12.06.2023 Tutorial 3

1) Okuns Law

relationship between GDP & Unemployment

• 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

$$AD=\underset{autonomous}{\underbrace{C_0}}+\underset{dependent}{\underbrace{C_{1}Y}}+I$$

business cycle:

• Boom

  • credit constrained household: $y\uparrow =c\uparrow$

  • smoothing household: $y\uparrow =cconst.$

• Recession

  • c.c HH: $y\downarrow =c\downarrow$

Multiplier in Credit-constrained Economics = higher