Or natural rate of unemployment frictional structural

Info icon This preview shows pages 25–37. Sign up to view the full content.

or Natural rate of unemployment = frictional + structural. Cyclical unemployment = * u u
Image of page 25

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

22 Relationships Contractionary Gap Output gap Cyclical unemployment 0 * < y y 0 * > u u negative positive Expansionary Gap Output gap Cyclical unemployment 0 * > y y 0 * < u u positive negative
Image of page 26
23 Okun’s Law Relates the output gap and cyclical unemployment => calculates the output loss associated with a recession US estimates suggest each extra percentage point in unemployment is associated with about a 2 percentage point increase in the output gap For Australia, estimates suggest an unemployment rate which is 1 percentage point above the natural rate of unemployment (NRU) GDP to fall below potential by 1.6 percentage points
Image of page 27

Info icon This preview has intentionally blurred sections. Sign up to view the full version.