Real GDP and the unemployment rate are _________________,ceteris paribus.
A) directly related
B) inversely related
C) unrelated
D) directly related when GDP is below its natural level and inversely related when GDP is above its natural level

Question

Quizplus · Accepted Answer

Real GDP and the unemployment rate are inversely related, meaning that as one increases, the other decreases, and vice versa. This relationship is known as Okun’s law, and it holds true in the short run, ceteris paribus. As real GDP increases, businesses demand more labor to meet rising production levels, which reduces the unemployment rate. Conversely, during economic downturns, real GDP decreases, leading to lower business demand and layoffs, which increases the unemployment rate.

Real GDP and the Unemployment Rate Are _________________,Ceteris Paribus