112 Assignment Solution: The State of the Macro Economy

This is a fairly easy question at one level, but a more challenging question at a higher level. All three indicators show improvement to very good levels over the five year period, so the economy is doing very well, too well in fact. Unemployment is likely below the natural rate (5 – 6%) and GDP growth is well above average long run growth rate of about 3% per year. This is unlikely to continue. A good prediction is that the economy will worsen soon. In fact, the data reflect the late 1990s, leading up to the 2001 recession. If something can’t continue the way it is going, it won’t.