Assume the natural rate of unemployment in the U.S.economy is 5 percent and the actual rate of unemployment is 9 percent.According to Okun's law,the negative GDP gap as a percent of potential GDP is:

Question

Quizplus · Accepted Answer

Okun's law states that for every 1 percent deviation of actual unemployment rate from the natural rate of unemployment, there is a 2 percent deviation of GDP from potential GDP in the opposite direction. Therefore, a 4 percent deviation in the unemployment rate (9 percent - 5 percent) would imply a 8 percent deviation in GDP from potential GDP, which is the negative GDP gap. Thus, the answer is B.

Assume the Natural Rate of Unemployment in the U