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Describe Okun's law. Do you believe Okun's law holds up in the current economy? Explain the relationship between unemployment and gross national product (GNP).

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Nusrat Fatima
Nusrat FatimaLv10
29 Sep 2019

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Related questions

Use the equation for Okun's Law. Suppose the current unemployment rate is 10% and the natural rate of unemployment is 5%.

a. If real GDP is growing at an annual rate of 2.1%, how many years will it take the economy to get to full employment? [This is a trick question]

b. What annual rate of growth is required to get the economy to full employment in 2 years?

The answer is:

Okun's law refers to the negative relationship that exists between unemployment and real GDP. Okun's law can be summarized by the equation: in real GDP = 3% - 2 x [% in unemployment rate]. That is output moves in the opposite direction from unemployment, with a ratio of 2 to 1. In the short-run, when Y falls 5 percent, unemployment increases 2-1/2 percent. In the long-run, both output and unemployment return to their natural rate levels. Thus, there is no long-run change in unemployment.

I don't get it. Please help, thanks.

How does our current economic growth rate compare to some of the other major countries around the world? Explain the relationship between unemployment and gross national product (GNP).

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