The economy of Omega operates according to Okun's law.In Omega,the actual and the natural rates of unemployment equal 5%,and potential GDP equals $1 trillion.What is actual GDP in Omega?

Question

Quizplus · Accepted Answer

According to Okun's law, for a 1% increase in the actual rate of unemployment, there will be a 2% decrease in actual GDP relative to potential GDP. Since the actual and natural rates of unemployment are both 5%, there is no output gap and actual GDP is at its potential level of $1 trillion. Therefore, the answer is (C) $1 trillion.

The Economy of Omega Operates According to Okun's Law