# Okuns law and the Phillips curve

*label*Business

*timer*Asked: Mar 24th, 2015

**Question description**

Suppose the expectations augmented Phillips Curve for an economy is given by

π = π^{e} + .08 – 2 u where π^{e} = π_{-1}

# Okun’s Law for this economy is Δu =
-0.5 (g_{y} - .03)

Unemployment is initially equal to the natural rate of unemployment and has been for a number of years. The annual inflation rate is initially ten percent (π = .1) and has been ten percent for a number of years.

a) What
is the ** natural** rate of unemployment for this economy?

**Show**your calculation and

**explain**why the unemployment rate cannot differ from this “natural rate” year after year.