Unemployment and Economic Growth

by Elaine Schwartz    •    Oct 30, 2012    •    748 Views

If anyone ever asks you why economic growth is important, I suggest showing them the following graph from the Washington Post.

The goal of the graph is to show how our economy’s actual output, its potential output and unemployment are connected. During a recession, there is a big difference between what the economy produces and what it can produce. Called an output gap, land, labor and capital are not creating as much as they might. Predictably, when the output gap narrows, unemployment decreases. But, by how much? And that takes us to the graph. During the third quarter of 2012, the US real GDP growth rate (advance estimate) was 2%. You can see that we need a lot more than 2% GDP growth to solve our unemployment problems.  (Please note that the graph was published during 2010.)

Perfectly, the Washington Post presents a series of graphics explaining the output gap and its connection to unemployment here.

For Unemployment to Decrease Economic growth Needs to Increase A Lot.









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