Econ 100B: Economic Analysis – Macroeconomics Problem Set #4 – Solutions Due Date: July 19, 2018 General Instructions: •Please upload a PDF of your problem set to Gradescope by 11:00 pm. •Late homework will not be accepted. •Please put your name, student ID & your GSI’s name at the upper right corner of the front page. 1. Comparing the output and unemployment gaps shown on slide 26 of lecture 13: (a) Would you characterize the direction of these fluctuations as generally procyclical, countercyclical, or acyclical? Why?
(b) Many of the relationships in our macroeconomic models are linear; two variables are related by the equation for a straight liney=mx+b. What is the relationship between (i) the sign of the slopemand (ii) the cyclicality (pro or counter) seen in a time series? Briefly explain.
2. The goal of this exercise is to estimate Okun’s law using data from the Federal Reserve. Download the following time-series from FRED:1 •The civilian unemployment rate (UNRATENSA):U. •The natural rate of unemployment (NROU):UN . •Real gross domestic product (GDPC1):Y. •Real potential gross domestic product (GDPPOT):YP. 1For purposes of this exercise we will ignore the seasonality inconsistency in the GDP measures. 1
