ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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direct; meaning that an increase in one variable usually signals an increase in the other variable.
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direct; meaning that an increase in one variable usually signals no change in the other variable.
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inverse; meaning that a decrease in one variable usually signals a decrease in the other variable.
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inverse; meaning that an increase in one variable usually signals a decrease in the other variable.
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Detailed explanation-1: -The general relationship between GDP and unemployment can be described as. direct; meaning that an increase in one variable usually signals an increase in the other variable. direct; meaning that an increase in one variable usually signals no change in the other variable.
Detailed explanation-2: -Proposed by economist Arthur Okun in 1962, it basically states that if GDP grows rapidly the unemployment rate declines, if growth is very low or neg-ative the unemployment rate rises, and if growth equals potential the unemploy-ment rate remains unchanged.
Detailed explanation-3: -When the economy is at full employment, real GDP is equal to potential real GDP. By contrast, when the economy is below full employment, the unemployment rate is greater than the natural unemployment rate and real GDP is less than potential.
Detailed explanation-4: -One way to measure this cost is with Okun’s Law. Economist Arthur Okun quantified the relationship between unemployment and GDP as follows: For every 1 percent of unemployment above the natural rate, a negative GDP gap of about 2 percent occurs.
Detailed explanation-5: -Inflation has historically had an inverse relationship with unemployment. This means that when inflation rises, unemployment drops. Higher unemployment, on the other hand, equates to lower inflation. When more people are working, they have the power to spend, which leads to an increase in demand.