Okun's law gives the (empirically observed) correspondence betvieen a change in the unemployment rate and a change in the gross domestic product. Let g be the percentage change in the gross domestic product over a year, and let u be the change, in percentage points, of the unemployment rate over that year. One form of Okun's law states that 9- 3 - 2u. For example, if the unemployment rate is unchanged over a year, then u = 0 and g = 3- 2 x o= 3, so the gross domestic product changes by 3%. (a) Suppose that in a year, the unemployment rate rises from 4% to 7% (s0 u = 3 percentage points). According to Okun's lavw, vwhat is the percentage change in the gross domestic product? % (b) From 2013 to 2014, the unemployment rate fell from 7.4% to 6.2%. What does Okun's law give for the percentage change in the gross domestic product? (Note: In this case, u is a negative number.) (c) According to Okun's law, what change in the unemployment rate vould correspond to having no change in the gross domestic product?

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Okun's law gives the (empirically observed) correspondence between a change in the unemployment rate and a change in the gross domestic product. Let g be the
percentage change in the gross domestic product over a year, and let u be the change, in percentage points, of the unemployment rate over that year. One form of Okun's
law states that
9 = 3 - 2u.
For example, if the unemployment rate is unchanged over a year, then u = 0 and g = 3 - 2 x 0 = 3, so the gross domestic product changes by 3%.
(a) Suppose that in a year, the unemployment rate rises from 4% to 7% (so u = 3 percentage points). According to Okun's lav, what is the percentage change in the gross
domestic product?
(b) From 2013 to 2014, the unemployment rate fell from 7.4% to 6.2%. What does Okun's law give for the percentage change in the gross domestic product? (Note: In
this case, u is a negative number.)
(c) According to Okun's law, wrhat change in the unemployment rate wwould correspond to having no change in the gross domestic product?
%
Transcribed Image Text:Okun's law gives the (empirically observed) correspondence between a change in the unemployment rate and a change in the gross domestic product. Let g be the percentage change in the gross domestic product over a year, and let u be the change, in percentage points, of the unemployment rate over that year. One form of Okun's law states that 9 = 3 - 2u. For example, if the unemployment rate is unchanged over a year, then u = 0 and g = 3 - 2 x 0 = 3, so the gross domestic product changes by 3%. (a) Suppose that in a year, the unemployment rate rises from 4% to 7% (so u = 3 percentage points). According to Okun's lav, what is the percentage change in the gross domestic product? (b) From 2013 to 2014, the unemployment rate fell from 7.4% to 6.2%. What does Okun's law give for the percentage change in the gross domestic product? (Note: In this case, u is a negative number.) (c) According to Okun's law, wrhat change in the unemployment rate wwould correspond to having no change in the gross domestic product? %
Expert Solution
Step 1: Given.

Given: Suppose the percentage change g in the domestic product over a year, and let u be the change, in percentage points, of the unemployment rate over that year. Then

g = 3 - 2u.

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