# Okun's Law

### INTRODUCTION

What will happen to a nation's output when workers are unemployed? In this lesson you will learn how much GDP must grow to maintain the natural rate of unemployment. You'll need to perform some simple algebra, so grab a pencil, marker, and paper (or use an iPod APP!). The insights you will gain from this lesson will make you an expert at discussing unemployment!

By the end of this lesson, you will be able to [1] Determine the natural growth rate of GDP from empirical data; [2] Use an algebraic expression relating GDP growth to changes in the unemployment rate; [3] Interpret unemployment and GDP data to make predictions about output growth; [4] Discuss why changes in employment are not matched by equal changes in GDP.

### PROCESS

Okun's Law Worksheet

Complete the worksheet, "Okun's Law Worksheet." Your teacher will guide you through the steps and correct mistakes while providing insight about the data. Feel free to use colored pencils or a marker to make your graphs professional. At the end of the worksheet, you will be asked to write a short summary of the major concepts and take a quiz.

### CONCLUSION

Okun's law relates the change in the unemployment rate to the natural GDP growth rate of 3%. When the economy is experiencing unemployment or inflation, GDP deviates from ithe natural rate. What would the approximate unemployment rate be if the economy was growing at 4%? At 2%?

### ASSESSMENT ACTIVITY

The interactive below will quiz you on your knowledge of Okun's Law. Type in your answers and click the arrow to proceed from question to question!