Case Scenario:
You are hired as a business consultant to a Senator. She heard the association between the unemployment rate and economic growth, and asks you to estimate the relationship so that she could propose a policy to lower the unemployment rate.
Question: Given the relationship you estimated and the most recent GDP growth rate (most recently announced by the Bureau of Economic Analysis), how many years would it take to reduce the unemployment rate by 3 percentage points, assuming that the current GDP growth rate will continue into the future?
Background Information:
One of the most regular relationships in macroeconomic data is the relationship between the unemployment rate and the growth rate of real GDP. Specifically, the relationship is between the percentage-point change in the unemployment rate from one year to the next and the growth rate of real GDP:
Percentage change in Real GDp = ?-? (Percentage-point change in unemployment rate)
[Find the appropriate tables from the most recent Economic Report of the President
(https://www.gpoaccess.gov/eop/) and graph the relationship of the two variables.]
Steps:
1. To obtain data for this exercise, click list of statistical table under the most recent report and download.
2. After downloading real gross domestic product and civilian unemployment rate tables for this exercise, combine them into one file, and use only annual data.
3. In your graph, put the percentage-point change in unemployment rate on the horizontal axis and the GDP growth rate on the vertical axis, using Scatter Plot to plot the two series on a graph, and inserting the linear trend line (note that Excel gives you the relationship in the y= -?x + ? format).