# 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 thaty=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 4% to 8%?(c) What change in the unemployment rate corresponds to a year when production is the same as the year before?Enter the exact answer as a positive value. (d) What is the meaning of the coefficient -2 in Okun's law?

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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 4% to 8%?

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

Enter the exact answer as a positive value.

(d) What is the meaning of the coefficient -2 in Okun's law?

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Step 1

a) If we plug u=0 in y=3.5-2u then we get y=3.5 .

u=0 means no change in the unemployment rate.

So 3.5% is the rate of growth of US national production assuming no change in the unemployment rate.

Step 2

b) If unemployment rises from 4% to 8%, then u = 8 − 4 = 4.

Plug u=4 in the given equation and find y.

Hence, y =3.5 − 2(4) = 3.5 − 8 = −4.5, so US national production should decrease by 4.5%.

Step 3

c) If production is the same as in the previous year then there is no change in annual US ...

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