Question

Answer all questions.

Questions:

(i). Develop an economic model and obtain data to test Okun’s Law in any economy of your choice.

(ii). What can you conclude about the propounded (Okun’s) law?

Please write as much as you can as the essay should be up to 3000 words.

Also, please show evidence of research. Provide all sources used. Make a self-selected title for it.

Answer 1

REALTIONSHIP BETWEEN UNEMPLOYMENT AND GDP

                The relationship between the unemployment and GDP is very important. The growth of any country is depends upon these two factors. This relationship is well explained by the Prof. Arthur Okun. This explanation is well known as Okun’s law.

Further Prof. Okun said about the relationship between unemployment and GDP of a country is related. He further explained in his law that “if increase in the rate of unemployment will decrease the twice the rate of GDP. For example, if rate of unemployment is increased by 1%, then rate of GDP falls nearly 2%. His general thinking is that if rate of unemployment falls, the production of a country will increase. And this measure will be used for estimating the GDP and GNP. These measurements generally vary from country to country.

Here I am discussing the case of India and Okun’s law.

Published data regarding unemployment is not reliable even the numbers are published by the reputed labor bureau are based on its survey of around 10,000 labor intensive units. The data says that the unemployment rate in India is five years high.

Recently the case happened in the India regarding the demonetization and unemployment. The government is ruling in India is political party call BJP (Bhartiya Janta Party) they won the parliamentary elections in the year 2014 and started ruling. They have election manifesto like we will bring back the whole black money deposited in foreign banks. But they were failed. To dig out black money they use one trick that is demonetization of old circulating currency notes and issue of new currency notes. This announcement was made by prime minister instead of Central Bank’s Governor. Everyone welcomed this demonetization but on the other hand due to shortage of new currency notes the cash businesses were started collapsing and also wind up. Because of business wind up the millions of employed becomes unemployed, and productivity rate is in like recession. And in between after 2-3 months the funny news given y the Central Bank’s Governor is that he said 99% of old currency notes are deposited with Central Bank., then where’s the black money???

            Apart from this The government’s demonetization decision have resulted in the loss of roughly 1.5 million jobs, in nearby 4 months from November 2016 to March 2017. The further loss is much bigger, don’t forget about that, because of demonetization move the GDP of India saw a major decline in manufacturing and the lingering effects of demonetization sharply pulled down India's economic growth rate in the first quarter of the current fiscal ended June to 5.7 per cent, as compared to 7.9 per cent in the same period a year ago. Barely six months after demonetization, India's Gross Domestic Product or GDP growth rate has slumped down to 6.1 per cent in the January-March period, lowest in more than two years. This growth rate was unexpected as the Central Statistics Office earlier in January had estimated 7.1 per cent growth as compared to the 7.6 per cent in 2015-16.

            Here I am not blaming the government and it is purely my point of view. But in conclusion I must say that the Okun’s law is actually realistic. Some say it is not up to the market but it is actually works

References

1 www.catchnews.com

2 Investopedia

3 Times of India

4 Business Today

5 Investing Answers.