Diagnosis: Monetary

Okay economic doctors, now that you’re finished in

the classroom, it is time to start your residency, and
apply your knowledge to some real world situations.

Below you will find the economic information from the

imaginary country of Pseudopolis. Your job will be as
follows.
1. Using the data provided, graph the economic
information in the space provided (label your
axes!)
2. Answer the questions underneath each graph
and predict the health of the patient.

Unemployment
Unem-
ployment 3.5 3.2 2.5 2 4.0 4.6 5.9 6.2 6.4 7.0 7.2
Rate
Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

1. How would you describe the general trend of unemployment from 1999 to
2009?

2. In which of the following years do you think GDP is/will be at its lowest:
2001, 2005, 2008? Explain your reasoning.
 Inflation and Deflation
Price 100 101 120 150 145 130 122 100 85 60 57
Level
Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: Think of price level as the average price of all goods and services in an
economy that you would buy on a regular basis.

3. What years experienced the most rapid period of inflation? What years
experienced the most rapid period of deflation? How do you know?

4. Which of the following years is more likely to have had a low GDP: 2007
or 2002? Explain your reasoning.

5. Look at the wide swing of prices throughout the years. Imagine that you
are a business owner trying to buy supplies for your factory/business.
Why would these price swings be bad for your business?
 Gross Domestic Product
GDP 10 12 15 17 18 17.5 16 13 11 8 ?
Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Note: GDP is in billions of dollars.

6. In what year/years was the economy at its healthiest? Least healthy?

How do you know?

7. Look back at your answer to number 2. Were you correct in your

prediction? If so, what evidence gave it away and what helped you
interpret it accurately? If not, what was the source of your error?

8. Using the data from above (prices and unemployment), predict where
GDP might be in the 2009. Explain your reasoning.
 You Make the Diagnosis

Medical records of an economy indicate that prices

have fallen slightly, unemployment is falling, and GDP
has increased by 3% in the past four months (that’s
the highest gain ever). Overall, is this patient:

Healthy Sick
Explain your diagnosis: ________________________
_________________________________________________________________
________________________________________________________________.

You Make the Diagnosis

Medical records of an economy indicate that prices

have fallen slightly, unemployment is falling, and GDP
has increased by 3% in the past four months (that’s
the highest gain ever). Overall, is this patient:

Healthy Sick
Explain your diagnosis: ________________________
_________________________________________________________________
________________________________________________________________.

You Make the Diagnosis

Medical records of an economy indicate that prices

have fallen slightly, unemployment is falling, and GDP
has increased by 3% in the past four months (that’s
the highest gain ever). Overall, is this patient:

Healthy Sick
Explain your diagnosis: ________________________
_________________________________________________________________
________________________________________________________________.