Question 3. The Table below shows us percentage changes of annual unemployment rate (UNemp) and real gross domestic product growth rate (GDP) after WWII in the United States. Year UNemn GDP Year UNemp GDP Year UNemp GDP 1949 2.3 -0.6 1973 -0.7 5.6 1997 -0.5 4.4 1950 -0.9 8.7 1974 0.8 -0.5 1998 -0.5 4.5 1951 -1.9 8.0 1975 2.9 0.2 1999 -0.3 4.8 1952 -0.3 4.1 1976 0.8 5.4 2000 -0.3 4.1 1953 -0.1 4.7 1977 0.7 4.6 2001 0.8 1.0 1954 2.7 0.6 1978 -1.0 5.5 2002 1.0 1.7 1955 -1.3 7.1 1979 -0.2 3.2 2003 0.3 2.9 1956 -0.3 2.1 1980 1.3 -0.3 2004 -0.5 3.8 1957 0.2 2.1 1981 0.4 2.5 2005 -0.4 3.5 1958 2.6 0.7 982 2.1 -1.8 2006 -0.5 2.9 1959 -1.4 6.9 1983 10.1 4.6 2007 0.0 1.9 1960 0.1 2.6 1984 -2.1 7.2 2008 1.2 -0.1 961 1.1 2.6 1985 -0.3 4.2 2009 3.5 -2.5 1962 -1.2 6.1 1986 0.2 3.5 2010 0.4 2.6 1963 0.1 4.4 1987 -0.8 3.5 2011 0.7 1.6 1964 -0.5 5.8 1988 -0.7 4.2 2012 -0.9 2.2 1965 -0.6 6.5 989 0.2 3.7 2013 -0.7 1.8 1966 -0.7 6.6 1990 0.3 1.9 2014 1.2 2.5 1967 0.0 2.7 199 1.3 -0.1 2015 0.9 3.1 968 -0.3 4.9 1992 0.7 3.5 2016 -0.4 1.7 1969 0.0 3.1 1993 -0.6 2.8 2017 -0.5 2.3 1970 1.5 0.2 994 0.8 4.0 2018 0.4 3.0 971 1.0 3.3 1995 -0.5 2.7 2019 -0.3 2.2 1972 -0.4 5.3 1996 -0.2 3.8 (1) Recall in the unit of Economic Fluctuations, we introduced the concept of Okun's Law. What is the Okun's Law about? Please use your own language to explain it. (2) Use data in the attached spreadsheet (xIsx.), which is the same as data in the table. Now plot change of real GDP growth rate with respect to change of unemployment rate from 1949 to 2019 (the full sample). Open the spreadsheet, plot the two columns, "[INemp" and "GDP". Right click any plot and choose "Add Trendline". In "Trendline Options", select "Linear". Also select "Display equation on chart" and "Display R-squared on chart". 2 (3) How to interpret relationship between changes of GDP growth rate and unemployment rate? Now go to your notes (slides). Is the relationship you plotted similar as the Okun's Law predicts? Suppose you got a relation as GDP = a + b * UNemp. Are the coefficients of a and b are close to the value of Okun's Law? (4) Now repeat the plot you did in part (2) above. However, this time you use the sample only from 2000 to 2019. Any change to the relationship? How is the value of a and b in this sample? (5) In 2020, the Covid-19 pandemic has caused a global economic recession (the Covid-19 recession). Following the slow economic growth in 2019, interruptions on the supply side and drop of consumer demand led the US economy into a recession in the second quarter of 2020. At the same time, the recession also drove rising unemployment rates in many states. Using a yearly data, we have GDP growth rate was -3.5 percent and unemployment rate was 8.1 percent in the US. Then, we try to derive the Okun's Law again with the sample from 2000 to 2020. How much will be the new coefficients of a and b with this sample? Plot the graph as above