Essay
Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by
? = ?e - 2.5 (u - 0.04).
Suppose ? = 0.08 and ?e = 0.03.
(a)What is the natural rate of unemployment?
(b)What is the actual rate of unemployment?
(c)How much is actual GDP compared with full-employment GDP?
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(a)0.04
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(b...
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