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Unformatted text preview: This equation basically says that real GDP grows at about 3% per year when unemployment is normal. For every point above normal that unemployment moves, GDP growth falls by 2%. Similarly, for every point below normal that unemployment moves, GDP growth rises by 2%. This equation, while not exact, provides a good estimate of the effects of unemployment upon output. For example, let's say a country had an unemployment rate of 8% in one year and 6% in the next. Using Okun's law, it would be hypothesized that the percentage change in the real GDP would be 3% - 2 * (-2%) = 7%. Because 2% fewer people were unemployed the nation produced 7% more output. Types of Unemployment While unemployment is a general term that describes people who wish to work but cannot find jobs, there are actually a number of specific types of unemployment. Three cannot find jobs, there are actually a number of specific types of unemployment....
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- Fall '10