Which of the following statements is true according to Okun's Law?
A) The unemployment rate tends to decrease when the growth rate of real GDP is high.
B) The unemployment rate tends to increase when the rate of inflation is high.
C) The unemployment rate tends to increase when the growth rate of real GDP is high.
D) The unemployment rate is unaffected by changes in the growth rate of real GDP if there is stagflation.

Question

Quizplus · Accepted Answer

Okun's Law states that there is an inverse relationship between the rate of unemployment and the growth rate of real GDP. Therefore, when the growth rate of real GDP is high, the unemployment rate tends to decrease. Option B is incorrect because the rate of inflation does not have a direct effect on unemployment according to Okun's Law. Option C is also incorrect because the unemployment rate tends to decrease with higher growth rates. Option D is incorrect because stagflation, a situation where there is high inflation and low economic growth, goes against the assumptions of Okun's law.

Which of the Following Statements Is True According to Okun's