GDP Gap: The amount by which actual GDP falls
short of potential GDP
Okun’s Law: For every 1% that the actual
unemployment rate exceeds the natural rate of unemployment, a GDP Gap of about
2% occurs.
EX:
In 2012, the unemployment rate for Mexico was 7.4%. The NRU is 6%. Find the GDP
Gap.
7.4% - 6% = 1.4%
1.4% X 2% = 2.8% GDP Gap
Rule of 70: Used to determine how many years it
will take for a value to double give a particular annual growth rate.
EX:
If you put $20,000 in the bank, and it earns a yearly interest of 7%, how many
years will it take for your income to double?
70 (Rule of 70) / 7% (Interest Rate)
= 10 Years
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