2019 Quarter 3 2020 Quarter 2 Real GDP Potential GDP Billions of 2012 Dollars Billions of 2012 Dollars 19,112.65 17,258.21 19,064.06 19,340.19 Let us analyze the effect of 2020 Covid-19 pandemic on the labor market conditions. The above table shows the real and potential GDPs for the U.S. in the third quarter of 2019 and the second quarter of 2020. Assume that the Okun's Alpha equals = 1.40. The above data indicate that the GDP gap in the third quarter of 2019 was percent resulting in a cyclical unemployment rate of percent. Moreover, the GDP gap in the second quarter of 2020 was resulting in a cyclical unemployment rate of percent. percent Note that the numbers you got for the cyclical unemployment rates are just estimates. They are based on the assumption that Okun's Alpha equals = 1.40. The actual unemployment rates could be higher or lower than these estimates. The source of data in the table: U.S. Bureau of Economic Analysis, Real Gross Domestic Product (GDPC1), retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GDPC1, August 7, 2021. 4 Real Wage (W/P) 7.000 6.500 6.000 5.500 5.000 4.500 4.000 3.500 S L 3.000 2.500 2.000 1.500 1.000 0.500 90,000 DL 91,000 92,000 93,000 94,000 95,000 96,000 97,000 98,000 99,000 100,000 101,000 102,000 103,000 104,000 105,000 Consider the Labor Market Graph Number of Workers (L) above. This graph shows the labor market conditions in a hypothetical country. The natural rate of unemployment in this country is 5 percent. In other words, even during normal times 5 percent of the labor force is unemployed. The natural unemployment is solely due to labor market frictions. The potential GDP in this country equals Yp 10,000. Okun's alpha equals 2. Currently, the nominal wage rate is W = 400 and the price level is P = 100. As a result, currently and persons are naturally unemployed persons are cyclically unemployed. Moreover, the real GDP in this country equals units. 1