Data on unemployment

Data

1. For January 1977 to July 2021, use the data on unemployment, ináation and interest rates
   to plot these three lines. Unemployment and ináation can be plotted on the same graph, and
   the interest rate will be plotted on a separate graph.
2. Plot the GDP data for January 1977 to July 2021. Please note that the GDP data is quarterly,
   in contrast to the above series, which are monthly.
   For the following two questions, you will need to know that the 2007-09 recession started in
   December 2007 and the most recent recession started in February 2020.
3. For the 2007-09 and the most recent COVID-19 recession, analyze and discuss how the unemployment, ináation and GDP numbers changed in the 12 months before the start of the
   recession, and in the Örst 3 months of the recession. You can use the values at the start of
   every quarter (January, April, July and October).
4. Corresponding to these series for the two most recent recessions, also analyze and discuss how
   the Federal Funds Rate changed, over the periods mentioned above (also use quarterly data
   here).
   2 Analyzing the Crisis and its Aftermath
   Readings: Read the speech by Chair Jerome Powell, as well as the Brookings article posted online.
5. According to Chair Powellís speech, how was the U.S. economy doing before the start of the
   COVID-19 recession? Do these correspond to your Öndings on ináation from the data section
   above? (approximately 200 words)
6. In your view, how was the U.S. economy doing before the recessions started in 2007? Do you
   think it was better or worse o§ than in the period before the COVID-19 recession began. You
   can refer to the data that you have plotted in the above section. (approximately 150 words)
   1
7. Suppose the economy was at equilibrium before the start of the recession. Show this using the
   IS-LM, Keynesian cross, AD-SRAS-LRAS and money market spaces. Explain your answers
   along with the graphs.
8. a. Following the start of the recession, what happened to aggregate demand and output?
   Show this shift in AD and IS curves. What should have happened to unemployment? Explain
   your answers.
   b. Does the GDP and unemployment data you have plotted above correspond with what you
   predict in part (a)? Discuss brieáy for both the recessions?
9. If the Federal Reserve and government had not intervened, explain how the economy would
   have adjusted back to the long-run equilibrium.
10. How could monetary policy have ensured a faster return to the long-run equilibrium? Use
    the money market and LM curves to show this.
11. The Federal Reserve has taken several measures to deal with the COVID-19 crisis. Using the
    Brookings article, discuss and explain three policy measures undertaken. (Approximately 300
    words)

Sample Solution