Consider the data in the Focus Box, "Deflation in the Great Depression."

a. Calculate real interest rates in each year making the assumption that the expected level of inflation is last year's rate of inflation. The rate of inflation in 1928 was \(-1.7 \%\). Do the changes in real interest rates explain the data on real output growth and unemployment better than when you make the assumption the expected rate of inflation is the current year's rate of inflation?

b. Calculate the Okun's law coefficient for each year from 1930 to 1933. To do so, assume potential output is not growing. Speculate on why firms did not take on additional workers in 1933 even though output growth was 9. 1\%.  If potential output is not growing, Okun's law is \(u-u(-1)=-\alpha g_{Y}\).