Q. 2 Go to the St. Louis Federal Rese... [FREE SOLUTION]

Chapter 24: Q. 2 (page 657)

Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), and an estimate of the natural rate of unemployment (NROU). For the price index, adjust the units setting to 鈥淧ercent Change From Year Ago.鈥� For the unemployment rate, adjust the frequency setting to 鈥淨uarterly.鈥� Select the data from $2000$ through the most current data available, download the data, and plot all three variables on the same graph. Using your graph, identify periods of demand-pull or costpush movements in the inflation rate. Briefly explain your reasoning.

Short Answer

Expert verified

The information of all the above three variables of the year 2000 till date have been represented in the graph given below:

Step by step solution

Concept Introduction

Personal consumption expenditure is the account of consumption spending in the United States.

The natural rate of unemployment is the lowest rate of unemployment that an economy will experience over time. The unemployment rate is the percentage of people who are unemployed compared to the total amount of labor employed in a given economy.

The increase in the inflation rate caused by increasing aggregate demand in the economy is known as the demand pull inflation rate.

Increased costs of production inputs such as raw materials, labor pay, and so on generate cost push inflation.

Explanation

The following are the results of converting personal expenditure data to percent change, unemployment, and the natural rate of unemployment to Quarterly frequency units:

Graph

The information of all of the above three variables of the year till date is represented in the graph given beneath:

From the given data, it appears that the from 2001 to 2003, the economy is affected by demand pull inflation. The period of 2007 to mid 2008 shows cosh-push inflation at work. From 2008 to 2013, the economy is experiencing demand-pull inflation. In this period, inflation is lower than 2.5%, while the unemployment rate is well higher than the natural rate.