problemset5 - Y is the actual level of output and u is the...

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Professor M. Alexopoulos Department of Economics 150 St. George St. Rm: N109 Tel: 978-4962 email: [email protected] ECO325S: Advanced Economic Theory-Macro Problem Set #5 1 . Romer 4.4 2 . Romer 4.5 3 . Romer 4.6 4 . Romer 4.8 5 . One definition of Okun’s law says that the gap between the economy’s full employment level of output and its actual level increases by 3% for each 1% increase in the unemployment rate relative to the natural rate of unemployment. In other words: Y " Y Y ± 3.0 ± u " u   where Y is the level of potential output (i.e., the level consistent with normal growth),
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Unformatted text preview: Y is the actual level of output, and u is the actual level of unemployment. Show that if Y Y is approximately equal to 1, and the natural rate of unemployment, u , does not change over time (i.e., ± u ± t ± . u ± , than we can express Okun’s law as: . Y Y " . Y Y ± " 3.0 . u that says that a one percent increase in the unemployment rate is equivalent to 3 percent shortfall in the growth rate of actual output relative to the normal growth rate of output....
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This note was uploaded on 09/11/2011 for the course ECO 325 taught by Professor G. during the Spring '09 term at University of Toronto.

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