GDP Gap:
It is the amount by which actual GDP fall short of potential GDP
OKUNS law:
For every one percent in which the actual unemployment rate exceeds the NRU (natural rate of unemployment) a GDP gap of about 2% occurs.
An example- in 2012, the unemployment rate for mexico was 7.4%, the National Rate of Unemployment for mexico is 6%.
7.4 - 6 = 1.4 * 2 = 2.8
2.8 potential loss in GDP.
http://youtu.be/aeFHfbFIyAM watch this YouTube video on OKUNS law!
Rule of 70 |
It is used to determine how many years it takes for a value to double, given a particular annual growth rate.
Ex: you deposit 20,000 dollars in a bank and it earns a yearly interest of 7% how many years will it take for your income to double.
70/7 = 7
Okun's law seems like a constant rate to where you just keep track of the percentage rate of unemployment and know as percent goes up by 1, your GDP gap is 2. For example, if the unemployment rate is 6% your GDP gap will be 12%.
ReplyDeleteThe Rule of 70 seems very helpful in the daily lives of older adults, because they will want to know when their income will double in a certain amount of years from a single deposit.