Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by
π = π^e - 2.5 (u - 0.04).
Suppose π = 0.08 and π^e = 0.03.
(a)What is the natural rate of unemployment?
(b)What is the actual rate of unemployment?
(c)How much is actual GDP compared with full-employment GDP?

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The Answer of Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by π = π^e - 2.5 (u - 0.04). Suppose π = 0.08 and π^e = 0.03. (a)What is the natural rate of unemployment? (b)What is the actual rate of unemployment? (c)How much is actual GDP compared with full-employment GDP?

Suppose Okun's Law Holds and a One Percentage Point Increase