According to Okun's Law,the year-to-year change in the rate of unemployment is ________ if the annual growth rate of real GDP is 4 percent.

Question

Quizplus · Accepted Answer

Okun's Law states that for every 1 percent increase in real GDP above its potential, the unemployment rate will decrease by 0.5 to 1 percentage point. Therefore, if the annual growth rate of real GDP is 4 percent, the unemployment rate should decrease by 2 to 4 percentage points. Taking the midpoint of this range, we can expect a 3 percent decrease in the unemployment rate. Therefore, the year-to-year change in the rate of unemployment would be -1 percent (-3 percent decrease divided by 3 years).

According to Okun's Law,the Year-To-Year Change in the Rate of Unemployment