Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 9, Problem 8E
a)
To determine
b)
To determine
The short-run level of output according to the Okun’s law.
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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?
Suppose that the current GDP is 6% higher than its potential. What is the effect of this situation on the rate of unemployment as compared to its natural rate? If the natural rate of unemployment is 6%, what is the total unemployment rate as well as the cyclical unemployment? Show your work
According to Okun’s Law, how much must U.S. real GDP grow in 1 year in order for the U.S. unemployment rate to decline by 1.5 percentage points in 1 year? According to Okun’s Law, how much must U.S. real GDP grow in 1 year in order for the U.S. unemployment rate to decline by 1.5 percentage points in 1 year? 6% 7% 5% 4%
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- The 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 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_forwardQUESTION 9 Is it possible for the unemployment rate to go down while the number of unemployed workers increases? Yes, if the labor force participation rate increases sufficiently Yes, if the working age population grows sufficiently No since unemployment is always bad for the economy Yes, if discouraged workers reenter the labor force to fill job openings in sufficient numbers No, any increase in the number of unemployed will result in an increase in the unemployment rate Yes, if the labor force participation rate decreases sufficientlyarrow_forward
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