The relationship between the output gap and cyclical unemployment is expressed by:
A) the real business cycle theory.
B) the Taylor rule.
C) the natural rate hypothesis.
D) Okun's law.

Question

Quizplus · Accepted Answer

The relationship between the output gap and cyclical unemployment is expressed by Okun's law, which states that for every 1% increase in the output gap, the unemployment rate will decrease by a certain percentage (usually estimated to be between 0.5% and 1.5%). This inverse relationship between the output gap and cyclical unemployment is a key concept in macroeconomics.

The Relationship Between the Output Gap and Cyclical Unemployment Is