Flashcards
L19 - Okun's Law
Cards in this deck (6)
- 1What is Okun's Law?Each increase of 1% of CYCLICAL UNEMPLOYMENT is associated with 2% percentage point increase in the OUTPUT GAP, measured in relation to TOTAL OUTPUT.
- 2Okun's Law: Formula for Output Gap relative to Y* (potential output)(Y - Y*) / Y* = -2 (u - u*)
- 3Okun's Law: Formula for Output GapY - Y* = -2 (u - u*) Y*
- 4Okun's Law: Formula for Actual OutputY = Y* -2 (u - u*) Y*
- 5What does Y, Y*, u & u* stand for?Y = Output
Y* = Potential Output
u = Unemployment Rate
u* = Natural Rate of Unemployment - 6—