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Business Economics Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

(A) To Explain: The sign of u - u(-1) in a recession and recovery. The relationship between the output growth and the unemployment rate is called the Okun's Law.The change in the unemployment is equal to the negative growth rate of the output. At the time of recession, when the unemployment rate is more than the previous year, it leads to the output less than optimal level. So, the sign of u-u(-1) is positive whereas at the time of recovery, unemployment rate is less than the previous period. This leads to the sign of u-u(-1) negative. (B) To Explain: The term 3% in the Okun's Law formula. Employment rate must grow at the same rate as labor force to make the constant unemployment rate. Let suppose that the labor force grows at 1.7% per year, the employment rate must grow at 1.7% per year. Also, the output per worker grows at 1.3% per year. Therefore, the output grows at 1.7% + 1.3% = 3% per year. To maintain the constant unemployment rate,output growth is equal to sum of labor force and labor productivity. This 3% is called the normal growth rate. (C) To Explain: The reason ofcoefficient on the term (g y - 3%) is -0.4 and not -1. The coefficient on the right side of equation u-u (-1) =-0.4 (gY-3%) is -0.4 as compared to -1.0 This is because output growth rate above 1% leads to the reduction in unemployment rate by 0.4%. When there is an increase in employment rate, the unemployment rate will eventually decrease. Therefore, when there is increase in employment rate by 0.6% it leads to decrease in unemployment rate by 0.4% which is lesser comparatively. (D) To Explain: Change in the Okun's Law when there is a sharp increase in the number of immigrants per year in the United States When the number of immigrants per year allowed in the U.S sharply increases, the firms needs workers irrespective of the output level. As the training of new employees is costly, the firm decides to keep the current workers and ask them to work overtime rather than hiring new employees. In bad times, firms hoard labor. The hoard labor is defined as the labor firms need when times are better. There will be decrease in the unemployment level when output growth will be above normal level and there will be increase in unemployment level when output level will be below normal level.

(A) To Explain: The sign of u - u(-1) in a recession and recovery. The relationship between the output growth and the unemployment rate is called the Okun's Law.The change in the unemployment is equal to the negative growth rate of the output. At the time of recession, when the unemployment rate is more than the previous year, it leads to the output less than optimal level. So, the sign of u-u(-1) is positive whereas at the time of recovery, unemployment rate is less than the previous period. This leads to the sign of u-u(-1) negative. (B) To Explain: The term 3% in the Okun's Law formula. Employment rate must grow at the same rate as labor force to make the constant unemployment rate. Let suppose that the labor force grows at 1.7% per year, the employment rate must grow at 1.7% per year. Also, the output per worker grows at 1.3% per year. Therefore, the output grows at 1.7% + 1.3% = 3% per year. To maintain the constant unemployment rate,output growth is equal to sum of labor force and labor productivity. This 3% is called the normal growth rate. (C) To Explain: The reason ofcoefficient on the term (g y - 3%) is -0.4 and not -1. The coefficient on the right side of equation u-u (-1) =-0.4 (gY-3%) is -0.4 as compared to -1.0 This is because output growth rate above 1% leads to the reduction in unemployment rate by 0.4%. When there is an increase in employment rate, the unemployment rate will eventually decrease. Therefore, when there is increase in employment rate by 0.6% it leads to decrease in unemployment rate by 0.4% which is lesser comparatively. (D) To Explain: Change in the Okun's Law when there is a sharp increase in the number of immigrants per year in the United States When the number of immigrants per year allowed in the U.S sharply increases, the firms needs workers irrespective of the output level. As the training of new employees is costly, the firm decides to keep the current workers and ask them to work overtime rather than hiring new employees. In bad times, firms hoard labor. The hoard labor is defined as the labor firms need when times are better. There will be decrease in the unemployment level when output growth will be above normal level and there will be increase in unemployment level when output level will be below normal level.

Solution Summary: The author explains the Okun's Law relationship between the output growth and the unemployment rate.

Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

7th Edition

ISBN: 9780134472669

Author: Blanchard

Publisher: PEARSON

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Suppose a market basket of goods and services costs $400 in the base 'year and the consumer price index (CPI) is currently 125. This indicates the price of the market basket of goods is now: $275. $425. $500. $525. Which of the following will most likely occur during the recessionary phase of a business cycle? O Real GDP nises, and the unemployment rate falls O Real GDP declines, and the rate of inflation nises O The sales of most businesses decline, and the unemployment rate nses Inflation rises, and employment population ratio falls

An expansion ends when the economy O has grown for two quarters in a row. O hits a trough and then enters a recession. O begins to grow following a peak. hits a peak and then enters a recession.

During a recession: potential GDP declines potential GDP increases real GDP declines O real GDP increases

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Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)

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