okun quiz

What is the Okun’s Law equation using the X and Y variables?

Change in u = x ( g - y )

• u = the change in the unemployment rate

• g = the actual output growth rate

• x = the slope (okun coefficient)

• y = the normal or breakeven growth rate

What does the variable X or okun coefficient represent in the economy?

Measures how sensitive unemployment is to changes in growth. For every 1% that growth (g) is above the normal rate (y), unemployment (u) falls by the amount of X.

What does the variable Y represent in the economy?

It is the normal growth rate (intercept). This is the amount of growth needed to keep unemployment the same (u = 0).

How do we get the intercept? How do we calculate the Y?

You add the labor force growth and labor force productivity growth together.

If output growth g is exactly equal to y, what is the value of u?

u = 0. The unemployment rate remains constant because the economy grew just enough to keep up with new workers and higher productivity.

if u = -0.5(g-3) and g = 5, what is u?

u = -1.0
(5 - 3) = 2

-0.5 × 2 = -1.0

if u = -0.4(g - 3) and you want u to be -0.8, what must g be?

g = 5

-0.8 / -0.4 = 2

2 = g - 3

g = 5