Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134424026
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 15, Problem 4.1P
Sub part (a):
To determine
Sub part (b):
To determine
Unemployment rate and the annual GDP growth rate based on the Okun’s law.
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Chapter 15 Solutions
Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
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- Using the information below, answer questions 1 & 2 Okun’s Law, which describes the relationship between Real GDP growth and the change in the unemployment rate and may be approximated as follows: Real GDP Growth = 3 – 2*Change in unemployment rate This relationship applies to changes from year to year. The average unemployment rate in the 12 months of 2019 was 3.7%. The average unemployment rate during the 12 months of 2020 was 5.9%. 1. What does Okun’s Law imply will be the rate of Real GDP growth between 2019 and 2020? Explain your answer. 2. How does this prediction compare to the actual rate of Real GDP growth between 2019 and 2020?arrow_forwardAssuming the equilibrium unemployment rate is 5%, if actual output falls to 5 percentage points below potential output, how would you expect the unemployment rate to change? (Hint: Use Okun’s rule of thumb.)arrow_forwardWhy is the unemployment rate never zero, even at full employment? The unemployment rate is never zero, even at full employment, because _______. A. there are always new workers entering the labor market to search for work, workers leaving one job to search for another job, and workers who have been laid off and are searching for another job B. there are always people without jobs because of family responsibilities such as caring for children or elderly parents C. people make lifestyle choices such as early retirement, gap years, and movements from high-stress to low-stress jobs D. cyclical unemployment is always present in the economyarrow_forward
- In 1929 the US had an unemployment rate of approximately 3.2%, or 1.6 million people unemployed, yet most economists suggest we were at full employment. What do economists mean by "full employment"?arrow_forwardThe version of Okun's law discussed in class implies that with no change in unemployment, real GDP growth is 3 percent. If the unemployment rate rose by 2 percentage points, Okun's law predicts that real GDP would: a. decreased by 4 percent b. decrease by 2 percent c. increase by 1 percent d. decrease by 1 percentarrow_forwardUsing Okun’s law, fill in the four pieces of missing data in the table below. All of the following data are hypothetical. Year Real GDP Potential GDP Natural Unemployment Rate (%) Actual Unemployment Rate (%) 2012 13,248 14,400 4 (a) 2013 14,500 (b) 4.5 4.5 2014 (c) 14,800 4 5 2015 15,049 14,900 (d) 4 Instruction: Enter your responses as whole numbers. a. Actual unemployment rate in 2012: %b. Potential GDP in 2013: $ c. Real GDP in 2014: $arrow_forward
- You might as well say that the unemployment rate would be zero if everyone just quit looking for work. Explain what the author means by this.arrow_forwardDuring the initial months of the COVID pandemic, the number of unemployed people in the State of Illinois peaked at 1,108,211 in April 2020. By December 2021, the number of unemployed in Illinois had dropped down to 324,510 people. What is the overall percent decrease in the number of unemployed people in Illinois from April 2020 to December 2021? Please round your answer the nearest percent. Show your work.arrow_forwardThe U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?arrow_forward
- According to the most recent survey conducted by Statistics Bureau of Metropolis, currently there are 14 million people between the age of 15 and 64 living in the city. If the labour force participation rate in Metropolis is 65 percent and 8.5 million people currently have jobs, what is the rate of unemployment? Options: A) 3.7% B) 7.8% C) 6.6% D) 11.4% E) 12.9% Show all working out and full explanations.arrow_forwardUsing the details listed below, respond to questions 1 and 2. Okun's Law, which outlines the connection between changes in the unemployment rate and real GDP growth, can be roughly summarised as follows: Real GDP Growth is equal to 3 - 2*changes in the unemployment rate. This relationship holds true for seasonal variations. In 2019 as a whole, the unemployment rate was 3.7% on average. In 2020, the average unemployment rate for the full year was 5.9%. 1. What is the rate of real GDP growth between 2019 and 2020 predicted by Okun's Law? Describe your response. 2. How does this forecast compare to the Real GDP growth rate that actually occurred between 2019 and 2020?arrow_forwardIn June 2020, the California unemployment rate reached 14.9% and in August it dropped to 11.4% which drove many economists to express skepticism and said the drop was misleading. Explain the possibility of the method used to calculate unemployment leading to a decrease in the unemployment rate in the last few months. Provide an example of the people who aren't included in the labor force potentially causing the rate to decrease.arrow_forward
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