Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 13

By the end of this chapter you learned that increases in interest rates reduce aggregate demand. Is this true in practice Let us take a look at how interest rates are related to the growth rate of the U.S. economy. Go to http://research.stlouisfed.org/fred2. Download data for the following two variables: ( a ) Real Gross Domestic Product, Annual percentage changes (click on "Categories," under "National Accounts" select "National Income Product Accounts," then "GDP/GNP." Click on the series "GDPCA," click on "Download series," and select "Percent change from Year Ago."); and ( b ) Bank Prime Loan Rate (under the category "Money, Banking, and Finance" select "Interest Rates," then "Prime Bank Loan Rate," click on and download the series "MPRIME," then transform the monthly observations into annual data using the average function in EXCEL.) Use EXCEL to plot these two series on the same graph. What can you say by examining the graph On average, do the two variables evolve in opposite directions