Question

1.20. If employment coefficient is positive and smaller than 1; then

[1] There is economic growth

[2] There is an increase in employment opportunities

[3] A 1% economic or real GDP growth rate will result in a more than 1% increase in employment

[4] There is an increase in potential GDP

[5] The 1% economic growth rate will result in a less than 1% increase in employment

Answer 1

The percentage increase by which GNP changes when unemployment falls by 1% is the Okun coefficient.

The relationship between unemployment and GNP or GDP varies by country. In the United States, the Okun coefficient estimates that when unemployment falls by 1%, GNP will rise by 3% and GDP will rise by 2%. When unemployment rises by 1%, then GNP is expected to fall by 3% and GDP is expected to fall by 2%.

So, the correct answer is [5].