Question

If employment coefficient is positive and smaller than 1; then

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%.