Answer to Question #226189 in Macroeconomics for ramya

Question

The relationship between the change of real output and the unemployment rate in the US economy was examined by Arthur M. Okun (1928-1980). How was the theory of business cycle placing an important position in his work? Elaborate

Answer 1

A high level of real output shows that there is economic growth, thereby reducing the unemployment rate.

In the business cycle, increases in aggregate demand increase the real output. As output increases, unemployment decreases. With more people employed in the workforce, spending increases, and demand-pull inflation occurs, raising price levels.