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8. Estimating the natural rate of unemployment

To answer this question, you will need data on

the

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

downloaded.

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

Web site.

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

equation.

c. According to your analysis in (b), what has been the natural

rate of unemployment since 1970?

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