirements for institutions with net transactions accounts of
i) < $15.2 million have no minimum reserve requirement;
ii) $15.2 - $110.2 million must have a reserve of 3% of liabilities;
iii) > $110.2 million must have a reserve of 10% of liabilities

8.
3. Discount Rate
• It is the Interest rate that the depository institutions are charged to borrow from the Fed
• There are three facilities for institutions to receive credit -
1.The primary rate is used for short-term loans extended overnight to depository facility
2.The secondary credit rate is slightly higher than the primary rate and is extended to
facilities with liquidity problems or severe financial crises
3. Seasonal credit is for institutions that need support on seasonal basis, a farmer's bank
Federal Fund Rate –
• The interest rate that one bank charges another bank for borrowing money overnight
• It can be called as the base rate that determines the level of all other interest rates
• High federal fund rate  Expensive to borrow  Low Money Supply 
High Interest rates  Low Inflation
• Record low of 0 to 0.25% during 2008 Recession; to stimulate the economy
• In today’s scenario - 2.4% GDP Growth rate; 0.5% Interest rate; 0.9% Inflation

9.
Expansionary monetary policy Restrictive monetary policy
Federal Funds rate
decrease
Aggregate demand
increases
Money supply Rises
Interest rate falls
Investment spending
increases
Federal funds rate increase
Aggregate demand
decreases
Money Supply Falls
Interest rate rises
Investment spending
decreases
Real GDP Rises Inflation declines

10.
VELOCITY OF MONEY
• A decreasing velocity of M1 indicates fewer short- term consumption
transactions are taking place
• Comparing Velocity of M2 with that of M1 gives us an understanding to how
quickly the economy is spending and how quickly it is saving
• The velocity of MZM helps determine how often financial assets are switching
hands within the economy

11.
• The velocity of money can be calculated as the ratio of nominal
gross domestic product (GDP) to the money supply ; V=PQ/M
• The velocity of money began to fall steeply from the period prior to
recession and continued till 2015
• The money supply from 2008 to 2013 grew at an average velocity of
33% per year and output(GDP) grew at average rate of 2% - but the
inflation was just 2%, way lesser than estimated high percentage
REASON – Declining Velocity
• Private Sector began to hoard money rather than spend it
i) A glooming economy after the financial crisis of 2008
ii) Low interest rate policies forced the investors away from
government bonds
• During Prerecession years, for every 1 percentage point decrease in
10-year Treasury note interest rates, the velocity reduced by 0.17
points, but during 2008-2013 the velocity reduced by 69 times that of
the prerecession years

12.
Unemployment
Total number of adults (aged 16 years or older) willing and able to work and who
are actively looking for work and have not found a job
Civilian Labor Force
✤ Individuals aged 16 years or older who either have jobs or who are looking and
available for jobs; the number of employed plus the number of unemployed

13.
Unemployment (cont'd)
Costs of unemployment
1. Lost output
• During early 2000s, unemployment rate rose by 2 percentage points
• Factory output was 80% of potential
• Lost output was $200 billion of goods and services that could have been
produced
2. Personal psychological impact
Adult Population The unemployment rate is the percentage of the
measured labor force that is unemployed.

14.
Unemployment (cont'd)
Categories of individuals without work:
✤ Job loser - An individual whose employment was involuntarily terminated or who
was laid off. 40–60% of the unemployed
✤ Reentrant: An individual who has worked a full-time job before but left the labor
force and has now reentered it looking for a job. 20–30% of the unemployed
✤ Job leaver: An individual who voluntarily quit. 10 to 15% of the unemployed
✤ New entrant: An individual who has never worked a full-time job for two weeks or
longer. 10 to 15% of the unemployed

15.
✤ The major types of unemployment
✤ Frictional:
✤ Results from the fact that workers must search for appropriate job offers
✤ This takes time, so they remain temporarily unemployed
✤ Structural:
✤ Results from a poor match of workers’ abilities and skills with current
requirements of employers
✤ Cyclical:
✤ Results from business fluctuations that occur when aggregate (total)
demand is not at a level that would result in full employment
✤ Can be positive or negative
✤ Seasonal:
✤ Results from the seasonal pattern of work in specific industries
✤ Adjustments are made to offset the effects of seasonal unemployment so
that meaning comparisons can be made between different periods of the
year. This adjustment is needed in order to assess the affects of the other
types of unemployment.
Types of Unemployment

16.
Full Employment: An arbitrary level of unemployment that corresponds to “normal”
friction in the labor market
Natural Rate of Unemployment: The unemployment rate that is estimated to prevail in
the long-run macroeconomic equilibrium. It should not reflect cyclical unemployment.
When seasonally adjusted, the natural rate should include only frictional and structural
unemployment.
Full Employment and the Natural Rate of Unemployment

17.
INVESTMENT ANALYSIS &
OPPORTUNITIES

18.
Foreign Direct Investment in USA (FDIUS) reached $2.9 trillion in 2014
Firms invested $112 billion in the U.S. economy in 2014, down 50% from 2013
New factories, fund research and development employs millions of Americans in well-
paying jobs
The United States remains the top choice for international investment, but its share of
worldwide investment has dropped to 21 percent in 2014 from 39 percent in 2000
United States ranked as the world’s top market in 2015 by A.T. Kearney

19.
Nation-wise Investment Analysis
• U.K. is the single largest foreign investor in
the U.S. economy, constituting 15 percent
of all cumulative foreign direct investment
holdings
• United Kingdom’s portion dropped because
of the $130 billion Vodafone divestment
• Eight countries constitute about 80%
foreign investments in USA
• More than 170 countries constitute the
remaining 20%
• Each of the top five countries by foreign
investment inflows in 2014 increased their
level of foreign investment spending in the
United States over 2012
• Cumulatively, Europe is the largest regional
investor in the United States. It accounted
for nearly 70 percent of all foreign
investment through 2014
• China ranked as the largest BRICS’
investor in 2014

20.
Factors impacting high investments in USA
• United States has one of the most open markets and investment
climates in the world
• An unrivaled and diverse consumer market
• World-class system of higher education
• Skilled and productive workforce
• Entrepreneurial culture of innovation and risk taking
• Transparent regulatory environment
• The largest venture capital and private equity market in the world
• Global FDI in US is predicted to rise to $1.5 trillion in 2016 and reach
$1.7 trillion by 2017
• Cash holdings in USA is estimated at $4.4 trillion
• Cash holdings are the highest among the world’s largest multinational
companies

21.
Industrial Investment Analysis
• Manufacturing accounts for more than
1/3rd of total investments
• BFSI has high investments because of
a large and liquid financial market
• FDI in the U.S. mining sector tripled in 2014
• Investments in the US went down in many sector
s in 2014, including banking, information, finance
& insurance
• The largest decline was in holding companies.
The industry’s $2 billion inward investment in
2013 was followed by a massive $125 billion
disinvestment the following year (Vodafone of
Verizon)

22.
Investment in Manufacturing Sector
Chemicals constitute more than 1/3rd of all investments in man
ufacturing
Factors promoting investments in chemicals:
• Highly educated workforce
• World class research centers
• Strong IP rights protection
• Robust regulatory environment
About half of investments in chemical manufacturing happens
in Pharmaceuticals and Medicines
• At 800 percent, beverages and tobacco products is the f
astest-growing manufacturing industry
• Two key manufacturing sectors saw disinvestments in 201
3
• Declines in foreign direct investment in the United States
were recorded in the food industry and in the electrical e
quipment, appliances, and components sector

23.
CHALLENGES TO INVEST IN US ECONOMY
1. Cost of doing business may rise as the economy improves which would require
higher level of investment in order to compete with the established domestic players
2. Federal, state and local regulations require thorough knowledge of tax, commercial
and labour laws.
3. Corporate scandals in the late 1990s contributed to a crackdown by federal
regulators and increased scrutiny of how publicly owned businesses operate like
heightened compliance standards and increased cost of compliance while also
improving the financial reporting transparency
1. Build or Buy
2. Mergers and Acquisitions
3. Going public
4. Joint Ventures and Strategic Alliances
a. Equity based alliances
b. Non-equity based alliances
5. Federal and State Tax Incentives
6. Greenfield Investments
7. Government Loans
STRATEGIES TO INVEST IN US ECONOMY

24.
Build Buy
Advantages Business confidentiality,
opportunity to use existing
technology and intellectual
capital, and the ability to
further build brand, product
and service recognition
Complete investigation of a target
and the ability to negotiate a
specific price and terms without
concerns about the cost overruns
and delays that often occur with
internal build decision
Disadvantages Difficulty in financing when
there is no track record and
stretching a management team
beyond its regular duties
A long, drawn-out negotiation and
closing process that may
sometimes collapse, and the true
cost of acquisition may be much
higher than the price originally
intended
Build or Buy
Depends on industry maturity, financial considerations, the potential for success,
internal capacity and supplier and customer availability

25.
Mergers and Acquisitions
1. In US, a number of Securities and tax regulations governing M&A. So companies
need to seek financial, tax and legal advice
2. May need assistance from investment banking firms, business brokers, bankers,
business advisers to assist in identifying and analysing potential targets, valuing
the target, evaluating the tax consequences, negotiation the contract and
integrating the target into existing operations.
1. Foreign companies may opt to sell shares to the public in an initial public offering
(IPO) designed to raise capital to expand operations in US
2. In evaluating whether the public will be interested in purchasing the securities of a
company, a comparison review of industry peers for last 5 years should take place
Going Public

26.
Federal and State Tax Incentives
The tax code includes incentives designed to encourage capital formation, attract
foreign investment, and reduce the federal and state tax burdens of those qualifying
for the incentives
1. A strategic alliance is a cooperative arrangement between two or more
organizations designed to share a strategic goal
2. A way to grow and to obtain specific knowledge that would be very costly or time
consuming to achieve alone
3. Equity based alliances- include minority stock investments, joint ventures and
majority investments at extreme ends
4. Non-equity based alliances- governed primarily by contractual arrangements that
specify he responsibilities of each party, the mode of operation of the alliance and
the considerations involved in expansion or termination
Joint Ventures and Strategic Alliances

27.
1. The federal government provides financial and managerial assistance to small
businesses through the Small Business Administration(SBA)
2. The SBA also licenses, regulates, and provides financial assistance to privately
owned and operated small business investment companies
3. SBA loans are available to foreign-owned companies that have incorporated in
the US
Government Loans
Greenfield projects
1. US offer incentives for greenfield investments that create new production capacity
and jobs, transfer technology and know-how, or lead to linkages to the global
marketplace
2. These projects may include expansions or new facilities and often qualify for
subsidized loans and other tax incentives from the federal, state, and local
governments

28.
THANK YOU!