Why are changes in the output gap larger than changes in the unemployment gap? Why is the relationship expressed in Okun's law not affected by inflation or expected inflation?
What will be an ideal response?
Common sense suggests that output and unemployment must be negatively-related. However, the link between the two is employment. Since the productivity of employed workers can vary, output has extra flexibility. Moreover, even when employment is changing along with output, not all of the employment change corresponds to a change in unemployment, since new employees might be new entrants to the labor force, and employees who leave their jobs might leave the labor force and not be counted among the unemployed. All these connections between output, employment, the labor force, and unemployment are real; they do not involve any price adjustments.
You might also like to view...
In a prisoner's dilemma game, the dominant strategy is to defect
Indicate whether the statement is true or false
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate
A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
If personal income minus transfer payments is rising, real GDP is most likely
A) rising. B) falling. C) remaining stable. D) getting ready to fall.
Which part of this definition for GDP is incorrect? GDP measures the
a. Market value of, b. All final and intermediate goods and services, c. Produced, d. By domestically owned or foreign-owned resources, e. Within nations' geographic borders.