The economy of Omega operates according to Okun's law. In Omega, potential GDP and real GDP equal $7 trillion, and the natural rate of unemployment equals 6 percent. What is the actual rate of unemployment in Omega?

Question

Quizplus · Accepted Answer

Okun's law states that for every 1 percent that actual GDP falls below potential GDP, the actual unemployment rate will rise by 0.5 percent. Since potential and real GDP are equal, there is no GDP gap in Omega. Therefore, the actual rate of unemployment will be equal to the natural rate, which is 6 percent.

The Economy of Omega Operates According to Okun's Law