Go to the St. Louis Federal Reserve FRED database, and find data on the unemployment rate (UNRATE) and a measure of the price level, the personal consumption expenditure price index (PCECTPI). For both series, choose the frequency as “quarterly,” and for the price index series, choose the units as “Percent Change From Year Ago.” Download both series onto a spreadsheet.

a) Create a scatter plot of the quarterly unemployment and inflation data, from 2000 to the most recent available data. Identify the point that represents the most recent data on inflation and unemployment. Do the data support a Phillips curve–like inverse relationship between inflation and unemployment?

b) (Advanced) Using the unemployment and inflation data above, create a fitted (or regression) line of the data on the scatter plot, using the unemployment rate as the independent variable. (Excel has scatter plot layouts that you can use to do this automatically, or you can use Data Analysis with the ToolPak for Excel.) Report the equation for the fitted line.

i. Based on the fitted line, how much would inflation have to change, on average, in order to lower the unemployment rate by one percentage point? What would be the most recent readings of inflation and the unemployment rate if that happened?

ii. How much predictive power does your estimated Phillips curve have? Why might the Friedman-Phelps or modern Phillips curves perform better? Briefly explain.