Let y be the percent increase in annual US national production during a year when the unemployment rate changes by u percent. (For example, u = 2 if unemployment increases from 4% to 6%.) Okun’s law states that

y = 3.5 − 2u.

(a) What is the meaning of the number 3.5 in Okun’s law?

(b) What is the effect on national production of a year when unemployment rises from 5% to 8%?

(c) What change in the unemployment rate corresponds to a year when production is the same as the year before?

(d) What is the meaning of the coefficient −2 in Okun’s law?