Okun's law:
A)measures the tradeoff between the rate of inflation and the rate of unemployment.
B)indicates the number of years it will take for a constant rate of inflation to cause the price level to double.
C)quantifies the relationship between nominal and real incomes.
D)shows the relationship between the unemployment rate and the size of the GDP gap.

Question

Quizplus · Accepted Answer

Okun's law shows the relationship between the unemployment rate and the size of the GDP gap. It states that for every 1% increase in unemployment above the natural rate, there is a 2% decrease in the GDP (or a 2% increase in the GDP gap). Therefore, it measures the extent to which changes in the unemployment rate affect economic output.

Okun's Law