EBK ECONOMICS
5th Edition
ISBN: 8220106907184
Author: KRUGMAN
Publisher: YUZU
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Question
Chapter 31, Problem 7P
To determine
Concept Introduction:
Okun’s Law: This law states that rate of unemployment and the output gap is inversely related to each other. When output gap increases by one percent unemployment rate decreases by half percent.
The relation established by Okun’s law is:
Here,
- Unis the unemployment rate.
- b is the intercept.
- m is the slope.
Natural Rate of Unemployment: It is a rate of unemployment when the real rate of output is equal to the potential output in the economy. At such point ,economy does not have recessionary gap or inflationary gap.
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