Percentage GDP Gap (4.00) Okun's Law (Quarterly Data from 1st Quarter of 1949 to 2nd Quarter of 2019) (3.00) • (2.00) (100) 0.100 0.080 0.060 0.040 0.020 (0.040) (0.060) (0.080) 1.00 Cyclical Unemployment Rate 2.00 3.00 Okun's a 1.4 4.00 5.00 6.00 Consider the graph above that exhibits the Okun's Law. The graph has been constructed using the quarterly data on U. S. real GDP, potential GDP, and cyclical unemployment rate from 1949 to 2019. The graph indicates a positive relationship between cyclical rate of unemployment and the percentage GDP gap. This is as predicted by Arthur Okun. However, notice two things. First, the relationship is not exact. The points do not lie very close to the line of best fit. Second, the Okun's alpha for this period equals 1.40. However, the existence of a positive relationship is undeniable. The Okun's alpha in that graph (1.40) indicates that if the cyclical rate of unemployment is 3%, the GDP gap will equal the cyclical rate of unemployment is -3%, the GDP gap will equal percent. percent. Also, if

Percentage GDP Gap (4.00) Okun's Law (Quarterly Data from 1st Quarter of 1949 to 2nd Quarter of 2019) (3.00) • (2.00) (100) 0.100 0.080 0.060 0.040 0.020 (0.040) (0.060) (0.080) 1.00 Cyclical Unemployment Rate 2.00 3.00 Okun's a 1.4 4.00 5.00 6.00 Consider the graph above that exhibits the Okun's Law. The graph has been constructed using the quarterly data on U. S. real GDP, potential GDP, and cyclical unemployment rate from 1949 to 2019. The graph indicates a positive relationship between cyclical rate of unemployment and the percentage GDP gap. This is as predicted by Arthur Okun. However, notice two things. First, the relationship is not exact. The points do not lie very close to the line of best fit. Second, the Okun's alpha for this period equals 1.40. However, the existence of a positive relationship is undeniable. The Okun's alpha in that graph (1.40) indicates that if the cyclical rate of unemployment is 3%, the GDP gap will equal the cyclical rate of unemployment is -3%, the GDP gap will equal percent. percent. Also, if

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter20: Unemployment

Section: Chapter Questions

Problem 1CQQ

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