Suppose the unemployment rate is 8 percent and the natural unemployment rate is 6 percent.If potential GDP is $8 trillion, using Okun's Law what does real GDP equal?

Question

Quizplus · Accepted Answer

Okun's Law states that for every 1% increase in the unemployment rate above the natural rate, GDP falls by about 2% from its potential. Here, the unemployment rate is 2% above the natural rate, so GDP is 4% below potential. 4% of $8 trillion is $0.32 trillion, so real GDP is $8 trillion - $0.32 trillion = $7.68 trillion.

Suppose the Unemployment Rate Is 8 Percent and the Natural