The economy of Omega operates according to Okun's law. In Omega, the actual and the natural rates of unemployment equal 5 percent, and potential GDP equals $10 trillion. What is real GDP in Omega?

Question

Quizplus · Accepted Answer

Okun's law states that for every 1% deviation from the natural rate of unemployment, there will be a 2% deviation from potential GDP. In Omega, the actual and natural rates of unemployment are equal at 5%, indicating that there is no deviation from the natural rate. Therefore, real GDP is equal to potential GDP, which is $10.0 trillion.

The Economy of Omega Operates According to Okun's Law