1. What is meant by the term “seasonally adjusted” data?

Economic time series data such as consumer spending and production contains fluctuations caused by seasonal and cyclical movements. To correct for those fluctuations, statisticians use a seasonally adjusted series, wherein seasonal variations are eliminated. Seasonal movements are defined as those caused by regular annual events. In addition to retail sales associated with Christmas and Easter, as mentioned in the article, other items—such as climate, holidays, vacation periods and cycles related to crops and production—cause related fluctuations. This adjustment to the data makes it possible for analysts to compare data from month to month without the seasonal irregularities.

2. Discuss the dilemma posed to the Fed policy makers why economic growth is slowing and inflation is rising.

If the only item the Federal Reserve policy makers had to deal with was a slowing economy, their monetary strategy decisions would be fairly straight forward. They would want to stimulate the economy with a loose money policy. This would require a lowering of the benchmark federal funds rate. On the other hand, if the only thing they had to worry about was inflation, their monetary strategy would again be fairly straight forward. They would want to engage a tight money policy and increase the short-term interest rates. So, their dilemma when the economy is slowing and prices are rising is evident. Each situation calls for an opposing monetary policy. The Fed will have to weigh the harm caused by inflation and an overheating economy with the harm done to output, employment, and income of a slowing economy. As Mr. Hoffman said in the article, “That’s why they have a tough call to make.” This might be a good chance to discuss the issue of stagflation—the situation in which both unemployment and inflation are rising—and give examples from the 1970s and 1980s.

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