Suppose that Okun’s law in Exercise 11.1 is the quadratic equation U = 1.4 − 0.6Y + 0.02Y².

a. What is the change in the unemployment rate when real GDP is constant?

b. What is the slope of the line at Y = 0?

c. Does the slope of the line increase or decrease as Y increases?

Exercise 11.1

Okun’s law says that changes in the unemployment rate are related to the percentage change in output. Suppose that this relationship is described by the equation U = 1.3 − 0.4Y, where U is the change in the unemployment rate and Y is the percentage change in real GDP.

a. What is the change in the unemployment rate when real GDP is constant?

b. How much does the unemployment rate increase when there is a 1 percent increase in real GDP?