Okuns law help?

Question

if real GDP grows at 6 percent this year, how much can we expect unemployment to fall?

heres akuns law btw

When real GDP grows at its average rate of 3 percent, the unemployment rate remains unchanged.

When the economy expands more rapidly than 3 percent, the unemployment rate falls by about half as much.

not sure if the answer is 3 or 1

Answer 1

Ceteris paribus (all else constant) then unemployment would fall by 3 percent for your model.

Answer 2

It all depends on NAIRU level for your country.

For different countries Oukun's law will be different:

http://web.csustan.edu/ppa/llg/statdata/...

For 1998 in US 6% growth in GDP means -2% in unemployment.

You could use original data for US then Okun introduced his regression:

ΔY%=1-0.4ΔU% so for ΔY=6 it will look something like this:

6%=1-0.4*ΔU%

0.4*ΔU=1-6= -5

ΔU= -5/0.4= -12.5%

http://economics.about.com/cs/termpaperh...

Or equation based on current empirical evidence from US

ΔY%=0.3-2ΔU%

6=0.3-2u

0.3-6=2u

-5.7/2=u

u= -2.85

Answ: ΔU(%)= -2.85%

http://en.wikipedia.org/wiki/Okun's_law

http://upload.wikimedia.org/wikipedia/co...