Question

The natural rate of unemployment is 6%

(a) Suppose the short-run output over the next four years is falling and is at the levels of +2%, +1%, 0%, and -1%. According to Okun's law, what unemployment rates should we expect to see in this economy?

(b) Consider another economy in which the unemployment rate over the next three years is 6%, 7%, and then 4%. Use Okun's law to solve for the levels of short-run output, Y, expected in each year.