Suppose Okuns law can be expressed according to the following formula: Assuming that potential output grows at
Question:
Suppose Okun’s law can be expressed according to the following formula:
Assuming that potential output grows at a steady rate of 2.5% and that the natural rate of unemployment remains unchanged,
a) Calculate by how much unemployment increases when real GDP decreases by one percentage point.
b) Calculate by how much real GDP increases when unemployment decreases by two percentage points.
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ANSWER Okuns Law relates changes in the unemployment rate U to changes in the output gap Y YP where ...View the full answer
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