The natural unemployment rate is 4 percent and the actual unemployment rate is 7 percent. According to Okun's Law, how does of real GDP compare to potential GDP?
What will be an ideal response?
The gap between the natural unemployment rate and actual unemployment rate is 7 percent minus 4 percent, which is 3 percentage points. According to Okun's Law, for each percentage point gap in the unemployment rate, there is a 2 percent gap between real GDP and potential GDP. So real GDP is 3 percent × 2 = 6 percent below potential GDP.
You might also like to view...
Workers expect inflation to fall from 4% to 1% next year. As a result, this should
A) shift the short-run aggregate supply curve to the right. B) move the economy down along a stationary short-run aggregate supply curve. C) move the economy up along a stationary short-run aggregate supply curve. D) shift the short-run aggregate supply curve to the left.
The economy is in short-run equilibrium
A) at any point on the IS curve. B) only at the natural level of GDP. C) at any point on the LM curve. D) only at a point that is on both the IS and LM curves.