Compute correlation among unemployment and inflation rate given relationship between the outputs and the unemployment rate and long run unemployment-inflation trade off.
This problem uses Okun's law to study how the unemployment and inflation rates change when there are demand shocks. Assume that the relationship between the output ratio and the unemployment rate, U is given by the equation U = 6.0 - 0.5 (output ration -100). describe why there is no long-run unemployment-inflation tradeoff