8. Estimating the natural rate of unemployment
To answer this question, you will need data on
annual U.S. unemployment and inflation rates since 1970,
which can be obtained very easily from the Economic
Report of the President Web site http://www.gpoaccess.
gov/eop/index.html Excel tables of the values can be
Retrieve the annual data for the civilian unemployment
rate from Table B-35. In addition, retrieve the annual
percentage increase for the consumer price index (CPI),
all urban consumers from Table B-63. You can access the
same data at the Federal Reserve Bank of St. Louis FRED
a. Plot the data for all the years since 1970 on a diagram, with
the change in inflation on the vertical axis and the rate of
unemployment on the horizontal axis. Is your graph similar
to Figure 8-5?
b. Using a ruler, draw the line that appears to fit best the
points in the figure. Approximately what is the slope
of the line? What is the intercept? Write down your
c. According to your analysis in (b), what has been the natural
rate of unemployment since 1970?
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