The specific form of Okun's law is
A) u - u* = -0.4 x (Y - Y*).
B) u - u* = -0.4 x ((Y + Y*)/Y*).
C) u - u* = -0.4 x ((Y - Y*)/Y*).
D) u + u* = -0.4 x ((Y - Y*)/Y*).

Question

Quizplus · Accepted Answer

Okun's law relates the unemployment rate to GDP growth. The specific form given in option C, $u - u^* = -0.4 \times \left(\frac{Y - Y^*}{Y^*}\right)$, correctly represents the relationship between the actual unemployment rate ($u$) minus the natural rate of unemployment ($u^*$) and the percentage deviation of actual GDP ($Y$) from potential GDP ($Y^*$). This form shows that a decrease in GDP relative to potential GDP is associated with an increase in the unemployment rate.

The Specific Form of Okun's Law Is