Correlation between 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 describe 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)
When and why were the inflation and unemployment rates negatively correlated? When and why were the inflation and unemployment rates positively correlated?.