In Section 5.1 of this chapter we stated that changes in potential GDp do not depend on the price level, or in other words, "potential GDp is exogenous with respect to the price level." the goal of this exercise is to give you a chance to convince yourself that this is the case. a. For data, go to http://fred.stlouisfed.org

Type "GDPPOT", then search for potential real GDP

Type "GDPDEF", then search for GDP implicit price deflator You will need to take the average of the four quarters of each year to get the annual average. (Hint: Use the average command in excel.)

b. Calculate the annual growth rate of potential rGDp and the annual inflation rate from the GDp deflator. Make a scatterplot that has the growth rate of potential GDp on the Y axis and the annual inflation rate in the GDp deflator on the X axis. Can you visually identify any relationship between the two variables?