Answer to Question #227298 in Macroeconomics for Madushika Nilmini

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

Output is dependant on the labor used in production resulting into a positive relationship between employment and output.

Total employment is the labor force with exception of the unemployed. Consequently, a negative relationship holds between output and unemployment