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To find current data for inflation and unemployment, please visit the Bureau of Labor Statistics web page at ( www.bls.gov ). On the right side of the home page is a column with Latest Numbers.

a. Click on the chart icon next to Unemployment Rate. What is the current rate of unemployment? How has the unemployment rate changed since 2008?

b. Going back to the home page, click on the chart icon next to Consumer Price Index. What is the current rate of inflation as measured by the CPI? What have been the trends in inflation since 2008?

c. Going back to the home page, click on Subjects and the Consumer Price Index. Then click on CPI Overview and answer the following questions:

i. What are the major groups (categories) of consumer expenditures that are included in the CPI?

ii. What prices are included in the CPI?

iii. What are three ways in which the CPI is used?

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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In this discussion question, you will determine the stage of the business cycle that best describes where the US economy stands, using GDP growth, unemployment and inflation as metrics. Go back to the websites for the Bureau of Economic Analysis (www.bea.gov) and the Bureau of Labor Statistics (www.bls.gov) to find current data on GDP growth (last full year), unemployment, and inflation as measured by CPI and GDP deflator. Are they higher or lower than in the year 1998? What circumstances or trends do you think contribute to the difference? What stage of the business cycle are we in now? What stage of the business cycle were we in in the 1998?

In 1998 the annual unemployment rate was 4.5%, the real GDP was 4.4%, and the inflation rate for the year was 1.6%.

n this discussion question, you will determine the stage of the business cycle that best describes where the US economy stands, using GDP growth, unemployment and inflation as metrics. Go back to the websites for the Bureau of Economic Analysis (www.bea.gov) and the Bureau of Labor Statistics (www.bls.gov) to find current data on GDP growth (last full year), unemployment, and inflation as measured by CPI and GDP deflator. Are they higher or lower than in the year 1998? What circumstances or trends do you think contribute to the difference? What stage of the business cycle are we in now? What stage of the business cycle were we in 1998?

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1. You’ve learned about money, its connection to inflation, money supply and the monetary multiplier, banking and money creation. Try to apply your understanding of these concepts in analyzing our current situation: During the crisis and until now, the Fed bought a lot of securities from banks and other financial institutions. This made some people fear that the Fed’s actions would spark inflation. Yet, inflation hasn’t really shown up in our economy (and the Fed has been doing this for five years now). Explain why, by answering the following questions:

a. Discuss briefly the connection between money supply and inflation.

b. When the Fed buys securities in the open market, what happens to banks’ reserves? What tends to happen to money supply, as a consequence? Explain briefly your answer to the last question. Let’s now look at the facts (data). FRED (Links to an external site.)is a good source of economic data, especially about money. Click on the “popular series” tab in the FRED homepage.

c. Look at the “CPI for all urban consumers” series first. Remember that inflation is the rate of increase in CPI. Eyeballing the graph, would you say that the CPI accelerated since 2008 or not?

d. Next, look at the “M2 money stock” series (make sure that you’re still in the “popular series” page). Has M2 increased faster since 2008?

e. Let’s try to understand why M2 is showing the pattern that it is. What might be the explanation for it? To see facts about the answer, type “excess reserves of depository institutions” in the FRED searchbox, and briefly discuss the pattern you see for this series, starting around 2008.

f. Look at the “Velocity of M2” series. What happened to it since 2008? Does this pattern support the idea that inflation should rise, or not? Explain briefly. [If you forgot what “velocity of money” means, please review the “Chapter 17 Highlights” and focus on the Equation of Exchange.

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