a) What is Okun's law? Suppose the unemployment rate is 5% and actual output is 1% below potential output. Assuming Okun's law holds with "Beta" = 2, what will be the rate of frictional plus structural unemployment? Explain briefly the relationship between output gap and unemployment.

a) What is Okun's law? Suppose the unemployment rate is 5% and actual output is 1% below potential output. Assuming Okun's law holds with "Beta" = 2, what will be the rate of frictional plus structural unemployment? Explain briefly the relationship between output gap and unemployment.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

a) What is Okun's law? Suppose the unemployment rate is 5% and actual output is 1%
below potential output. Assuming Okun's law holds with "Beta" = 2, what will be
the rate of frictional plus structural unemployment? Explain briefly the relationship
between output gap and unemployment.
Okun's law:
100*(-=-B(u-u*)

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