Kun's law basically explains how changes in production cause changes in unemployment. Before considering the concept of the natural rate of unemployment, we talked about it in terms of the natural level of output. The intuition was basically: – At the natural level of output, there is a certain number of workers that must be employed to produce that output. So there is a natural rate of employment that corresponds to the natural level of production. – If there is a natural rate of employment, there is obviously a corresponding natural rate of unemployment, for example if you need 95% of those eligible and looking for work to be employed to produce the natural level of output, then there will be a natural rate unemployment rate of 5%.– If output increases above the natural level of output, then you will need more workers, so the employment rate will increase and the unemployment rate will decrease below the natural rate of unemployment. If output falls below the natural level of output, then you will need fewer workers, so the employment rate falls and the unemployment rate rises above the natural rate of unemployment. Okun's Law explains how production is related to unemployment. It is not a one-to-one relationship, unemployment responds less than one-to-one to changes in production. There are a few reasons for this:1. In any business, there is usually a set number of employees that the business will need regardless of production. If a company is in the construction industry, when demand falls it may lay off builders and engineers because there is no work for them, but the finance department may still have roughly the same amount of work to do even if the numbers don't they say. they look just as beautiful. Likewise, if manufacturing expands, they will hire more builders and engineers and retain similar workers. But the relationship between wage setting also included expected prices and the unemployment rate. When expected prices are higher, wage demands will be higher at all levels of unemployment. This would be represented by the entire Phillips curve moving upwards. Changes in expected prices shift the Phillips curve up or down. So, to summarize, the (short-run) Phillips curve has a negative slope. The entire curve shifts upward if price expectations increase. This has an important implication, because it means that when you move up the curve and you have higher inflation, then if workers adjust their price expectations upward, that means that not only will it move up the curve to achieve lower unemployment, but the curve will also begin to shift upward. The curve shifts downward if price expectations decrease.