Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percentage of
Potential GDP is

Question

Quizplus · Accepted Answer

Okun's law states that for every 1 percentage point by which the actual rate of unemployment exceeds the natural rate, a negative GDP gap of about 2 percent occurs. Therefore, a difference of 4 percentage points (9% - 5%) in unemployment rates would result in a negative GDP gap of about 8 percent (2% x 4).

Assume the Natural Rate of Unemployment in the U