12.06.2023 Tutorial 3#

1) Okuns Law#

relationship between GDP & Unemployment

img

  • all countries except Japan visible

  • when GDP Growth = 0, then change in unemplyoment everywhere positive

Cases:

  • more population => no clear effect on unempl. (depends)

  • Technology => more work / less work (depends)

2) Multiplier#

relative magnitude of change

  • change in government stimulus

  • will translate to change in GDP

two economies:

  • more credit-constrained = higher mutliplier

  • more consumption smoothing = smaller multiplier

AD in an Economy

\[ AD = \underbrace{C_0}_{autonomous} + \underbrace{C_1 Y}_{dependent} + I \]

business cycle:

  • Boom

    • credit constrained household: \(y \uparrow = c \uparrow\)

    • smoothing household: \(y \uparrow = c \ const.\)

  • Recession

    • c.c HH: \(y \downarrow = c \downarrow\)

Multiplier in Credit-constrained Economics = higher