Question

Suppose that because of a recession, the real wage increases to (W/P) = 8 units. As a result the cyclical rate of unemployment will equal

percent and the real GDP will equal

units.

Answer 1

If because of a recession, the real wage increases to (W/P) = 8 units, then the cyclical rate of unemployment will increase and the real GDP will decrease by the amount of the cyclical rate of unemployment multiplied by the Okun's alpha.

units.