b. As the accompanying diagram shows, the rate of growth of real GDP has picked up in Japan since 2001. Explain the likely effect of this increase in GDP growth on the unemployment rate. Is the likely cause of the change in the unemployment rate during this period a change in the natural rate of unemployment or a change in the cyclical unemployment rate?

2001 2002 2003 2004 2005 2006 2007 Source: OECD.

3%

2 1

0 Real GDP growth rate Year 0.2% 0.3%

1.4%

2.7%

1.9%

2.2%

1.8%

Labor force Unemployed

(thousands) (thousands)

Region March 2007 March 2008 March 2007 March 2008 Northeast 27,863.5 28,035.6 1,197.8 1,350.3 South 54,203.8 54,873.9 2,300.9 2,573.8 Midwest 34,824.3 35,048.6 1,718.2 1,870.8 West 35,231.8 35,903.3 1,588.0 1,914.4 Summary 155 Section 3 Summary Inflation rate Average inflation Country in 2000 rate, 2000–2007 Brazil 7.1% 7.3%

China 0.3 1.6 France 1.7 1.8 Indonesia 3.8 8.8 Japan −0.7 −0.3 Turkey 56.4 27.8 United States 3.4 2.8 Zimbabwe 55.7 904.1 Source: IMF.