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4. Consider the following data: historical Canadian interest rates and unemployment rates. Year Interest rate Unemployment rate 1980 12.75 7.5 1981 17.8 7.6 1982 13.8 11 1983 9.3 11.9 1984 11.1 11.3 1985 9.5 10.5 1986 9 9.5 1987 8.2 8.8 1988 9.4 7.8 1989 12 7.5 1990 12.8 8.1 1991 8.9 10.3 1992 6.5 11.3 1993 4.9 11.5 1994 54 10.3 1995 7 9.5 1996 4.2 9.7 1997 3.3 9.2 1998 4.7 8.3 1999 6.4 7.6 2000 7.5 7.1 2001 4 7.2 2002 3.7 7.7 2003 3.5 7.6 2004 2.5 7.2 2005 3.25 6.8 2006 6.3 2007 4.5 6 2008 3.3 6.1 2009 0.7 8.3 2010 B a) Roughly sketch a time-series graph of the interest rate. [Hint: the bolded numbers are local peaks]. What is the overall trend in interest rates over this period? b) In which year: (i) was interest rate highest? (i) lowest? (ii) increase the most? c) Consider the years from 2001 to 2010. Draw a diagram to show the relationship between the interest rate and the unemployment rate. Describe the relationship. Do you think the interest rate and the unemployment rate could be causally related? d) Discussion Questions: Could you look at the data differently to see if there is a relationship? How? ECON 1011 Principles of Macroeconomics Mount Allison University Assignment 1 Fall 2020 [HI] If the Central Bank (the Bank of Canada) chooses to set the interest rate in response to conditions in the economy, what kind of choices is the Central Bank making? [H2] If the interest rate goes up or down with inflation (that is, the interest rate is positively correlated with inflation), what then is the relationship between inflation and unemployment? How would we distinguish between [HI] and [H2]? Could they both be true