Intermediate Macroeconomics – Inflation, CPI, PCEPI, GDP, and Rates

Section #1 – Getting Familiar with the Macroeconomy

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1.      These practice problems will get your hands dirty with macroeconomic data from the Federal Reserve Economic Data (FRED) website hosted by the St. Louis Federal Reserve Branch.  For example: the rate of inflation during the year 2000 is as follows:

2000-01-01  169.3002000-02-01  170.0002000-03-01  171.0002000-04-01  170.9002000-05-01  171.2002000-06-01  172.2002000-07-01  172.7002000-08-01  172.7002000-09-01  173.6002000-10-01  173.9002000-11-01  174.2002000-12-01  174.6002001-01-01  175.600

Inflation is defined as the percent change in the price index. In this case, over a twelve month period.

For the year 2000, the inflation rate is thus:

=

a)      (5 points)Go to FRED and search for CPIAUCSL, the Consumer Price Index for All Urban Consumers: All Items.  Click ‘download data’ or ‘view data’ on the left-hand side. Calculate the rate of inflation over the most previous 12 months rounding to two decimal places. Please show all work below:
πCPI =

1. (5 points)Now go to FRED and search for PCEPI. This is the price index that receives the most attention from the Federal Reserve in terms of fulfilling the nominal part of their dual mandate.  Calculate the most recent rate of inflation (12 months) using PCEPI to the nearest two decimal places and compare to the Fed’s implicit target of inflation = 2%.  Is inflation too high, too low, or just right (circle your answer)?

πPCE =

Too high                     Too low                  Just right

1. Using FRED again, search for GDPC1.

1. (5 points)Calculate the percent change in real GDP over the most recent 4 quarter period rounding to two decimal places. This is called the growth rate. Again, please show all work.

%∆RGDP =

Now compare to the potential growth rate as estimated by the Congressional Budget Office (use GDPPOT).

1. (5 points) Again, show your calculations. Is real GDP currently growing too slow, too fast, or just right relative to potential (circle your answer)?

%∆Potential RGDP =

Too slow                     Too fast                  Just right

1. Using FRED, search for UNRATE and compare the actual unemployment rate to the natural rate of unemployment as measured by NROUST.

1. (5 points)Is the current unemployment rate higher, lower, or just right than the natural rate of unemployment? Please use the actual numbers from FRED to answer this question.

Current unemployment rate =

Natural rate of unemployment =

Higher                        Lower                     Just right

1. (10 points) During this lesson we talked about how the economy can be viewed as a cruise ship with ‘policy wheels’. What two types of policy are represented as the wheels of the cruise ship? What lags are associated with each type of policy? Please explain in full.

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