Suppose that the natural rate of unemployment in a particular year is 6 percent

Question

Suppose that the natural rate of unemployment in a particular year is 6 percent and the actual rate of unemployment is 9 percent. Instructions: Enter your answers as whole numbers. Do not include minus signs. a. Use Okun’s law to determine the size of the GDP gap in percentage-point terms. percent. b. If the potential GDP is $500 billion in that year, how much output is being forgone because of cyclical unemployment? $ billion

Suppose that the natural rate of unemployment in a particular year is 6 percent and the actual rate of unemployment is 9 percent Instructions: Enter your answers as whole numbers. Do not include minus signs a. Use Okun's law to determine the size of the GDP gap in percentage-point terms b. If the potential GDP is $500 billion in that year, how much output is being forgone because of cyclical unemployment? $ billion percent.

Explanation / Answer

Two percent rise in output leads to the one percent fall in unemployment level. Difference between natural rate of unemployment and actual unemployment is 4 % ( 9-5) According to Okun law, four percentage unemployment would cause 8 % fall in output. Thus output gap is 8 % Output Gap if potential level of output $ 500 Billion = $ 40 Billion ( .08*500)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.