Using data from the St. Louis Federal Reserve
(FRED) (http://research.stlouisfed.org/fred2/),
analyze the natural rate of unemployment.
a. Download quarterly data on the natural rate
of unemployment (NROU) from 1950 to the
present. Chart the data series in a graph.
b. The U-3 unemployment rate rose from 4.8%
during the fourth quarter of 2007 when then
2007-2009 recession began, to 9.5% during
the second quarter of 2009, when the recession
ended. How much of this increase can
you attribute to increases in the natural rate of
unemployment?
c. Given your answer to part (b), should the
government focus on policies to reduce
cyclical unemployment or the natural rate of
unemployment? Briefly explain.