The following information is for a specific year in a hypothetical economy for which Okun's law is applicable: Potential Real GDP = $200 billion
Natural rate of unemployment = 6 percent
Actual rate of unemployment = 12 percent
The amount of output being forgone by the above economy is:
A)$12 billion.
B)$15 billion.
C)$18 billion.
D)$24 billion.

Question

Quizplus · Accepted Answer

Okun's law states that for every 1% increase in the unemployment rate above the natural rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. The unemployment rate is 6% above the natural rate (12% - 6%), so the GDP is 12% below potential. 12% of $200 billion is $24 billion.

The Following Information Is for a Specific Year in a Hypothetical