2 of 1 An economy follows Okun\'s Law. The natural unemployment rate is 6 percen

Question

2 of 1 An economy follows Okun's Law. The natural unemployment rate is 6 percent and potential GDP is $11 tillion. When the actual unemployment rate is 7 percent, real GDP is A, $1 1.2 trillion OB. $10.3 trillion O C. $11.7 trillion O D. $10.8 trillion na s: ing e gra Click to select your answer man HAPTER 15 MACRO Flashcards | Quizlet ttps://quiziet.com/211270389/chapter-15-macro-flash-cards/ ? ggregate Supply and the Short-Run Phillips Curve The increase in quantity of labor employe iLamnloumant leual and the

Explanation / Answer

Answer is D

According to Okun’s law, a percentage increase in unemployment causes a 2% fall in GDP.

Natural unemployment rate 6%

Actual unemployment rate 7%

Potential GDP is $11 trillion

The fall in potential GDP is

For 1% fall in unemployment rate the fall in GDP is 2%. The fall in potential GDP is (2/100*$11 trillion)=$0.22 trillion. Real GDP= $11 trillion - $0.22=$10.78 or $10.8 trillion.

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