According to "Okun's Law," if expansionary monetary policy were to increase Y/Y(N)by 3 percent,we could expect the unemployment rate to decrease by ________ percentage points.
A)0.4
B)1.0
C)1.5
D)1.6

Question

Quizplus · Accepted Answer

Okun's Law states that for every 1 percent increase in output (Y), the unemployment rate will decrease by a certain percentage. Empirical evidence suggests that this percentage is around 0.5 to 1.0, but for the sake of this question, we will use the midpoint of 0.75. Therefore, a 3 percent increase in output (Y) would be expected to decrease the unemployment rate by 3 times 0.75, which equals 2.25 percentage points. However, the answer choices do not include 2.25, so the closest option is C, which is 1.5 percentage points.

According to "Okun's Law," If Expansionary Monetary Policy Were to Increase