If the natural rate of unemployment is 6 percent, what is the
actual unemployment rate for this economy (use Okun’s law given
Y* = 29,000).
Actual unemployment rate: ?? %
Homework Answers
a) PAE = C+I+G+NX
1500+0.9(Y-T)+1000+1500+100
1500+0.9(Y-1500)+1000+1500+100
1500+0.9Y-1350+1000+1500+100
2750+0.9Y
| Y | PAE | Y-PAE | Y=PAE |
| 27100 | 27140 | -40.00 | No |
| 27300 | 27320 | -20.00 | No |
| 27500 | 27500 | 0.00 | Yes |
| 27700 | 27680 | 20.00 | No |
| 27900 | 27860 | 40.00 | No |
b) Equilibrium output = 27500
c) Output Gap = 29000-[2750+0.9*29000] = 150
d) Actual unemployment rate
29000-27500/27500*100 = 6.26%
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