In Okunland,a country that operates according to Okun's law,actual GDP equals $7,520 billion,potential GDP equals $8,000 billion and the actual unemployment rate is 8%.What is the natural rate of unemployment in Okunland?

Question

Quizplus · Accepted Answer

Okun's law states that the difference between the actual unemployment rate and the natural rate of unemployment is proportional to the difference between actual GDP and potential GDP. In this case, the actual unemployment rate is 8%, the actual GDP is $7,520 billion, and the potential GDP is $8,000 billion. So, the difference between the actual unemployment rate and the natural rate of unemployment is 8% - x, where x is the natural rate of unemployment. The difference between actual GDP and potential GDP is $8,000 billion - $7,520 billion = $480 billion. According to Okun's law, the difference between the actual unemployment rate and the natural rate of unemployment is equal to 2 * (the difference between actual GDP and potential GDP) / potential GDP. So, we have:8% - x = 2 * ($480 billion) / $8,000 billion8% - x = 12%x = 8% - 12%x = -4%This means that the natural rate of unemployment in Okunland is -4%. However, the natural rate of unemployment cannot be negative, so the correct answer is that the natural rate of unemployment in Okunland is 0%.

In Okunland,a Country That Operates According to Okun's Law,actual GDP