Suppose the natural unemployment rate is 5 percent, the actual unemployment rate is 6 percent, and potential GDP is $5,000 billion. Based on Okun's law, real GDP is equal_{--------------------} to billion.

Question

Quizplus · Accepted Answer

Okun's law suggests 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. Here, the unemployment rate is 1% above the natural rate, so GDP is approximately 2% below potential GDP. 2% of $5,000 billion is $100 billion, so real GDP is $5,000 billion - $100 billion = $4,900 billion.

Suppose the Natural Unemployment Rate Is 5 Percent, the Actual