In the labor market module, Okun's Law states that changes in GDP are closely related to unemployment rates. The original formula for this relationship is ?u=1.4-.4(%?GDP). According to this formula, if GDP remains stagnant, the unemployment rate is expected to increase by 1.4%. Conversely, we can use this formula to determine the level of GDP growth needed to maintain full employment. By setting ?u to zero, we can solve for the growth rate in GDP needed to keep the economy at its current employment level, which is effectively the expected long-term growth of potential GDP.

Using the original Okun's Law equation, we get 0=1.4-.4(%?GDP), which can be simplified to .4(%?GDP)=1.4. Solving for (%?GDP) gives us 3.5%. This means that if the economy is at full employment and GDP grows at a rate of 3.5% each year, there will be no change in unemployment and the economy will continue to operate at its full employment level.

Below, there is a picture of the original regression rerun for different time periods to show the changing nature of the link between unemployment and inflation. Two of these regressions are repeated and uploaded to this question. You can use each of these to restate the relationship between GDP and unemployment and solve for the rate of GDP growth needed to maintain full employment in each case.

1950 Q1-1980 Q4 Regression Statistics R Square 0.75487131 Standard Error 0.643767041 1981 Q1-2019 Q4 Regression Statistics Observations 124 R Square 0.619341252 Standard Error 0.626915061 Observations 155 Coefficients Standard Error Intercept GDP 1.464658 -0.368645 0.093696 0.019019 t Stat 15.632078 -19.382924 P-value 6.509E-31 4.686E-39 Coefficients Standard Error Intercept 1.023049 0.087090 t Stat P-value 11.746987 4.0726E-23 GDP -0.411616 0.026088 -15.777668 6.6405E-34 1981 Q1-2019 04 Regression Statistics R Square 0.619341252 Standard Error 0.626915061 Observations 155 Intercept Coefficients 1.023049 Standard Error 0.087090 GDP -0.411616 0.026088 t Stat 11.746987 -15.777668 P-value 4.0726E-23 6.6405E-34 1950-1980 Au=1.4647-.3687 (%AGDP) 1981-2019 Au=1.023-.4116(%AGDP)