A graphical exercise in macroeconomics	

prices.dat contains consumer price index (CPI) data and employment.dat
contains unemployment data for the US. Use the data to illustrate the
following:

1/  Before the mid-70s it was believed that inflation and unemployment 
had approximately a negative linear relationship (the `Phillips curve') 
that would enable governments to choose an unemployment level according to 
their view of the important of inflation.

2/  Milton Friedman predicted that this tradeoff was a coincidence and 
would disappear if anyone tried to use it.  He was proved spectacularly 
correct.

3/ The current view is that unemployment has a roughly negative linear 
relationship with *change* in inflation.  The unemployment level at which 
inflation is stable is called the `natural' rate or the  
`non-accelerating-inflation-rate of unemployment' (NAIRU). The NAIRU 
should change slowly over time with changes to the structure of the 
economy and is difficult to estimate accurately.



(note: the inflation rate in a given year is defined as the percentage
change in the CPI over that year)