On January 28 2014 The Federal Reserve Released A Special

On January 28, 2014, the Federal Reserve released a special statement that clarified its goals of “price stability” and “maximum employment.” Specifically, it stated that “the Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate” and that “FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.” Assume this statement implies that the natural rate of unemployment is believed to be 5.6%. Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), real GDP (GDPC1), and real potential gross domestic product (GDPPOT), an estimate of potential GDP. For the price index, adjust the units setting to “Percent Change From Year Ago.” Download the data into a spreadsheet.
a. For the most recent four quarters of data available, calculate the average inflation gap using the 2% target referenced by the Fed. Calculate this value as the average of the inflation gaps over the four quarters.
b. For the most recent four quarters of data available, calculate the average output gap using the GDP measure and the potential GDP estimate. Calculate the gap as the percentage deviation of output from the potential level of output. Calculate the average value over the most recent four quarters of data available.
c. For the most recent 12 months of data available, calculate the average unemployment gap, using 5.6% as the presumed natural rate of unemployment. Based on your answers to parts (a) through (c), does the divine coincidence apply to the current economic situation? Why or why not? What does your answer imply about the sources of shocks that have impacted the current economy? Briefly explain.

Place this order or similar order and get an amazing discount. USE Discount code “GET20” for 20% discount