1. Utilize Okun's law to answer the questions below;
u_{t} - u_{t-1} = -0.4(g_{yt} - 3%) Assuming u_{t-1} = 7%
a. Calculate the change in u (u_{t} - u_{t-1}) for each of the following values of g_{yt}: 5%, 7%, 9%. How much has output growth increased? What happens to the change in unemployment due to this increase?
b. Calculate the change in u (u_{t} - u_{t-1}) for each of the following values of g_{yt}: 2.5%, 1.5% and 0. How much has output growth decreased? What happens to the change in unemployment due to this increase?
c. Calculate the change in u (u_{t} - u_{t-1}) when g_{yt} is 3%. What must the growth rate of output be to keep u_{t} from changing?