Unemployment Rate: It is defined as the rate of unemployed people in an economy. All those people who are willing to work at given wages but cannot find jobs are known as the unemployed. It is the ratio of the unemployed to that of labor force in the economy. Okun’s Law: This law states that rate of unemployment and the output gap is inversely related to each other. When output gap increases by one percent unemployment rate decreases by half percent. The relation established by Okun’s law is: Here, U n is the unemployment rate. b is the intercept. m is the slope. Natural Rate of Unemployment: It is a rate of unemployment when the real rate of output is equal to the potential output in the economy. At such point ,economy does not have recessionary gap or inflationary gap.

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Chapter 31, Problem 7P

To determine

Concept Introduction:

Unemployment Rate: It is defined as the rate of unemployed people in an economy. All those people who are willing to work at given wages but cannot find jobs are known as the unemployed. It is the ratio of the unemployed to that of labor force in the economy.

Okun’s Law: This law states that rate of unemployment and the output gap is inversely related to each other. When output gap increases by one percent unemployment rate decreases by half percent.

The relation established by Okun’s law is:

Here,
U_nis the unemployment rate.

b is the intercept.

m is the slope.

Natural Rate of Unemployment: It is a rate of unemployment when the real rate of output is equal to the potential output in the economy. At such point ,economy does not have recessionary gap or inflationary gap.

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