Question

From the following, who first examined the close negative relationship between the unemployment rate and the output ratio?

• A. Alban W. Phillips
• B. James Tobin
• C. Arthur M. Okun
• D. Robert M. Solow

Answer 1

The Correct Option is C

The question requires identifying the economist who first examined the close negative relationship between the unemployment rate and the output ratio. This relationship is commonly known as Okun's Law.

Okun's Law was introduced by Arthur M. Okun in the early 1960s. It describes an empirical relationship between unemployment and economic growth, which posits that for every 1% increase in unemployment, a country's GDP will be roughly at an additional 2% lower than its potential GDP. This relationship highlights that higher unemployment generally correlates with a decrease in a nation's output, leading to a loss in economic productivity.

Let's evaluate the options:

• Alban W. Phillips: Known for the Phillips Curve, which describes an inverse relationship between the rate of unemployment and the rate of inflation within an economy.
• James Tobin: Renowned for his work on macroeconomic monetary theory, specifically regarding Tobin's Q, and not directly associated with unemployment and output ratio.
• Arthur M. Okun: Famous for formulating Okun's Law, which directly examines the relationship between unemployment and GDP output.
• Robert M. Solow: Known for the Solow-Swan growth model, dealing primarily with long-term economic growth rather than the short-term interactions of unemployment and output.

Based on the above analysis, the correct answer is: Arthur M. Okun.

Therefore, Arthur M. Okun is the economist who first examined the close negative relationship between the unemployment rate and the output ratio.