Sunday, January 02, 2011

Okun’s Law — the relationship between growth and unemployment

Okun’s Law — the relationship between growth and unemployment for U.S
The figure above illustrates Okun’s Law — the relationship between growth and unemployment for U.S. The horizontal axis shows annual growth rates of real GDP; the vertical axis shows the year-to-year change in the unemployment rate.

To keep unemployment rate unchanged, the economy has to grow around 2.5% annually. Judging from the slope of the chart, it takes two points GDP growth for every one point reduction in unemployment rate.

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