Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 5%. Suppose the current unemployment rate is 8%. What would be the current level of output according to Okun's law (when the Okun's law coefficient is 2)?

$4700 Billion

Explanation:

Solution

Given that:

Assume that full-employment level of output is =$5000 billion

Natural employment rate is =5%

Current unemployment rate = 8%

Now,

We find the current level of output according to Okun's law when the Okun's law coefficient is 2 which is given below:

2 (unemployment rate -natural unemployment) = potential GDP - actual GDP/potential GDP *100% this is known as the Okun's law

Thus

2( 8 - 5 ) = 5000 - actual GDP / 5000 * 100

or (6 * 5000 ) / 100 = 5000 - actual GDP = $4700 Billion

or

300 = 5000 - actual GDP

Hence, the actual GDP or current output = 5000 - 300 = 4700 $ billion

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.