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### Okun’s Law of Data Analysis

Data Exercise 1 Okun’s Law

**This exercise is designed to assess your ability to manipulate and analyze data in accordance with Course Competency: Locate, analyze, and interpret macroeconomic data.**

**Instructions:**

- Put all of your work in one file;
- Write your name in the header;
- We need to see your work in Excel (i.e., formulas). Do not copy and paste numbers from your original worksheet to a new worksheet. When submitting, make sure that the cells in your worksheet show formulas.
- After you finish the assignment, name your file
*LastnameDE1.xls*(or .*xlsx,*depending on the version of Excel). Note that you do not have to write the .*xls*suffix by yourself – Excel will do it automatically, and - Upload it to the Data Exercise Section of the Blackboard.

**Background:**

One of the most regular relationships in macroeconomic data is the relationship between the unemployment rate and the growth rate of real GDP. Specifically, the relationship is between the percentage-point change in the unemployment rate from one year to the next and the growth rate of real GDP:

“Percentage Change in Real GDP = α – ß(“Percentage – point Change in Unemployment Rate”)

*Okun’s Law*

**Assignment:**

You are hired as a business consultant to a Senator. She heard the association between the unemployment rate and economic growth, and asks you to estimate the relationship so that she could propose a policy to lower the unemployment rate.

- Find the appropriate tables from the most recent Economic Report of the President (https://www.whitehouse.gov/sites/default/files/docs/2017_economic_report_of_president.pdf
- ) and graph the relationship of the two variables.

- To obtain data for this exercise, click “List of Statistical Tables” under the most recent Report, and download relevant tables.
- You need two tables (real gross domestic product and civilian unemployment rate) for this exercise. After downloading the two Excel files, combine them into one file. To combine two files into one, use “Home-Format (Cells)-Move or Copy Sheet” and move one sheet to the other “book.”
- You would need only two series (Gross Domestic Product and Unemployment Rate of All Civilian Workers). You may want to delete all unnecessary columns and sheets to simplify your worksheet.
- You only need annual data. At the bottom of each table, most recent data are given quarterly (GDP) and monthly (unemployment rate). You may want to delete unnecessary rows to simplify your worksheet.
- In your graph, put the percentage-point change in unemployment rate on the horizontal axis and the GDP growth rate on the vertical axis.
- Use “Scatter Plot” to plot the two series on a graph, taking the change in the unemployment rate on the horizontal (X) axis and the growth rate in real GDP on the vertical (Y) axis.
- Insert the linear trend line. To insert the trend line, put your cursor on one marker on your scatter plot, right-click the mouse, and choose “Add Trend Line” from the menu. When “Trend Line Option” menu appears, choose “Display Equation on Chart.”
- Note that Excel gives you the relationship in the
**format**. (insert your equation)

**Given the relationship you estimated, how much should real GDP grow to reduce the unemployment rate by 2 percentage points?**

- For your reference, an example of the graph is provided below (parameter values in the equation are hidden). If done correctly, your graph should look like the one below.
**If it doesn’t, then re-do it. Be careful your data represents exactly what change is asked for!!**

*Okun’s Law*

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