Examine the U.S. unemployment rate.

Questions

1. Describe the general pattern of the U.S. unemployment rate. When was the level the highest? The lowest?
2. What explanations can you give for falling unemployment between late 1992 and 2000?
3. Experiment with changing the years to observe unemployment rates over a longer period of time, try 1950 to 2002. What explains the cyclical pattern? Is the level of unemployment a leading, lagging or coincident indicator?

Solutions

1. Unemployment peaked in early 1992. It was the lowest in late 2000.
2. The decline in unemployment was driven in large part by changes in GDP. The recession in the early 1990s led to a reduction in net exports while lower U.S. incomes led to a reduction in imports. As the economy recovered, unemployment rates declined as did the level of net exports because higher domestic incomes lead to higher demand for imports.
3. Cyclical unemployment is the product of economic recession and expansion. The level of unemployment is a leading indicator.