7. Using macroeconomic relations:

a. Okun’s law stated that when output growth is higher than usual, the unemployment rate tends to fall. Explain why usual output growth is positive.

b. In which year, a year where output growth is 2% or a year where output growth is –2%, will the unemployment rate rise more?

c. The Phillips curve is a relation between the change in the inflation rate and the level of the unemployment rate.

Using the Phillips curve, is the unemployment rate zero when the rate of inflation is neither rising nor falling.

d. The Phillips curve is often portrayed a line with a negative slope. In the text, the slope is –0.4. In your opinion, is this a “better” economy if the line has a large slope, say –0.8, or a smaller slope, say –0.2?

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