Question

Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), and an estimate of the natural rate of unemployment (NROU). For the price index, adjust the units setting to "Percent Change From Year Ago." For the unemployment rate, adjust the frequency setting to "Quarterly." Select the data from $2000$through the most current data available, download the data, and plot all three variables on the same graph. Using your graph, identify periods of demand-pull or costpush movements in the inflation rate. Briefly explain your reasoning.

Short answer

We can say that the inflation rate has been moving in a demand-pull direction in the last two years as a result of the covid crisis.

The Fed was stimulating demand by injecting more money into the general economy, preventing businesses from going out of business and forcing employees to lose their jobs.

Step-by-step solution

Price index and unemployment rate

The PCEPI (Personal Consumption Expenditure Price Index) is a price index that tracks changes in the pricing of commodities purchased by individuals. It's one of the indicators of inflationary trends.

The unemployment rate is the percentage of the population that could be working but isn't (based on their age and aptitude).

Natural employment rate 

As the name implies, the natural unemployment rate is the level of unemployment that cannot be eradicated without causing extreme inflation.

This rate is a result of the labour market's movement, in which people are constantly quitting employment in search of better ones.

Many people regard the time difference between the old and new jobs to represent the natural unemployment rate.

Goal 

The purpose of this exercise is to draw attention to any possible links between inflation and unemployment rates.

Various monetary policies are used by the government to lower unemployment rates to the lowest possible levels, i.e., as close to the natural unemployment rate as practicable.

Such policies frequently result in an increase in inflation, either through demand-pull (injecting more money into the economy to encourage demand) or cost-push (raising the price of goods) (increasing wages in order to motivate people to search for jobs).

Index rate

We would look for instances where the inflation rate climbed dramatically while the unemployment rate declined in order to identify cost-push or demand-pull swings in the inflation rate.

Such trends may be seen in recent data, where the personal consumption expenditure price index is above $6\%$and the jobless rate is at its lowest level (equal to the natural unemployment rate).

Graph for price rate, unemployment rate and Natrual employment rate

Step 6. Conclusion

From the given data, it appears that from 2001 to 2003, the economy is affected by demand pull inflation. The period of 2007 to mid-2008 shows cosh-push inflation at work. From 2008 to 2013, the economy is experiencing demand-pull inflation. In this period, inflation is lower than 2.5%, while the unemployment rate is well higher than the natural rate.