Okun’s Law
Imagine that we know that Okun’s Law applies to a particular economy, let’s call it “Messi-land”.
Suppose we are told that over a certain period employment in Messi-land grew by 2% while over the
same period the labour force in Messi-land grew by 3%. Assume that the natural rate of
unemployment in Messi-land has not changed over the period. What can we say must have happened
to the output gap in Messi-land over the period? Has it risen? Fallen? Remained the same? Can’t
say? Explain your answer fully.

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