## paper instructions

Question 1

• The data used for this study are from Egypt. Egypt is a country North of Africa and is described as a fast-developing country. The data used for this study are; inflation rates, unemployment rates and the real GDP of the country in local currency.
• Inflation rate is described as the fall in purchasing power of a given currency over time. Inflation happens in such a way that the prices of commodities averagely rise faster hence one ends up purchasing lesser goods with the same amount of money.
• Unemployment rate on the other hand is the percentage of labor that is not being utilized despite having the potential of contributing to the productivity of the country. Unemployment rate is an indication of how the country is doing hence is a measure of economic growth
• Real GDP is the value of the goods and services produced within the borders of a country after the inflation rates have been adjusted. This value is computed annually and is a measure of how the economy is performing.

Question 2

The source of these data are from the World Bank Statistics as shown in the links provided below:

One assumption that was used in the data was the fixed exchange rate between the USD and the Egypt Pound at 1USD = 15.69 Egypt Pound.

The table provided is of Egypt’s inflation rates, unemployment rates and real GDP from the years 1998 until 2008 as show below:

Question 3

Estimation of a and b coefficients given the formula

As opposed to the normal Phillip’s curve, the Y represents the real output.

Π is the rate of unemployment

a and b are coefficients are as given in the excel

As computed using the linest function and that the coefficient b should be in absolute value,

a = 0.00002 whereas b = 0.1714

Question 4

Rearranging the Phillips curve to bring out the relationship between inflation rates and unemployment. The difference will tend to find the cyclical rate of unemployment.

This question looks at the relationship between inflation rates and unemployment where the size of the data is derived from both the rates.

The R squared is 79.5%, which means the regression analysis has comprised of 79.5% of the data.

Question 5

Okun’s law talks about the relationship between GDP and the unemployment rate. As the equation suggests, an analysis will help find the unknown coefficients. Real GDP requires us to adjust for inflation.

The growth rate of the Real GDP is seen to be 6.68%

Question 6

This question requires us to rearrange the Okun’s model to the standard equation of the normal growth rate. The equation is as follows;

It thus means we have to find the values of the coefficients as well as R squared.

Ut -Ut-1 = -βgyt + βg

The Ut is the current rate of unemployment whereas Ut-1 is the previous rate of unemployment

The β is the coefficient of nominal growth rate

gyt is the nominal GDP growth rate for the year

R2 is 34.87% which means that, the regression analysis only accounts for 34.87 percent of the whole data.

Disclaimer

The Excel data used is given below.

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