Question

Explain the general relationship between "inflation", "interest rate", and "unemployment". 2-4 sentences, provide a graph showing the last 20 years of employment in New York state (Could use FRED).

Answer 1

Dear Student,

There is certain co-relationship between "inflation", "interest rate", and "unemployment" and it can be described with the help of below demonstration :

• There is an inverse correlation between interest rates and the rate of inflation.
• In the U.S, the Federal Reserve is responsible for implementing the country's monetary policy, including setting the federal funds rate which influences the interest rates banks charge borrowers.
• In general, when interest rates are low, the economy grows and inflation increases.
• Conversely, when interest rates are high, the economy slows and inflation decreases.
• When Inflation and interest rates rise - the rate of unemployment also increase

Inflation and interest rates and unemployment are often linked and frequently referenced in macroeconomics. Inflation refers to the rate at which prices for goods and services rise. In the United States, the interest rate, or the amount charged by a lender to a borrower, is based on the federal funds rate that is determined by the Federal Reserve

Inflation

The annual inflation rate for the United States is 1.5% for the 12 months ended March 2020 as compared to 2.3% previously, according to U.S. Labor Department data published on April 10, 2020.

Interest Rates

In year 2000 interest rate in USA was 6.24%

United States has lowered its interest rates by 1 percentage points, from 1% to an annual rate of 0%. The key rates a tool used by Central Banks to implement monetary policy.
United States has lowered its interest rates.

Type	1980	1985	1990	1995	2000	2001	2002
Federal funds, effective rate	13.35%	8.10%	8.10%	5.83%	6.24%	3.88%	1.67%

Unemployment

Between 2009 and 2010, following the Great Recession, the emerging problem of jobless recoveries resulted in record levels of long-term unemployment with over 6 million workers looking for work for more than 6 months as of January 2010. This particularly affected older workers. A year after the recession ended in June 2009, immigrants gained 656,000 jobs in the US, while U.S.-born workers lost more than a million jobs, due in part to an aging country (relatively more white retirees) and demographic shifts. In April 2010, the official unemployment rate was 9.9%, but the government's broader U-6 unemployment rate was 17.1%. Between February 2008 and February 2010, the number of people working part-time for economic reasons (i.e., would prefer to work full-time) increased by 4 million to 8.8 million, an 83% increase in part-time workers during the two-year period

As of December 2017, the unemployment rate in the U.S. was 4.1% or 6.6 million people. The government's broader U-6 unemployment rate, which includes the part-time underemployed, was 8.1% or 8.2 million people. These figures were calculated with a civilian labor force of approximately 160.6 million people, relative to a U.S. population of approximately 327 million people

* 20 years of employment in New York state

Interpretation

Table 3 shows business cycle turning points and corresponding turning points in nonfarm employment since 1939. For most cyclical peaks since 1939, CES employment peaked within a few months of the business cycle peak. The same is not true of the downturns coinciding with the recession of 1945 and the 1973–75 recession. However, the decline in CES employment led the 1945 recession by 15 months, likely a result of WWII events. In contrast, CES employment lagged behind the 1973 business cycle peak by 8 months.

*Sector Wise Data of Employment

Table 1. Annual average employment, not seasonally adjusted, 1919

Industry	Employment level (in thousands)
Total nonfarm	27,078
Total private	24,402
Goods-producing	12,828
Mining	1,133
Construction	1,036
Manufacturing	10,659
Service-providing	14,250
Private service-providing	11,574
Transportation and public utilities	3,711
Wholesale and retail trade	4,514
Government	2,676
Source: Current Employment Statistics, U.S. Bureau of Labor Statistics.

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