Question: Suppose potential output grows 2 percent per year and the natural rate of unemployment is constant at 6 percent. In 2020, the unemployment rate is

Suppose potential output grows 2 percent per year and the natural rate of unemployment is constant at 6 percent. In 2020, the unemployment rate is 7 percent.
a. Assuming Okun’s law, what is the output gap in 2020?
b. If output grows 5 percent from 2020 to 2021, what is the unemployment rate in 2021?

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a Okuns law is represented by the following equation Y YY 2U U The output gap is c... View full answer

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