Why might inflation accelerate as unemployment rate declines


There are two Internet Questions included with this assignment.

Problem 1

Could we ever achieve an unemployment rate below "full" employment? What problems might we encounter if it did?

Problem 2

Why might inflation accelerate as the unemployment rate declines?

Problem 3

Would it be advantageous to borrow money if you expected prices to rise? Why, or why not?

Problem 4

Suppose the following data describe a nation's population:

Year 1

Year 2


310 million


Labor force

150 million

160 million


8.7 million

9.0 million

a. What is the unemployment rate in each year?

b. Has the economy experiences an increase or decrease in

1. The number of unemployed persons?

2. The unemployment rate?

Problem 5

In 2014-2015, by what percentage did (a) the nominal price and (b) the real price of tuition at private colleges increase (News Wire, "Price Effects" p. 205)?

Internet Questions

Question 1

The organization that does the most important work in monitoring the U.S. business cycle-including determining the dates for peaks and troughs-is the National Bureau of Economic Research (NBER). Visit their business cycle page at http://www.nber.org/cycles/main.html. Here, you'll find links to a few interesting pages like "Statement of the NBER Business Cycle Dating Committee on the Determination of the Dates of Turning Points in the U.S. Economy," "US Business Cycle Expansions and Contractions," and "The NBER's Business Cycle Dating Procedure: Frequently Asked Questions," along with some of the business-cycle-related press releases of the NBER. Use these items to answer the following questions.

a. When did the U.S. economy experience its longest recession (period of contraction)?

b. When did it experience the longest period of expansion?

c. When was the shortest recession?

d. When was the shortest period of expansion?

e. What has happened to the average length of recessions in the past 100 years?

f. What has happened to the average length of expansions in the past 100 years?

Question 2

Log on to the Bureau of Economic Analysis Gross Domestic Product website at http://www.bea.gov/national/index.htm#gdp, and the "Latest Numbers" on the right-hand side of the Bureau of Labor Statistics website at http://www.bls.gov. Use both of these websites to complete the tasks below. (Use the "dinosaur" icon on the bottom right side of the screen).

a. Record real GDP for the last four quarters for which there is available data.

b. Record the change in the CPI for the months that correspond to the four quarters of data you found in part a above. Figure out the overall change in the CPI for each of the four quarters by compounding the changes. As an example, suppose the CPI changes for January, February and March were +4%, -2% and +1%, you would calculate the overall change this way: Start with 100 and apply all three of the changes to it: 100 × (1 + 0.04) × (1 - 0.02) × (1 + 0.01) = 100 × (1.04) × (0.98) × (1.01) = 102.94, so the overall change was 2.94%.

c. Who benefits from and who is harmed by the inflation you calculated in part b, and why?

d. Record the unemployment rate for the months that correspond to the four quarters of data you found in part a above. Figure out the average unemployment rate, simply by doing the arithmetic average of the three unemployment rates for the quarter (add them up and divide by 3).

e. Is the US economy expanding or contracting, based on this data?

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