# 1.) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 6%. Suppose the current unemployment rate is 8%. What would be the current level of output...

1.) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 6%. Suppose the current unemployment rate is 8%.

What would be the current level of output according to Okun'slaw ,when the Okun's law coefficient is 2? (Show your calculations)

2.) Draw a diagram showing the phases of the business cycle and the turning points (use the technical names). Using the diagram to illustrate the concepts of recurrence and persistence.

3.) Use an aggregate supply and aggregate demand diagram from Chapter 8 of Able and Bernanke to answer parts (a.) and (b.) below :

(a.) Answer as a Classical economist: Can an attempt by each and every person to increase their savings, result in an overall reduction in national saving?

Answer Yes or No and explain with a diagram.

(b.) Answer as a Keynesian economist: Can an attempt by each and every person to increase their savings, result in an overall reduction in national saving?

Answer Yes or No and explain with a diagram.

4.)(a) What terms are used to describe the way a variable moves when economic activity is rising or falling?

(b) What terms are used to describe the timing of cyclical changes in economic variables? (see #31 multiple choice)

5.) Use terms for direction and timing to characterize the movement of the nominal interest rate over the macroeconomic cycle. Detail you explanation by reference to the Keynesian transmission mechanism. Your explanation should involve two graphs: one graph for the money market (the FED & Wall-Street) and one graph for the capital goods market (Main-Street Investment). You may begin by assuming that the economy has just gone into a recession.

6.) The Krugman Book Question:

(a) Define what economists mean by term “leverage.”

(b) What role does leverage play in the theory of the business cycle elaborated by Hyman Minsky?

(c) What is a “Minsky Moment?”

(d) According to Minsky’s theory, is proper application of Fiscal Policy (Government Spending) or Central Bank Policy capable of stabilizing the financial sector (and the overall economy) so as to avoid future large-scale recession?

*print*Print*list*Cite

### 1 Answer

Please note that eNotes is a service where educators help you with specific questions that are difficult for you. We are not able to do whole assignments or large parts of assignments as this question seems to be. I will answer the first of the questions you have posted here.

Okun’s law is a law that tries to quantify the relationship between unemployment and output or GDP. It tries to state how much GDP will decline with every added percentage point of unemployment. One way of stating Okun’s law as a mathematical equation is

Coefficient (actual unemployment rate – natural unemployment rate) = (potential GDP – actual GDP)/potential GDP.

We can plug the numbers from your question into this equation:

2 (.08 - .05) = (5000 – y)/5000

.06 = (5000 – y)/5000

30 = 5000 – y

-4700 = -y

Y = 4700

From this, we can see that **the actual level of GDP (or output) is $4700 billion **in this scenario.

**Sources:**