The rule of thumb used to measure the cost of reducing inflation suggests that if the actual unemployment rate exceeds the natural rate of unemployment by 1 percentage point for one year, the inflation rate:

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The rule of thumb is known as the "Okun's Law" which suggests that for every one percentage point that the actual unemployment rate exceeds the natural rate of unemployment, output gap (the difference between actual and potential output) widens by 2 percentage points. This means reducing the output gap by 1 percentage point requires lowering the unemployment rate by half a percentage point. As the output gap diminishes, the inflation rate tends to fall by 0.5 percentage point per year. Therefore, if the actual unemployment rate exceeds the natural rate of unemployment by 1 percentage point for one year, the inflation rate falls by 0.5 percentage point per year.

The Rule of Thumb Used to Measure the Cost of Reducing