1. a) Use the annual data in the Excel file (see below) to compute economic growth and inflation for each year.  As we have discussed in class, percentage change in real GDP is defined as economic growth.  We will use the Consumer Price Index [CPI] as our index for measuring inflation (which is percentage changes in the CPI).

b) Calculate the average economic growth rate and subtract it from the economic growth numbers. (Hint: the average economic growth rate for this time series should be around 3.4%).  Plot the deviations of economic growth from its average and inflation in the same chart.

c) Is there any relationship between the two series? I would like you to analyze the relationship, specifically addressing the economic backdrop, and data, in describing the behavior of the specific data points. (For instance, the oil crisis in the late 1970’s are shown in this graph, in having an impact on….?; During the early 1980’s the U.S. was running a huge budget deficit, this relates in looking at the data…).  Carefully explain any trends that you see in this graph.
 

2. a) Compute the annual percentage changes in productivity (defined as: Private Business Sector: Output per Hour).
Plot the percentage changes in productivity against inflation.

b). Please discuss in the similar fashion as described in part ( 1. c) above.