Unit 2 notes: 02/04/16 continued



Frictional + structural = NRU (natural rate of unemployment)

Full Employment = NO cyclical unemployment due to recession


GDP Gap: The amount by which actual GDP falls short of potential GDP


Okun's Law: For every 1% in which the actual unemployment rate exceeds the NRU (natural rate of unemployment), there is a GDP gap of about 2% that occurs.

Example: In 2012, the unemployment rate for Mexico was 7.4%, the NRU is 6%. What is the potential loss in GDP?
7.4 - 6 = 1.4      1.4 x 2 = 2.8 potential loss in GDP



Rule of 70: It is used to determine how many years it takes for a value to double given a particular annual growth rate.

Example: If you put 20,000 in the bank and it earns yearly interest of 7%, how many years will it take for your income to double?
70/7%= 10 years


Just to clarify, gross is what you make and net is what you take home.
NET private domestic investment + Depreciation = GROSS private domestic investment