Appendix 3.A shows how the growth-rate form of Okun's law can be derived from Eq. (3.7). As part of that derivation, it is assumed that the natural unemployment rate is constant (AM = 0) and the average growth rate of full-employment output is 3% per year.
a. Derive the growth-rate form of Okun's law when neither of these assumptions is made.
b. The country of Oz has enjoyed a rate of economic growth equal to 6% per year for the past 4 years. Despite this rapid economic growth, the unemployment rate has not changed. Identify two possible explanations for this result.