1. Go to the St. Louis Federal Reserve FRED database, and find quarterly data on the Canadian unemployment rate (aged 15 and over) and the quarterly Canadian Consumer Price Index (all items) since 1961:Q1 for both series.

a. For the most recent four quarters of data available, calculate the average inflation gap using the Bank of Canada’s 2% inflation target.

b. For the most recent four quarters of data available, calculate the average unemployment gap, using 5.6% as the presumed natural rate of unemployment.

c. Based on your answers to parts

(a) and (b), does the divine coincidence apply to the current economic situation in Canada? Why or why not? What does your answer imply about the sources of shocks that have affected the current economy? Briefly explain.