Draw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?

The following table presents the inflation rate and unemployment rate, both in percent, for the years $1988–2015$.

$$\begin{array}{|c|c|c|c|c|c|} \hline \textbf{Year} & \textbf{Inflation} & \textbf{Unemployment} & \textbf{Year} & \textbf{Inflation} & \textbf{Unemployment}\\ \hline 1988 & 4.4 & 5.5 & 2002 & 2.4 & 5.8\\ \hline 1989 & 4.6 & 5.3 & 2003 & 1.9 & 6.0\\ \hline 1990 & 6.1 & 5.6 & 2004 & 3.3 & 5.5\\ \hline 1991 & 3.1 & 6.8 & 2005 & 3.4 & 5.1\\ \hline 1992 & 2.9 & 7.5 & 2006 & 2.5 & 4.6\\ \hline 1993 & 2.7 & 6.9 & 2007 & 4.1 & 4.6\\ \hline 1994 & 2.7 & 6.1 & 2008 & 0.1 & 5.8\\ \hline 1995 & 2.5 & 5.6 & 2009 & 2.7 & 9.3\\ \hline 1996 & 3.3 & 5.4 & 2010 & 1.5 & 9.6\\ \hline 1997 & 1.7 & 4.9 & 2011 & 3.0& 8.9\\ \hline 1998 & 1.6 & 4.5 & 2012 & 1.7 & 8.1\\ \hline 1999 & 2.7 & 4.2 & 2013 & 1.5 & 7.4\\ \hline 2000 & 3.4 & 4.0 & 2014 & 0.8 & 6.2\\ \hline 2001 & 1.6 & 4.7 & 2015 & 0.7 & 5.3\\ \hline \end{array}$$

We will investigate some methods for predicting unemployment. First, we will try to predict the unemployment rate from the inflation rate

Compute the least-squares line for predicting unemployment from inflation.

Which type of data (cross-sectional or time series) is each variable?

Unemployment rates in each of the $31$ states in Mexico at the end of last year.

Choose the answer that best describes the action or situation.
_______ Something that typically increases during a recession
a. salaries
b. jobs
c. unemployment
d. bank accounts

Suppose a drought destroys farm crops and drives up the price of food. What is the effect on the short-run trade-off between inflation and unemployment ?

Companies practice outsourcing in order to

A reduce unemployment .

B increase trade deficits.

C cut labor costs.

D create more jobs for women.

The following table presents the U.S. unemployment rate for each of the years $1993$ through $2016$.

$$\begin{array}{cccc} \hline \text{Year} & \text{Unemployment} \hspace{25pt} & \text{Year} & \text{Unemployment}\\ \hline 1993 & 6.9 \hspace{25pt} & 2005 & 5.1 \\ 1994 & 6.1 \hspace{25pt} & 2006 & 4.6\\ 1995 & 5.6 \hspace{25pt} & 2007 & 4.6\\ 1996 & 5.4 \hspace{25pt} & 2008 & 5.8\\ 1997 & 4.9 \hspace{25pt} & 2009 & 9.3\\ 1998 & 4.5 \hspace{25pt} & 2010 & 9.6\\ 1999 & 4.2 \hspace{25pt} & 2011 & 8.9\\ 2000 & 4.0 \hspace{25pt} & 2012 & 8.1\\ 2001 & 4.7 \hspace{25pt} & 2013 & 7.4\\ 2002 & 5.8 \hspace{25pt} & 2014 & 6.1\\ 2003 & 6.0 \hspace{25pt} & 2015 & 5.4\\ 2004 & 5.5 \hspace{25pt} & 2016 & 4.9\\ \hline \end{array}$$

$\textbf{a.}\hspace{10pt}$ Construct a time-series plot of the unemployment rate.

$\textbf{b.}\hspace{10pt}$ For which periods of time was the unemployment rate increasing? For which periods was it decreasing?

Draw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?

Assume that a fall in demand for new cars will result in a considerable decline in the need for autoworkers. Describe the effects of unemployment using both Keynesian and classical reasoning.

Many economists believe that some unemployment is necessary because many of the unemployed are between jobs. Write an essay explaining why this might be true.

State True, False or Uncertain for the following and justify in short: Policymakers can only temporarily take advantage of the inflation-unemployment trade-off.

The U.S. Department of Labor collects data on unemployment insurance payments. Suppose that during 2009 a random sample of 70 unemployed people in Alabama received an average weekly benefit of dollar 199.65, whereas a random sample of 65 unemployed people in Mississippi received an average weekly benefit of dollar 187.93. Assume that the population standard deviations of all weekly unemployment benefits in Alabama and Mississippi are $\$ 32.48$ and $\$ 26.15$, respectively.

a. Let $\mu_1$ and $\mu_2$ be the means of all weekly unemployment benefits in Alabama and Mississippi paid during 2009 , respectively. What is the point estimate of $\mu_1-\mu_2$ ?

b. Construct a $96 \%$ confidence interval for $\mu_1-\mu_2$.

c. Using the $4 \%$ significance level, can you conclude that the means of all weekly unemployment benefits in Alabama and Mississippi paid during 2009 are different? Use both approaches to make this test.

Suppose a drought destroys farm crops and drives up the price of food. What is the effect on the short-run trade-off between inflation and unemployment?

Draw the long-run trade-off between inflation and unemployment. Explain how the short-run and long-run trade-offs are related.