According to Okun's Law, if the unemployment rate is 7 per cent and the natural unemployment rate is 5 per cent, potential GDP is ________ than real GDP.
A) 4 per cent greater
B) 4 per cent less
C) 7 per cent less
D) 2 per cent less
E) 2 per cent greater

Question

Quizplus · Accepted Answer

Okun's Law states that a 1% increase in the unemployment rate is associated with a 2% decrease in potential GDP. Therefore, if the unemployment rate is 7% and the natural unemployment rate is 5%, potential GDP is 4% less than real GDP.

According to Okun's Law, If the Unemployment Rate Is 7