ECON-1007EL Study Guide - Midterm Guide: Output Gap, Nominal Interest Rate, Real Interest Rate

• School: Laurentian
• Department: Economics / Science Èconomique
• Course: ECON-1007EL
• Professor: Daviau Charles

Document Summary

Okun"s law (y* - y)/y* = 2(u - u*) U* = natural rate of unemployment rate (potential) * remember to put the u in the correct form, since in. % change to the decimal for the equation and then switch to % for answer; put a concluding sentence * (y* - y)/ y* = 2(u - u*) (1) (8000 - 7840) /8000 = 2 (0. 06 - u*) 0. 1 = -2u* u* = 0. 05 u* = 5% The potential unemployment rate to run at equilibrium is 5% (2) (y* - 8100) /y* = 2(0. 05 - 0. 05) (y* - 8100) /y* = 0 (y* - 8100) = 0. The potential gdp to run at equilibrium is 8100 (3) (8200 - y)/8200 = 2(0. 04 - 0. 045) (8200 - y)/8200 = -0. 01. The actual gdp output is 8282 (4) (8250 - 8415)/8250 = 2(u - 0. 05) 0. 08 = 2u u = 0. 04 u = 4%